Law exam 4

Describe bailment and give examples

- A bailment relationship is created when the bailor (owner of the property) entrusts a bailee to temporarily hold the property, usually for the parties' mutual benefit. If parties intend to create a bailment relationship, the bailee owes a duty of care and a duty to act reasonably in protecting the property. For example, Franz brings his gold pocket watch to Max, a jeweler, for repair. Leaving the watch with Max creates a bailment relationship. That is, Franz has entrusted Max with his watch for their mutual benefit. Max will be liable if a burglar breaks in by accidently leaving the door open, but he wont be liable if its locked in a vault

Which kind of easement is written in the deed

- An easement is a privilege to use the real estate owned by another - An express grant is usually expressed in writing on the property deed

What is dissociation and when does it occur

- Dissociation - term used in the RUPA to describe the act of separation of a partner from the partnership. Also, the process in which an individual member of an LLC exercises the right to withdraw from the partnership - Occurs when a partner no longer wishes to be a principal in the partnership

Differentiate between partner separation and dissolution

- Dissociation - term used in the RUPA to describe the act of separation of a partner from the partnership. Also, the process in which an individual member of an LLC exercises the right to withdraw from the partnership - Withdrawal - term used by the RULPA to describe the act of separation of one partner from the partnership

List and give examples of the three major forms of real estate ownership interests most commonly held by businesses and individuals.

- Fee simple - the broadest property interest in land, which endures until the current holder dies without heirs - Life estate - an ownership interest in real estate that lasts for the lifetime of a particular person - Leasehold estate - the qualified right to use real estate in an exclusive manner for a limited period of time. The most common form is a landlord-tenant agreement - Easements - the privilege to use real estate owned by another

What are the factors used in choosing a business entity?

- Formation - Liability - Capitalization - Taxation of income - Management and operation

How capitalize a GP, LP, LLP, sole proprietorship and corporations

- GP, LP, and Partnerships- partners each contribute capital as needed. The partnership agreement governs how and when additional calls for partners' contributions are made. Bank loans secured by partnership assets and/or personal guarantees. - Sole proprietorship - proprietor uses personal assets or bank loans secured by personal assets

Distinguish between personal and tax liability for general and limited partners

- General - pass through entity (a business entity that does not pay corporate taxes, such as a partnership. Rather, any profits are taxed at individual rates after they pass through the business and are distributed to the partners). Income is reported on the individual general partner's personal tax return and taxed based on the individual rate of the general partner. Partnership entity itself doesn't file a tax return, but it does file an information return for purposes of providing the government with documentation regarding how much, when, and to whom profits were paid. Partners also report business partnership losses on their individual tax returns and are permitted to deduct those losses to offset certain types of income - Limited - also are pass through entities. Same as general, profits and losses are reported in the principals personal tax return and tax is paid in accordance with the individual partners individual tax rate. General partner is responsible for filing an information return with taxing authorities, but limited partnerships do not pay corporate taxes

List the elements required to form a general partnership and the statutory requirements for forming a limited partnership.

GP - GP are not created by filing a form with a gov't agency but rather the law recognizes two or more principals as being a general partnership if they have demonstrated an intent to carry on as co-owners of a business for profit (implied partnership) Limited - requires at least 1 general partner and at least 1 limited partner. formed when a general partner files a certificate of limited partnership with the state government authority.

Distinguish between the formation and management of an LLC and the formation and management of an LLP.

