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Flashcards in BLaw - Business Structures Deck (50):

Must have two or more partners. Must intend to engage in business for profit. Life of partnership is of limited duration in most cases. Agency/fiduciary relationship is created. Partnership interest is always considered personal property.

Business Structures


Yes; corporations and other partnerships can become partners of a partnership

Business Structures


Agreement can be very informal - either ORAL; IMPLIED or WRITTEN

Intent is to make a profit

Business Structures


Must be WRITTEN if partnership activity falls within Statute of Frauds:

A. Can't be completed in 1 year

B. Even if partners reside in different states; not necessary unless within Statute of Frauds

C. Neither dollar amount of transactions nor purchasing of real estate has bearing on whether partnership agreement must be in writing

Business Structures


Profit sharing is equal by default

A. Unless partnership agreement says otherwise

B. Unless specified; sharing of losses follows same pattern as sharing of profits

Business Structures


Joint Liability - Partners are collectively liable for debts/torts

Several Liability - Partners are individually liable for debts/torts

Business Structures


Creditors must go after partnership assets first before suing partners individually

Business Structures


General Partners have joint control over the management of the partnership and its affairs

Unanimous vote needed to change the structure of the partnership

Each partner has full right to inspect partnership accounting and business

Partner has the authority to assign their interest to another partner

Business Structures


1. Other party gets that partner's share of the profits and/or capital contribution.

2. Does NOT give assignee authority to vote on partnership business

3. Assignee does NOT have right to inspect partnership books

4. Assignor still maintains liability

5. Partner does NOT have the right to assign their interest in partnership property or allow partner's creditors to attach a lien.

Business Structures


Has authority to bind the partners to a contract.

Business Structures


A third party reasonably believes partner has authority to bind partnership to contract

Cannot use apparent authority to add a new partner

Cannot use apparent authority to sell or bind partnership assets

Business Structures


Partner not liable assuming notice given.

Notice must be given to nullify apparent authority

People who had knowledge of their role must be personally notified

Public must be notified

Business Structures


Old partners: Jointly and severally liable unless creditors grant novation

New partners: Only capital account at risk on preceding debts. For subsequent debts; they are joint and severally liable.

Business Structures


Partner's estate gets share of partnership profits and capital account

Estate does NOT get any partnership assets

Remainder of partners own partnership assets

Heirs of decedent are not added as partners unless remaining partners unanimously agree

Business Structures


1. Creditors get paid; Partners can also be creditors

2. Distributions in arrears get paid

3. Partners get return of Capital accounts

4. Any remaining distributions

Note: NO documents need to be filed with state to dissolve general partnership.

Business Structures


Governed by state L.P. laws

Must file L.P. certificate with Sec. of State

Only General Partners must be listed

Future additions or subtractions of G.P. require certificate to be updated with state

Business Structures


Unlike G.P.; L.P. profits/losses are split according to capital contributions by default

Business Structures



A Limited Partner; however; cannot also be a General Partner and maintain limited liability.

Business Structures


No. Limited Partners are do not have a fiduciary responsibility to Limited Partnership

Business Structures


1. Right to inspect records of the business.

2. Can still vote on partnership business without losing limited liability

3. Can consult and advise partnership without losing limited liability (assuming they don't actually make the decisions)

Business Structures


1. They have no authority as an agent to bind the partnership

2. They can't participate in management decisions and maintain limited liability.

Business Structures


Limited partners are liable to the extent of their capital contributions only

Exception - A Limited Partner (who cannot participate in management decisions) becomes involved with management decisions

Becomes liable to third parties *IF* they knew of their involvement

Business Structures


Automatically happens

1. Once final General Partner leaves
2. Time specified in certificate lapses
3. Event specified in certificate happens
4. Unanimous consent by partners
5. Illegal activity

Business Structures


1. Majority vote required to form LLP
2. Articles of LLP filed with Secretary of State
3. Governed by laws of that State
4.Limited Liability Partnership must be in name
5. No General Partners - each LLP partner has limited liability - Exception: Negligence of partner or those under partner's supervision

Business Structures


Members can participate in management and retain limited liability

Members don't own any interest in LLC property

Members can assign interest; but not transfer it

Members divide profits equally unless otherwise stated

Business Structures


Similar to a General Partnership; except generally; a JV is for a single business activity
Example: two companies promote a concert

Ability to bind other JV partners is limited

JV partners still have a fiduciary responsibility to JV

No state filings or paperwork necessary

Business Structures


Shareholders have limited liability to the extent of their capital contribution

C Corporations have a perpetual life and continue even after shareholder death

Corporations are a separate legal entity from their owners and can own property; sue; be sued

Corporations must file Articles of Incorporation in state of governance

Business Structures


Ability to raise capital

Limited liability - unless actions occur that pierce the veil

Ease of ownership transfer

Business Structures


Commingling of assets



Business Structures


Board adopts Corporate Bylaws to govern company business

Business Structures


Name; purpose; powers of Corporation

Name of registered agent & incorporators

Stock share classes authorized; par values

Name of corporate officers NOT required

Business Structures


Double taxation

Business Structures


Promoter issues prospectus; arranges capital; and is a fiduciary of the corporation.

A promoter may profit from work performed if the corporation is aware of it.

Business Structures


Promoter personally liable unless third party agrees to a novation and releases Promoter
from liability; UNLESS the corporation adopts.

Business Structures


Corporations are only incorporated in one state

Become adomestic corp. in that state

Become aforeign corp. in any other state they do business in

Business Structures


Dividends are NOT a shareholder right

Once declared; dividends become a liability to corporation

Business Structures


No voting rights

Get first rights to dividends and liquidation

Cumulative Preferred Stock dividends that go undeclared accumulate and Corporation must pay it before issuing dividends to Common Stockholders

Participating Preferred Stock gives shareholder right to dividends in addition to what they get as Preferred Stockholders

Business Structures


Valid consideration must be given for shares

Cash; property; or prior services performed

No promises to pay or perform services

Business Structures


No Gain/Loss recognized on Treasury stock

Have no voting rights

Can be re-purchased below par

Cannot produce dividends

Business Structures


An offer to buy shares of stock

Must be accepted by corporation to be valid

Offer cannot be revoked for 6 months

Subscriber becomes liable once accepted

Business Structures


If committed within the normal scope of the employee's job

Even if they were disobeying orders

Per respondeat superior

Business Structures


Appointed by the Board of Directors

Act as Agents

Owe a fiduciary duty to the corporation

Can have legal fees paid by corporation for defense in lawsuit brought on them from carrying out their normal duties (exception- suit brought against officers by shareholders)

Business Structures


Elected by shareholders

Owe fiduciary duty to corporation

Must act in good faith to avoid being liable for bad judgment

Good faith is NOT a defense for negligence

Business Structures


Corporation management acting beyond what the Articles of Incorporation allow

Shareholders can sue for Ultra Vires

Business Structures


Shareholders can inspect Board minutes and records only if request is in good faith

Business Structures


Boards must approve

Shareholders must approve by Majority

Disapproving shareholders can get an appraisal and get their stock back at current market price

Merger does NOT need creditor approval

Business Structures


Shares owned only by licensed professionals (CPAs; attorneys; etc.)

Limited Liability for debts

Personal Liability for negligence

Business Structures


CAN be owned by Estates; Trusts; and Individuals

CANNOT be owned by a C-Corporation

Business Structures


Avoidance of Double Taxation

Business Structures


No more than 100 shareholders allowed

One class of stock allowed

Shareholders must be US Citizens/Residents

Business Structures