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Flashcards in Business Structure and Other Law Topics Deck (76):

Sole Propertiership

1) The sole proprietor is personally liable for all obligations of the business.
2) Cannot exist beyond the life of the sole proprietor.
3) P&L from the business flow through the business to the sole proprietor.
4) A sole proprietor is free to transfer his interest in the sole proprietor at will.


Joint Venture

A joint venture is an association of persons or entities with the intent of engaging in a single business venture for profit.


Different between Joint Venture and Partnership

Formation of a joint venture is for the purpose of a single transaction or project.


General Partnership

1) Papers need not be drawn up to form a general partnership.
2) Nothing need be filed with the State.
3) An express agrement is not required; an agreement can be implied from conduct.


Financing the partnership

Not required to make any particular financial contribution in exchange for their partnership interest.


Operation of a General Partnership

Absent an agreement to the contrary, all partners have equal rights to manage the partnership business.


Areas requiring unanimious consent

1) Admitting new partners.
2) Confessing a judgment
3) Making a fundamental change in the partnership.
4) Changing the partnership agreement
5) Assigning partnership property to others.


Agency law in a general partnership

A principal is bound by Actual authority and apparent authority.

Actual authority- includes all authority that a princpal expressly gives to an agent plus any authority that can reasonably be implied from the express grant.

Apparent authority- Act of a partner apparently carrying on in the ordinary course of business the business of the partnership will bind the partnership through apparent authority.

Partner has not right to enter transactions outside of normal course of business.


Rights in Partnership Property

Partnership is treated as owning all money and property. Partners are not treated as co-owners of partnership property. Partners have no right to possess or use partnership property other than for partnership purposes.


Rights in Partnership Interest

A partner has personal property interest in the partnership consisting of the partner's right to his share of the profit and surplus.

Interest is assignable to another partner, of which an assignee has rights to partner's share of profits. The assignee has no management rights.


Creditors may attach a partner's interest-Called a Change Order

A creditor of an individual partner may obtain from a court a charging order against an individual partner's share of profits.

1) Does not cause a dissolution of the partnership.
2) Does not make a creditor a partner or allow the creditor to participate in partnership affairs.


Partner Death

On partner's death right to profits vests in the heirs. As previously noted, the right to partnership property vests in surviving partners.


Other rights of Partners

1) Right to Indeminfaction and Contribution
2) Right to Inspect Books and Records
3) Right to Bring Legal Action Against Partnership


Duties and Legal Obligations of Partners

1) FIdicuary Duties Owed to Other Partners
2) Each Partner Personally Liable for All Partnership Obligation. All are liability is joint and several.


Profits and Loss Allocation

Absent and agreement to the contrary, all partners have equal rights to share in the profits and losses of the partnership.



Partners have no specific right to receive distributions from the partnership other than as they agree.



Change in the relationship of the partners caused by any partner ceasing to be associated in the carrying on of the business.

Events of Dissociation

1) Partner notifies the partnership that they want to withdraw.
2) An event occurs that was set out in the partnership agreement as an event that would cause a dissociation.
3) Partner is expelled from the partnership by unimous vote or as provided in the partnership agreement.
4) Partner becomes a debtor in bankruptcy or the like;
5) Partner dies


Wrongful Dissociation

Partner will be deemed to have wrongfully dissociated if the dissociation is a breach of an express term of the partnership.



Must be wound up when any of the following happen

1) Partner in a relationship at will gives notice of intent to withdraw.
2) In a partnership of definite term i) all partners consent to dissolution ii) term has expired iii) 90 days have passed since a partner has died, been declared bankrupt or has wrongfully disociated.
3) Occurance of an event specified in a partnership agreement.
4) Judicial decree on application of a partner or a creditor to dissolve.

All partners, surviving partners or executors may wind up the partnership


Distribution of Assets

1) Creditors, including partners who are creditors are paid first.
2) Each partner is entitled to payment.
3) Amount due= deduct from the assets left upon dissolution any amounts owed to creditors.
4) If any money remains, funds are divided among the partners.


Limited Liability Partnership

Differences to a GP:
1) Partners not liabilites for acts of fellow partners, employees or agents.
2) Liable for Own negligence and negligence of those under direct control
3) Generally not personally liable for debts and contractual obligations
4) LLP must file with state
5) Must provide name, name and location of its office number of partners etc.
6) Partnerships can convert to LLP.