LLC - formation: articles of organization. me LLC management: managed through managing members (no officers, directors, or shareholders). Members abide by operating agreement for management and control issues. LLP - formed when a general partner files a statement of qualification LLP Management: managed through managing partners and/or executive committee (no officers, directors, or shareholders). Members abide by partnership agreement for management and control issues

The principals in an LLC are referred to as

shareholders

Describe the liability in regards to a GP, LP a LLP

- General partnership - jointly and severally liable (legal principal that imposes liability on general partners both together (jointly) and separately (severally) for debts and liabilities of the partnership) - Limited partnership - each general partner in a limited partnership is personally liable for all of the partnership's debts and liabilities, just as if the general partners were in a general partnership. However, limited partners do not have the same automatic personal liability of a general partner. Rather, the limited partner's liability is limited to whatever the limited partner contributed to the partnership. - LLP - general idea is that all partners have liability protection for debts and liabilities of the partnership, some states impose conditions on these limits. In cases where a partners has engaged in some misconduct or tortious conduct (such as negligence), the LLP acts to shield only the personal assets of other partners - never the partner who committed the misconduct or negligence

Articulate the legal protections from personal liability afforded to the principals in an LLC and LLP.

- LLC - LLC members and managers are not personally liable for any debts or liabilities of the LLC so long as state law conditions are met. - LLP - LLP partners are generally not liable for the debts of the partnership or the liabilities of the other partners. Partners are personally liable for their own negligence.

Explain the function of an operating agreement and the fundamental structure of an LLC.

- LLC - a multiperson form of business entity that offers liability protection for its principals along with various tax options - An operating agreement is a key document used by LLCs because it outlines the business' financial and functional decisions including rules, regulations and provisions. The purpose of the document is to govern the internal operations of the business in a way that suits the specific needs of the business owners

How are LLCs and LLPs formed? How are a sole proprietorship, or a partnership formed?

- LLC formation - an LLC is formed by filing articles of organization (document filed to create an LLC, in most states, requires only basic information such as the name of the entity, the location of its principal place of business, and the names of its members - LLP formation - LLP are formed when a general partnership files a statement of qualification (document filed to form a limited liability partnership by converting a general partnership) with the appropriate public official - Sole proprietorship formation - since it only requires one person, its easy. A sole proprietorship only requires a minimal fee, involves a straightforward filing requirement with the appropriate state government authority, and typically requires no annual filings. Also, if using a trade name, needs to file a 'doing business as' or DBA certificate - Partnership formation - no formal document or government filing is necessary to form a general partnership. To form a limited partnership, the general partner files a certificate of limited partnership (the document filed with the state government authority by the general partner to form a limited partnership; requires routine information such as the name, address, and capital contribution of each partner) with the state government authority

How is a limited liability company (LLC) is formed?

- LLC is formed by filing articles on organization (document filed to create an LLC; in most states, requires only basic information such as the name of the entity, the location of its principal place of business, and the names of its members. Also called certificate of organization)

Provide the primary methods for capitalizing limited liability entities.

- LLPs - through debt via private or commercial lenders or by a sale of partnership equity for ownership in the LLP itself - LLCs - capitalized through debt via private lenders or commercial lenders or through a sale of equity ownership in the LLC itself

Which entities may be formed with only one participant? Many participants?

- One - sole proprietorship - Many - partnership general and limited, LLP, LLC

What is required for adverse possession

- Open, notorious, and visible possession (true holder of the title cannot be relived of that title unless she can be reasobaly expected to know that another person has taken possession of the real estate and that the adverse possessor intended to assert a claim to its ownership. Ex). 1. Fence, 2. Taxes) - Exclusive and actual - adverse possessor must also show she was in exclusive control of the property and did not share control or possession of the property with the true owner or the public generally) - Continuous - adverse possessor cannot abandon the property for a period of time

Which partnerships are covered by RUPA, RULPA

- RUPA - general partnership - RULPA - limited partnership

Identify the individual rights that landowners have in real property.

