Section 2 Biz Structure Flashcards
Liability of directors.
A director is individually liable if the director engages in illegal conduct or conduct that is a breach of fiduciary duty to the corporation: Three instances
Illegal dividend that makes corp. insolvent
Illegally buy shares of hte corp
Pay off shareholders before creditors
A ____ occurs when a subsidiary that is 90% or more controlled by another company(not parent) is merged into the parent company
Do you need shareholder approvals?
short form merger
Nope
What is an appraisal right?
What act was passed for this to happen?
minority shareholder has a right in every case to dissent and be paid the so-called fair value for their shares on the date of the merger or consolidation
(under the Revised Model Business Corporation Act)
The dissolution of a partnership does/does-not discharge the personal liability of partners for unpaid obligations of the partnership.
each partner still has/doesn’t have have the apparent authority to make contracts
Does not
Still has
Under the revised model business corporation act, a corporation may be authorized to ____its officers for liability incurred in a suit of stockholders.
Officers of a corporation can be held liable to the corporation for failure to carry out their duties in a non-negligent fashion. T/F
indemnify
True…but corp will indemnify the officer.
hich of the following may not own shares in an S corporation?
Individuals
Estates
Trusts
Corporations
Who also cannot be a holder?
Corporation
Illegal Aliens & Partnerships
Wind, who has been a partner in the PLW general partnership for four years, decides to withdraw from the partnership despite a written partnership agreement that states, “No partner may withdraw for a period of five years.” Under the Uniform Partnership Act, what is the result of Wind’s withdrawal?
Wind’s withdrawal causes a dissolution of the partnership despite being in violation of the partnership agreement.
Causes of dissolutions of partnerships (3)
Partnership agreement (non-violation) - Agreed upon time limit/completed. Partner quits w/ no duration specs. Mutual agreements. Partnership Agreement (violation) - Partner has the power, but not the right. May be liable for damages
Operation of Law - done w/o agreement of partners. Biz becomes illegal / Bankruptcy / Deaths / Court Decree
OPERATION OF LAW - DISSOLUTION
When would a partner obtain a court decree (5)
Equitable to terminate partnership Serious misconducts of partners Incapacitates of partners Business is impractical Partners continuously breach agreement
To which of the following rights is a stockholder of a public corporation entitled? T/F
The right to have annual dividends declared and paid
The right to vote for the election of officers
The right to a reasonable inspection of corporate records
The right to have the corporation issue a new class of stock
F - Dont need dividends
F - Board elects officers. Stockholders elect BoD
T
F -No rights here
Downs, Frey, and Vick formed the DFV general partnership to act as manufacturers’ representatives. The partners agreed Downs would receive 40% of any partnership profits and Frey and Vick would each receive 30% of such profits. It was also agreed that the partnership would not terminate for five years. After the fourth year, the partners agreed to terminate the partnership. At that time, the partners’ capital accounts were as follows: Downs, $20,000; Frey, $15,000; and Vick, $10,000. There also were undistributed losses of $30,000. If Frey died before the partnership terminated:
Automatic dissolve
Under the typical state partnership laws, death automatically dissolves a partnership. If the partners wanted to continue the partnership after the death of a partner, they can agree to form a new partnership.
Fairwell is executive vice president and treasurer of Wonder Corporation. He was named as a party in a shareholder derivative action in connection with certain activities he engaged in as a corporate officer. In the lawsuit, it was determined that he was liable for negligence in performance of his duties. Fairwell seeks indemnity from the corporation for his liability. The board would like to indemnify him. The articles of incorporation do not contain any provisions regarding indemnification of officers and directors. Indemnification:
may be permitted by court order despite the fact that Fairwell was found to be negligent. (Note: Not guaranteed)
A corporate officer generally may not be indemnified by the corporation if there is misconduct by the officer. This indemnification would have to be permitted by ____
court order.
Piercing the corporate veil means:
Involving personal funds/property etc in with the corporation.
Using the corporation funds/assets for personal use
Under the Revised Model Business Corporation Act, which of the following conditions is necessary for a corporation to achieve a successful voluntary dissolution?
A recommendation of dissolution by the ____and approval by a ____entitled to vote
board of directors
majority of all shareholders
TERMINATION OF A CORPORATION
___ are filed with the secretary of state after a corporation has been dissolved.
requires the corporation to __and liquidate its __.
A corporation that is doing business can be dissolved by a ___of the directors approved by ___vote.
The ___has the power to force a corporation to dissolve involuntarily through administrative or judicial proceedings
Creditors may obtain a judicial dissolution if the corporation is _
Articles of dissolution wind up its business affairs, liquidate assets resolution, shareholder majority secretary of state insolvent.
What 4 reasons can the secretary of state dissolve a corporation?
- Fail to file annual report
- Fail to pay taxes
3 Fail to appoint a registered agent in the state - Obtain article of incorporation by fraud
A limited partnership must have ___general partners and ___limited partners.
A withdrawal of the only ___would cause the partnership to dissolve, while a withdrawal of a ___would not
T/F. A mutual agreement of all partners (versus a majority or two-thirds) may terminate the partnership.
one or more
one or more
general partner
majority of the limited partners
True
Unless prohibited by the organization documents, a stockholder in a publicly held corporation and the owner of a limited partnership interest both have the right to assign their
interest in the biz
What type of business organization may generally be formed without filing an organizational document or certificate with a state government agency or office?
how?
