Business Entities and Negotiable Instruments

Question 1

Ordinarily, how is the BoD of a corp elected and removed and by what vote?

Answer 1

Ordinarily (UOA in arts) directors are elected by the SHs for 1 year terms at the annual SHs meeting either by straight (default) or cumulative voting. Straight voting req’s a plurality of votes cast.

Directors can be removed with or w/o cause by the SHs at a special meeting called for that purpose by majority votes (unless special class involved/director voted in thru cumulative voting process).

Question 2

Ordinarily, how are the officers of a corp elected and removed and by what vote?

Answer 2

The officers are elected/removed by a majority vote of the present BoD (or by a quorum of the BoD if some of them have left) and can be removed with or w/o cause, subject to any employment Ks.

Question 3

Does a director, acting alone, have the authority to sign Ks on behalf of the corporation?

Answer 3

No, a director acting alone does not have authority to act as a mandatary to bind the corp unless that director is also an officer. Generally, officers and employees of the corp are the only individuals with authority to bind the corp in regards to 3Ps

Question 4

Is a director of a corp automatically entitled to reimbursement from the corp for reasonable attny’s fees after successfully defending a law suit brought by a 3P by his status as a director?

Answer 4

Yes. Such reimbursement is expressly provided in the LA Business Corporations Laws (LBCL).

Question 5

Ordinarily, which of the following is for the debts and liabilities of a corporation:

the SHs, the BoD, the officers or employees?

Answer 5

None of these folks is ordinarily liable for the debts and liabilities of a corp. A corp is considered a juridical person that is separately and solely liable for its debts.

Question 6

Ordinarily, can a SH of a corp withdraw from the corp and require the corp to purchase his stock in the corp?

Answer 6

No. Ordinarily (UOA in arts) a SH can transfer his stock to any willing buyer but he does not have the right to compel the corp to buy back his stock. An exception arises if the SH has “dissenter’s rights” bc the corp has (by vote of less than 80% of its authorized voting shares) approved a sale, lease, exchange of all or substantially all of its assets OR has become a party to a merger, any SH who voted against or filed an objection to it has dissenter’s rights. A SH with dissenter’s rights can demand that the corp purchase his stock from him at FMV

Question 7

Which of the following have a direct ownership interest in the assets of the corp:

SHs, BoD, officers or employees?

Answer 7

None of these folks have a direct ownership interest in the assets of the corp because a corp’s assets belong to corp itself. The SHs themselves are equity owners of the corp but their ownership interest is in the corp itself, not the specific assets belonging to the corp.

Question 8

Ordinarily, by what vote do partners of a partnership make decisions?

Answer 8

Partners generally each get 1 vote per partner and voting is done by majority except for amending partnership agreement, adding a new partner, or termination.

Question 9

Ordinarily, can be partners be expelled from a partnership and if so by what vote?

Answer 9

Yes a partner may be expelled by a majority vote of the partners (including the partner up for expulsion) but only for just cause

Question 10

Does a partner in a partnership, acting alone, have the authority to sign Ks on behalf of the partnership?

Answer 10

Yes. Generally partners in a partnership may act alone as a mandatary for the partnership and bind the partnership to all matters in the ordinary course of the partnership’s business except for the alienation, lease, encumbrance of partnership immvbls

Question 11

Is a partner in a partnership automatically entitled to reimbursement from the partnership for reasonable attny’s fees after successfully defending a law suit brought by a 3P by his status as a partner?

Answer 11

No unlike a corp there is no authomatic reimbursement for a partner who successfully defends a suit

Question 12

Ordinarily, are partner’s liable for debts and liabilities of a partnership?

Answer 12

Yes (unless the partner’s form a commendam partnership) the partners are each secondarily liable for the debts of the partnership to the extent of his virile share

Question 13

Ordinarily can a partner withdraw from a partnership and require the partnership to purchase his interest?

Answer 13

With a term: a partner may withdraw without consent if another partner fails to perform a material obligation and require that his interest be bought out.

Without a term: a partner may withdraw at any time (provided he give reasonable notice) that does not disadvantage the partnership and require that the partnership buy out his interest for FMV

Question 14

What is a registered limited liability partnership?

Answer 14

It is an entity that is converted from a general partnership or a partnership in commendam to shield the partners from the tort liability of other partners. It is formed by filing an application with the SOS (good for 1 year) and paying a $100 fee.