- Rights related to the use and enjoyment of the land - Subsurface rights (rights to the soil and any mineral, oil, or natural gas within the soil) - Water rights (riparian rights) - Airspace rights

Describe the benefits and disadvantages of a sole proprietorship, GP, LP, LLP

- Sole proprietorship: benefit - ease of formation and maintenance. disadvantage - complete lack of protection of the principal's personal assets for unpaid debts and liabilities of the business. All debts and liabilities of the business are also personal debts and liabilities of the principal. - GP: benefit - not created by filing a form with a government agency but created when two or more principals demonstrate an intent to carry on as co-owners of a business for profit. disadvantage - GP have no protection of their personal assets for unpaid debts and liabilities of the partnership. RUPA imposes additional liability on general partners by making all partners jointly and severally liable. - LP - each general partner in a limited partnership is personally liable for all of the partnership's debts and liabilities. However, limited partners do not have the same automatic personal liability of a general partner. Rather, the limited partner's liability is limited to whatever the limited partner contributed to the partnership. - LLP - LLP statues provide general partners with the right to convert their entity and gain protective shield ordinarily afforded only to limited partners or corporate shareholders. LLP has the greatest variance of liability protection under state law. If negligence by partner occurs, LLP acts to shield only the personal assets of other partners - never the partner who committee the misconduct or negligence

Distinguish between a sublease and an assignment and explain how each can be used in business planning objectives.

- Sublease - a tenant's transfer of her interests to a third party for anything less than the term remaining on the lease - Assignment - a tenant's transfer of his interests to a third party for the entire term remaining on the lease

Articulate and give examples of the duties, rights, and remedies of landlords and tenants in an agreement to lease real property.

- Tenant duties - pay the rent as agreed upon and to act reasonably in care and use of the property; duty of reasonableness - Landlord rights and remedies - if tenant violates the duties above, common law allows several remedies for the landlord. First, a landlord may keep any security deposit and/or may evict the tenant from the premises. It's the right of the landlord to keep the security deposit and at the end of the lease period, return and deduct for any damages. Landlord must also act within a reasonable time after the end of the lease. Max time to hold the deposit is between 15 and 45 days of the end of the lease.

What is eminent domain

- The authority of the state and federal government to take private property is called the power of eminent domain

How are general partnerships formed

- There is no formal document or government filing necessary to form a general partnership - If fact, parties may not actually intend to be partners, but law recognizes their relationship as implied partnership

Explain the concepts of title, bundle of rights, and ownership by possession.

- Title - the legal term for ownership in property; confers on the titleholder the exclusive use of personal property and the rights to sell, lease, or prohibit another from using the property - Title is thought of as a bundle of rights related to the personal property. That is, the titleholder is permitted exclusive use of the personal property and has the rights to sell, lease, or prohibit another from using the property - There are some instances, however, when the law allows a party to take title solely on the basis of possession

What are riparian rights

- Water rights, also known as riparian rights, landowners have the right to reasonable use of any streams, lakes, and groundwater (water contained in soil) that are fully or partially part of their real property. Reasonable use means that the landowner is entitled to only as much of the water as she can put to beneficial use upon her land while balancing the rights of others who have riparian rights in the same stream or lake (such as an adjacent landowner).

Give examples of two types of laws that regulate the use of real property by its owners.

- Zoning ordinances - Environmental regulations

Describe the taxation of a sole proprietorship, a partnership, an LLP, an LLC

Sole proprietorship - all income taxes of the business are paid at the proprietor's individual tax rate and reported on the proprietor's individual income tax return. Miscellaneous state and local taxes to operate business. Partnership - no taxation at the partnership entity level. All income tax of the business passes through the partnership, is distributed to the partners, and is paid at the individual tax rate of the receiving partner. Partnership files information return to inform IRS of profits or losses. Miscellaneous state and local taxes to operate business. LLC - option of being treated as a corporation or as a pass through entity. May also have to pay miscellaneous state and local taxes to operate business LLP - pass through taxation treatment (no tax is paid on income to the entity, but when the entity distributes dividends, tax is paid at the individual partner's individual tax rate). May also have to pay miscellaneous state and local taxes to operate business

Where was the first LLP legislation enacted

Texas

The RUPA imposes ___________ liability on general partners for debts and liabilities of the partnership

additional