Nature of a Limited Partnership

1) Generally no perpetual life
2) Similiar to a Corporation


Formation of a Limited Partnership

1) Must file with state
2) Must include that entity is an LP, agent of service of process, address of office, name and business of each general partner
3) Latest date upon which the limited partnership is to dissolve.
4) Partners in a limited partnership can contribute cash, property or services already performed. Many also permit promissory notes.


General Partners in an LP

1) Personally liable for all partnership debts. If there is a loss, only the general partner can be held personally liable.
2) May also be a limited partner at the same time.
3) May be a secured or unsecured creditor.


Limited Partners

1) Liability is limited to his investment and unpaid capital.
2) Has no right to part in management of business. Is not an agent of the business.
3) A limited partner who participates in control of the business is liable to any creditor who reasonably believes he is a general parter.
4) Limited partner may vote on extraordinary matters without occurring liability.
5) May assign his interest in the partnership
6) New partner can be added only upon the consent of all partners
7) Limited partner does not owe a fidicuary duty to the partnership.


Allocation of Profits and Losses

Absent agreement, based upon capital contributions.


Termination of Limited Partnership

May be dissolved:

1) Occurance of event or time period stated.
2) Written consent of all partners
3) Withdrawal or death of general partner
4) Judicial decree

Death of a limited partner will not dissolve the partnership.


Distribution of Assets

1) Creditors- includes partners who are creditors
2) Former partners- in satisification of liabilties
3) Partners- First return contributions, and then to distribute profits

If there is a loss, general partners are personally liable, limited partners are not personally liable beyond capital commitments.


Limited Liability Company

1) Limited liability that shareholders of a corporation enjoy
2) Ability to be taxed like a partnership (P&L flows through the LLC)


Formation of an LLC

Must file articles of organization with the secretary of state

1) Statement that the entity is an LLC
2) Name of the LLC
3) Street address of office and its registered agent
4) If Management is to be vested in managers, a statement to the effect
5) Name of managers of company.
6) Most states allow one person to form an LLC.
7) Members may contribute, property cash or services, or promissory notes.


Operation of an LLC

1) All members may participate in management
2) Voting strength proportional to contributions
3) P&L allocated according to contributions
4) No right to distribution
5) Transferibility of Ownership and rights- must have consent of all other members.
6) Books and Records- each member is entitled to inspection of books and records.


Termiantion of LLC

Will dissolve upon:

1) Expiration of the period of duration stated in the articles.
2) Consent of all members
3) Death, retirement, resignation, bankruptcy, incompetence
4) Judical decree or adminstrative order dissolving the LLC for violation of law.


Nature of a corporation

1) Only the corporation is liable for corporate obligations.
2) No personal liability.


C Corporation Taxation

A corporation is taxed as an entity distinct from its owners. It must pay taxes on any profits it makes. Stockholders generally did not have to pay tax on the profits of the corporation until they are distributed.


S Corporation Taxation

Restrictions on S Corporations:

1) Stock can be held by no more than 100 persons
2) Shareholders must be individuals,estates or certain trusts.
3) Corporation must generally be domestic corporation
4) There can only be one class of stock
5) Foreign Shareholders are generally prohibited.


Power of Corporation

Power to run corporation is vested in the board of directors, which is elected by shareholders.


Perpetual Life

Corporation generally has perptual life.


Formation of Corporation

1) Corporation are created by complying with a state incorporation statute
2) Promoters promote Capital Committments (IPO)
3) Articles of Incorporation- must file incorporation with the state.


Ultra Vires Acts

Each state requires a purpose clause. If a corp has a narrow purpose clause and undertakes business outside the clause it is said to be acting "ultra vires".



Bylaws are adopted by the incorporators or the board of directors. They are not part of the articles of incorporation and are not required to be filed with the state.


Disregard of Corporate Entity

Piercing the Corporate Veil:

1) Shareholders commingle personal funds with corporate funds.
2) Corporation was inadequately capitalized at the time of formation
3) Commiting fraud on existing creditors.


Foreign Corporations

1) Contents of the Certificate of Authority are the same as the domestic corporation.
2) Effect of transacting business without a certificate it is subject to fines.
3) Transacting business contemplates ongoing and continous transactions.


Financing the Corporation

1) Debt Securities
2) Equity Securities (Bonds)
3) Equity Securities (Stocks)- Corps must issue stock.


