Business Law X: Business Structure Flashcards Preview

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Flashcards in Business Law X: Business Structure Deck (31):
1

Sole Proprietorship

Advantages:
1. Total Control
2. Simplicity
3. Taxation

Disadvantage:
1. General Liability

2

General Partnership

Advantages:
1. Pass-through taxation
2. Simplicity

Disadvantage:
1. General Liability

3

Limited Partnerships

Advantages:
1. Pass-through taxation
2. Limited liability as long as partners do not take part in management

Disadvantages:
1. Formality
2. Authority
3. General Liability - at least one managing partner

4

Limited Liability Partnerships

Advantages:
1. Pass-through taxation
2. Limited liability - other than torts they commit
3. Authority - may be active without forfeiting limited liability

Disadvantages:
1. Formality
2. Insurance requirement

5

Limited Liability Limited Partnership

Advantages:
1. Pass-through taxation
2. Limited liability

Disadvantages:
1. Not offered in all states
2. Formality

6

Corporations

Advantages:
1. Limited liability - other than piercing of corporate veil
2. Legal personality
3. Perpetual duration

Disadvantages:
1. Double taxation
2. Formality

7

S Corp

Advantages:
1. Limited liability
2. Single taxation

Disadvantages:
1. Formality
2. Individual taxation
3. Special requirements

8

LLC

Advantages:
1. Pass-through taxation
2. Limited liability

Disadvantages:
1. Formality

9

Sole Proprietorship Operation

Sole owner makes all important decisions/delegates

10

General Partnership Operation

1. Absent agreement, all partners have equal rights in mgmt/conduct of business affairs
2. Absent agreement, majority vote governs all ordinary matters
3. Unanimity needed to take actions contrary to partnership agreement

11

Limited Partnership, LLP, LLLP Operation

1. One or more general partners make mgmt decision, limited partners are passive investors
2. If limited partners become active, may forfeit limited liability

12

Corporation Operations

1. Shareholders elect directors, who elect officers, and officers make day-to-day decisions
2. Small corps, same people may hold all roles

13

LLC Operations

1. May either be owner-managed or manager-managed
2. Terms set forth in operating agreement filed with Secretary of State
3. Legal uniformity lacking across nation
4. Most states allow single-member LLC

14

Partnership Termination

Dissociation of a partner leads to either buyout or dissolution.

15

Corporation Termination

Voluntary - approval of directors/shareholders

Involuntary - administratively dissolved by secretary of state
- failure to pay franchise taxes
- failure to file annual reports
- failure to establish/maintain registered agent/office

Judicially
1. Attorney General for fraudulent approval of articles of incorporation or abusing legal authority
2. Shareholders for mgmt deadlock, illegal/oppressive controllers, inability to elect directors
3. Creditors
4. Insolvency

16

Partnership: Capital Accounts

1. Credited amount = money + value of property - liabilities contributed by partner + partner share of profits
2. Charged amount = money + value of property - liabilities distributed to partner + partner share of losses

17

Types of corporate securities

1. Equity Securities = Common Stock, preferred stock, treasury stock
2. Debt Securities = Notes, Debentures, Bonds

18

Redeemable Shares

must be repurchase by corporation under specified conditions at specified prices if shareholder so desires

19

Callable Shares

redeemable at corporation's option

20

Convertible Shares

debt securities convertible to equity securities at specified ratios at request of holder

21

Warrants, rights, options

legal entitlements to purchase equity securities at specified price/time at request of holder

22

Consideration for Shares

Shares must be issued only in exchange for consideration that meets both:

1. Quality Tests
2. Quantity tests

23

Partnership Information Rights

1. Partners/Agents entitled to access to books
2. Each partner must provide any info about business affairs or other info reasonably demanded

24

Partnership Standards of conduct

1. Duty of Loyalty
2. Duty of care

25

Corporate Shareholder Rights

1. Vote for directors
2. Inspect corp records
3. Have financial priorities respected
4. Exercise appraisal rights when they dissent from major changes
5. File derivative lawsuits against officers/directors who have injured corp
6. Exercise preemptive rights to buy their proportional share of new securities

26

Corporate Director Duties

1. Duty of Attention (must direct)
2. Duty of Care
3. Duty of Loyalty

27

Corporate Director Rights

1. Right to rely (upon reports of officers)
2. Business Judgement rule
3. Liability protection

28

Agency Law in Partnerships

Governs regarding authority of partners to bind the partnership

1. act of partner for apparently carrying on in ordinary course binds the partnership

2. act of partner not apparently carrying on in ordinary course binds partnership ONLY if act was authorized by other partners

29

Partnership Tort Liability

Partners generally liable for torts committed by partners:

1. Intentional Tort - partnership liable
2. Misapplication of funds - innocent customer gets most protection
3. Joint/Several liability - creditor may sue general partner without suing others
4. Late arrivers - liable for subsequently-incurred debts

30

Corporate Director authority

1. Borrow money
2. Sell corporate property
3. Hire/fire officers/employees
4. Declare/refuse to declare dividends
5. Make/refuse to make other distributions
6. Set salaries
7. Propose for shareholder approval sale of major assets, mergers/consolidations, dissolutions, amendments to articles of inc

31

Corporate Officer authority

Express: Articles of Inc, By-laws, Directors' resolutions, statutes

Implied: Derived by virtue of their offices (CEO, CFO)

Ratification: Even if officer acts w/o either express or implied authority, BOD could bind corp by ratifying contracts