Question 15

What type of liability can be limited through the use of a registered limited liability partnership?

Answer 15

Personal liability arising from another partner or agent’s tortious conduct

Question 16

What are the advantages of being a HDC

Answer 16

A HDC can enforce an instrument free of claims to the instrument and not subject to many defenses to payment (except for those real defenses: infancy, illegality, fraud in fact, and discharge in bankruptcy or other insolvency proceedings)

Question 17

What requirements must a holder of instrument meet to become a HDC

Answer 17

Hairy Vaginas Give No One Substantial Pleasure, Duh

Holder
Value
Good Faith
No notice that:
Overdue
Signature forged
Property Rights 
Defenses

Question 18

M owes S $100 which he promises to pay on 8/4/14. Draft the 1 sentence body of a negotiable note to evidence M’s obligation.

Answer 18

I, M, promise to pay the order of S $100 on 8/4/14.

/s/ M

Question 19

What are the requirements for an instrument to be negotiable?

Answer 19

We Use Pussies For Bustin Deez Nuts

Written and signed
Unconditional
Promise or Order to pay
Fixed amount of $ payable to 
Bearer or Order 
Definite time (demand or determinable)
No extraneous undertakings

Question 20

What is bearer paper?

Answer 20

Bearer paper is a negotiable instrument that can be enforced by whoever is in possession of it. It might be payable “to bearer” or the identity of the payee might be left blank (or the payee indorsed it)

Question 21

As a general rule, does the bank or a depositor suffer the loss for payment of an instrument bearing a forged signature?

Answer 21

Generally the bank suffers the loss for payment of an instrument bearing a forged signature. Only persons who sign an instrument are liable so a check not signed by the depositor is not properly payable from the depositor’s account.

Question 22

What is fraud in the factum and what effect does it have on a HDC?

Answer 22

It is fraud that goes to the very nature of the document and the signor had no reasonable opportunity to discover the true nature of the document. It is a real defense that may be asserted against a HDC.

Question 23

What is fraud in the inducement and what effect does it have as a defense against a HDC?

Answer 23

Fraud in the inducement is the more common form of fraud, going only to the reason why an instrument was issued. Fraud in the inducement is not a “real defense” and therefore may not be asserted against a HDC.

Question 24

What are the requirements for forming a partnership in commendam?

Answer 24

The partners must draft a written partnership agreement and file with the SOS. The agreement has to specify:

1) name and address of the partnership;
2) Name and address of all the members;
3) That it is a commendam partnership
4) Describe each commendam partner’s contributions and the value thereof (anything except MGMT services)

Question 25

What activities could cause a limited partner in a commendam partnership to be held personally liable as a general partner?

Answer 25

1) Engaging in MGMT services
2) Allowing his name to be used in business transactions that implies he is a general partner
3) Transacting biz on behalf of the partnership with 3Ps who thereby reasonably believe the commendam partner is a general partner

Question 26

What is a proxy and can it be used by a SH?

Answer 26

A proxy is a written doc filed with the corp sec that transfers the power to vote the SH’s stock at a SH meeting to some other SH.

Question 27

What is cumulative voting and is it available SHs?

Answer 27

Must be expressed in the arts bc “striaght voting” is the default rule. A cumulative vote means that all BoD seats up for election at a given time are elected simultaneously w all candidates running for all seats. Each share is entitled to as many votes as the # of seats up for election, and those votes can be cast for 1 candidate or split among them.

Question 28

What is the default term for a BoD position?

Answer 28

The default term for a board member is 1 year but that is subject to change in the arts up to a maximum of 5 years

Question 29

What are preemptive rights for a SH?

Answer 29

Must be stated in the arts and they provide that a SH has right to purchase same % of newly issued stock. If no limits given, SHs have no rights to issuance of shares:

1) issued for consideration other than $
2) issued to satisfy a right to convert bonds into stock
3) treasury shares
4) issued as compensation under an e/ment K
5) that are nonvoting shares

Question 30

Discuss the general rules of the heritability of interests in corporations, partnerships, and LLCs.

Answer 30

Upon the death of a SH:
Ordinarily his shares would pass to his heirs who would have the same rights as the decedent.

Upon the death of a partner:
His rights in a partnership would ordinarily terminate and his heirs would receive the cash value of his partnership interest. The partnership continues as long as there are 2+ remaining partners.

Upon the death of a member of an LLC:
His membership ceases. LLC must buy heir out at FMV if not unanimously voted in