Shareholders Voting Rights

1) Have the right to vote to elect or remove directors.
2) Have right to approve fundemental changes.
3) General rule is that one share, one vote.
4) Shareholders may vote only if a quorum is present.


Distributions (dividends)

1) Noncumulative preferred shares- The dividend is cumulative the right to a dividend preference for a particular year is extinguished if it is not declared for that year.
2) Cumulative Preferred Shares- The right to receive the preference accumulates and must be paid before nonpreferred shares may be paid any dividend.
3) Stock Dividends- Issued from a corporation's own "authorized but unissued shares".


Shareholder Agreements

1) Voting Trusts- Agreement of shareholders whereby all shares owed by the parties to the agreement are transferred to a trust.
2) Voting agreements- Has the same objective as voting trust but less formal. Shareholders simply agree among themselves to vote their share shares as the majority of signers directs.


Preemptive Rights

Shareholders have no preemptive rights unless the articles so provide.

They not apply not apply to stock issued:

1) Within 6 months of incorporation
2) In exchange for services or property
3) To directors, employees, etc, as compensation or
4) Shares have been repurchased.


Derivative Action vs Direct Action

Derivative action may be brought only to vindicate wrongs against the corporation. If s shareholder seeks to vindicate the shareholder's own rights against the corporation, a direct action by the shareholder against the corporation is appropriate, rather than a derivative action.

Recoveries in shareholder derivative actions go to the corporation and not to the shareholder who brought the action.


Directors-Rights, Duties, and Obligations

1) Board of directors has sole discretion to declare distributions to shareholders.
2) Directors are Fiduciaries of the corporation and must act in best interests of the corporation.
3) Business Judgement Rule- Director is not liable as long as the act in good faith of the company.
4) Directors are held liable for authorizing a distribution in violation of law.
5) Directors owe their corporation a duty of loyalty and must act in the best interests of the corporation.
6) A director is presented with a business opportunity that is of interest to his corporation, generally the duty of loyalty prohibits the director from taking the opportunity for himself.



Corps. are allowed to indemnify directors for expenses for any lawsuit brought against them in their corporate capacity.


Officers- RIghts, Duties, and Authority

1) Officers are selected by the directors and may be removed by the directors with or without cause.
2) A corporate president will generally have apparent authority to enter into contracts and act on behalf of the corporation in the ordinary course of business.
3) Corporate directors are subject to fidicuiary duties and must discharge their duties in good faith and with the same care as an ordinarily prudent person in a like position.
4) Officers may also serves as directors of the corporation.
5) Officer is not required to be a shareholder of the corporation but he or she may be.


General Procedure for Fundamental Changes to Corporation

1) Majority of the board of directors must adopt a resolution setting forth the proposed action and submitting it for a vote.
2) Corporation must notify all shareholders even if they are not entitiled to vote.
3) Change must be approved by a majority of shares voted at the meeting.
4) Document setting forth the action taken must be exectued by the corporation and be filed with the state.


Amendments to Articles of Incorporation

May amend articles of incorporation in any and as many respects as desired, as long as the provisions are lawful.


Mergers, Consolidation and Share Exchange

Both corporations in a merger and all corporation involved in a corporations involved in a consolidation must follow the general procedure for corporate changes

When its not required:
1) Surviving corporation's articles of incorporation will not be altered.
2) Number designations, and rights of the shares held byt the surviving corporations shareholders will not be altered.
3) Number of outstanding voting shares of surviving corportation will not increase by 20%
4) Number of participating shares will not increase by 20%.
5) Merger of subsidiary owned 90% or more by corporation.


Termination of Corporation

Voluntary or Involuntary action required

1) Judical Dissolution
2) Merger out of existence.


Reasons for selecting a Fiscal Year

1) Seasonal Operations
2) Major revenue operates under a fiscal year
3) Deferral of taxation- For tax purposes and ofertedn to push off taxation until another year. Must be approved by IRS.


FICA-Federal Insurance Contribution Act

Provides workers and their dependents with benefits in case of death, disability or retirement. Employers must match employee's contribution and employees are taxed on earned income only.



Social Security disability and health benfits are no taxable.


Unemployment Compensation

Federal Unemployment Tax Act establishes a state-run system of insurance to provide income to workers who have lost their jobs.