General Partnership
association of two or more persons to carry on as co-owners a business for profit becomes a partnership, whether or not it was the intention
A new partner is not ____for partnership liabilities which existed before he was admitted to the partnership, unless he voluntarily assumed these liabilities upon admission to the firm.
personally liable
New partners are liable for all partnership obligations that arose ___ admission, but only to the extent of their share of the partnerships’ assets.
Is the new partner’s individual assets available to satisfy these claims?
before
Can an insane person be a partner?
Can a minor be a partner?
Insane: Cant e a partner - if a person becomes insane AFTER making the contract, the other partners may dissolve
Minor: Minor can be a partner, but can disaffirm the contract
What is the correct order for the ending of a partnership?
Dissolution, winding up, termination
Dissolution: Partners decide to discontinue
Winding up: Settling partnership affairs
Termination: Winding up period ends
What is the correct order for the ending of a partnership?
Dissolution, winding up, termination
Dissolution: Partners decide to discontinue
Winding up: Settling partnership affairs
Termination: Winding up period ends
Can articles of incorporation be amended by BoD? Can BoD: 1. Repeal bylaw? 2. Declare dividend 3. Fix compensation of director?
No - its amended by shareholders
Yes to all 3
When a partner in a general partnership lacks actual or apparent authority to contract on behalf of the partnership, and the party contracted with is aware of this fact, the partnership will be bound by the contract if the other partners:
ratify the contract.
amend the partnership agreement.
Ratify contract.
Amending partnership agreement would allow partner to ahve actual authority – wouldn’t affect the contract
Downs, Frey, and Vick formed the DFV general partnership to act as manufacturers’ representatives. The partners agreed Downs would receive 40% of any partnership profits, and Frey and Vick would each receive 30% of such profits. It was also agreed that the partnership would not terminate for five years. After the fourth year, the partners agreed to terminate the partnership. At that time, the partners’ capital accounts were as follows: Downs, $20,000; Frey, $15,000; and Vick, $10,000. There also were undistributed losses of $30,000. Which of the following statements about the form of the DFV partnership agreement is correct?
It must be in writing because the partnership was to last for longer than one year.
It must be in writing because partnership profits would not be equally divided.
It must be in writing because the partnership was to last for longer than one year.
The planned termination of a partnership is unusual and would necessitate a partnership agreement. For the agreement to be enforceable, a written agreement is required under the statute of frauds.
As long as there is no dispute between the partners, it is not necessary to have an agreement in writing because partnership profits would not be equally divided, in an oral arrangement because the partners had explicitly agreed to do business together,
A limited partner, in order to maintain limited liability, can have/cant have management rights
Cant have
When two corporations merge, the merger plan must be approved by the ___ of both corporations, and also by the ___of both corporations. A unanimous vote is/isnt required.
Assuming that the approval of the shareholders is sought at a special meeting, the shareholders must be given due __ of the meeting, plus a ___ of the merger plan.
shareholders, boards of directors, isn’t required
notice, copy or summary
Case Corp. is incorporated in state A. Under the Revised Model Business Corporation Act, which of the following activities engaged in by Case requires that Case obtain a certificate of authority to do business in state B?
Hiring employees who are residents of state B
Maintaining an office in state B to conduct intrastate business
Maintaining an office in state B to conduct intrastate business
A ____is obtained primarily to avoid losing the right to use state B’s courts and to keep the corporate shield intact.
A foreign corporation engaged wholly in interstate commerce doesn’t need a .
Only the state of incorporation can regulate the ___of a corporation.
certificate of authority
certificate of authority
internal affairs
A corporation is permitted to enter into a contract for services or goods with a board member… T/F. What type of transaction is this called?
to eliminate ____, the director must disclose his or her interest in the contract to the board and refrain from voting.
T. Related party transaction
conflict of interest
What does the biz. judgment rule do? When does this rule apply (3)
Protect directors from shareholder lawsuits from a lack of due care.
- When board makes informed decision
- No conflict of interest
- Rational basis for board’s decision
Partners may/may-not sell or assign rights to partnership property
a partner may sell, assign, or pledge the individual partnership ___or “partnership interest,” UNLESS ___
A partner may assign or transfer all or part of his/her interest in the partnership to someone else. T/F
May NOT
distribution, unless the partnership agreement says they cant
True - Note: This won’t dissolve partnership
For a partner to transfer his interest in the partnership
Do they need approval from other partners?
Does the assignee automatically become a partner?
If the assignee accepts, what do other partners do?
What is the assignees share?
No - Note: Dont need approval for this, but see #3
No - they have to accept
Other partners agree for assignee to become partner
Assignee’s share is the partner’s share that transferred.
Cobb, Inc., a partner in TLC Partnership, assigns its partnership interest to Bean, who is not made a partner. After the assignment, Bean asserts the rights to:
participate in the management of TLC.
Cobb’s share of TLC’s partnership profits.
Only Cobb’s share – this is b/c they weren’t made a partner.
Carr Corp. declared a 7% stock dividend on its common stock. The dividend:
must be registered with the SEC pursuant to the Securities Act of 1933.
is includable in the gross income of the recipient taxpayers in the year of receipt.
has no effect on Carr’s earnings and profits for federal income tax purposes.
requires a vote of Carr’s stockholders.
No effect on carr’s earnings and profits for Fed income tax purpose
Can dividends be paid in property/shares?
Cash and property dividends are paid out of ___
Dividends are ___ when received
Yes
retained earnings
taxable