Employers who have quarterly payrolls of at least $1,500 or who employ at least 1 person for 20 weeks in a year must participate in the system.

Payroll taxes generally assessed only against the employer. The federal unemployment tax rate is 6.0% of the first $7,000.


Workers Compensation

State-run programs designed to enable employees to recover for injuries incurred while on the job.

Employers are responsible regardless of fault, only requirement being it occured while acting in the scope of employment.

Most employers must participate in workers' compensation programs.

Employers pay for workers' compensation by purchasing insurance from the state or a private carrier.


Title VII of the Civil Rights Act of 1964

Prohibits discrimination in employment on the basis of race, sex, religion. All complaints are heard by the Equal Employment Opportunity Commission.


Equal Pay Act

Prohibits an employer from discriminating by paying unequal wages on the basis of sex.


Age Discrimination Act

Prohibits discrimination in the hiring, firing or compensating of workers on the basis of age. Protects workers age 40 and applies to employers having 20 or more employees.


Americans with DIsabilities Act

Prohibits employers with 15 or more employees from discriminating against individuals.


Occupational Safety and Health Act.

Set safety standards for worksites and may conduct worksite inspections, examine employers' records and question employees with advance note and without a search warrant.


Fair Labor Standards Act

Establishes a federal minimum wage. As long as covered employees are making at least the minimum wage, the basis of pay may be hourly, weekly, monthly, be piece rate, etc.


National Labor Relations Act

Originally was adopted to give workers the right to bargain collectively for wages and other terms of employement.

Taft-Hartley Act prohibits labor unions from charging excessive union fees, forcing employers to pay for unperformed services or calling an improper strike.


Employee Retirement Income Security Act

Governs federal pension laws.

Establishes standards for funding and investing of pension plans. These financial controls are to avoid mismanagement.

Not all employees need be eligible and may be required a period of eligibility.


Consolidated Omnibus Budget Reconciliation Act of 1985

Allows certain individuals to continue the group health insurance coverage that they have through an employer after employment ends by paying up to 102% of the cost of the insurance.


Money Laundering

Criminal practice of processing ill-gotten gains, or dirty money, through a series of transactions so that the gains appear to be proceeds from legal activities.

Stages of Money Laundering
1) Placement-Putting proceeds of illegal activities into system.
2) Layering-Move Funds Around to Make it Difficult to Follow.
3) Integration- Movement of money into Legitimate-Looking Transactions.


Bank Secrecy Act

Was enacted in 1970 and is one of the primary tools used to fight money laudering


Government Agencies Involved

Financial Crimes Enforcement Network-Bureau of treasury that administers the BSA.

Federal Banking Agencies


Required Reports and Records

1) Currency Transaction Report-Transaction of more than $10,000, must be filed by bank for any transaction greater than $10K. Must be filed within 15 days of transaction.
2) Suspcious Activity Report- Must File an SAR for any suspicious transaction relevant to a possible violation of law or regulation.
3) Report of International Transportation of Currency or Monetary Instruments- Must be filed for anyone who physically transports any amount greater than $10,000.
4) Report of Foreign Bank and Financial Accounts exceeding $10,000- Must file if a foreign entity has accumulated securities, cash in account greater than $10,000.
5) Designation of Exempt Person- Must file an exempt person form to designate a customer who is exempt for the purpose of CTR reporting.


Recordkeeping Requirements

1) Customer ID Program Information
2) Monetary Instrument Sales Records
3) Funds Transfer Recordkeeping and Travel Rule Requirements.
4) Phase I Exemptions from the CTR Requirements
5) Phase II Exemptions for the CTR Filing Requirements.


Money Laundering Penalities

1) 20 years imprisonment and a fine of $500,000
2) Civil Forefeitures
3) Other Penalties.


Sherman Act Section 1

1) Balance Anticompetitive and Competitive Effects
2) Per Se Violations-Inherently Illegal and without Legal Justification
3) Horizontal Restraints-Agreements Between Competitors
4) Vertical Restraints-Agreements by Those at Different Marketing Levels
5) Concerted Action Requirement-Action by Two or More Parties
6) Price Fixing-Agreements to Set Prices for Goods or Services
7) Market Allocations-Agreements Not to Compete in Specific Markets
8) Boycotts-Two or More Firms Agree not to Deal with a third party.
9) Tying Arrangements-Must buy one product to get another
10)Joint Ventures and Trade Associations