South Carolina - Agency, Partnerships, Corporations Flashcards

Question

PARTNERSHIP > Partnership by Estoppel

Answer 1

Even if P'p doesn't exist, liability may be imposed on a person who allows others to think person is a partner Purported Personal liability to person purporting to be a partner (and J&S liability for others consenting to representation) Partnership liable if all partners consent to the representation

Answer 2

Each Partner is a fiduciary and owes a fiduciary duty to the partnership and all other partners Duty of Care Duty of Loyalty ------ [[Duty of Good Faith and Fair Dealing Duty to Disclose (material info) Duty to keep books; right of inspection]]

Answer 3

duty to avoid gross negligence, intentional misconduct, or knowing violation of law

Answer 4

1. Self-Dealing: Partner cannot receive a benefit to the detriment of the Partnership. 2. Usurping the Partnership Opportunity. 3. Secret Profits: making a profit at the Partnership's expense without disclosure.

Answer 5

Partnership may RECOVER LOSSES that are caused by the breach and also may DISGORGE profits made by the breaching partner.

Answer 6

PROPERTY If personal money is used to buy the property: personal property: transferable to 3Ps If partnership money is used to buy the property, it is partnership property: non-transferable to 3Ps SHARE IN PROFITS share of profits is personal property owned by individual partners: transferable to 3Ps SHARE IN MANAGEMENT: Management is owned by partnership itself: non-transferable to 3Ps

Answer 7

Absent agreement, each partner is entitled to EQUAL control (vote) Ordinary Matters: governed by majority vote Extraordinary Matters: governed by unanimous vote

Answer 8

Absent agreement, partners get NO SALARY Exception: salary for winding up partnership business

Answer 9

PROFITS: Absent agreement, profits shared EQUALLY LOSSES: Absent agreement, losses shared LIKE PROFITS

Answer 10

Commencement of winding up process

Answer 11

Partnership settles partnership affairs: liquidating assets, satisfying partnership's creditors, and distributing remainder to partners

Answer 12

All Partnership affairs wound up

Answer 13

``` ACT OF THE PARTIES Per Partnership Agreement Mutual Assent of Partners Expulsion of Partner By the will of a partner ``` OPERATION OF LAW Illegality Death of a Partner Bankruptcy of Partner or Partnership DECREE OF COURT Breach of Partnership agreement by partner Unprofitability of partnership Misconduct of Partner Incompetency of Partner Incapability of Partner Circumstances rendering dissolution equitable

Answer 14

After dissolution, partners have authority to wind up partnership's affairs. This includes only "old business." Old Business: Transactions designed to terminate business New Business: Partner will be held individually liable

Answer 15

Each level must be fully satisfied before beginning the next level. Order of Priority: ^1. Outside creditors must be paid (non-partner trade creditors) ^2. Inside creditors must be paid (partners who have loaned money to the partnership and have become creditors to it) ^3. Capital Contribution by Partners must be paid (money given to p'p, but not as a loan--instead, money paid for a profit share) 4. Profits/Surplus, if any. (u.o.a., equal shares) ^denotes LIABILITY--must pay these. Partners are personally liable for them.

Answer 16

A limited Partnership is a partnership with at least one general partner and at least one limited partner

Answer 17

must file a limited partnership certificate, which includes the names of all general partners Must include the words "limited partnership" (NOT "LP" or "L.P.")

Answer 18

Hybrid between a corporation and a partnership: owners "members" have the same limited liability as shareholders in a corporation plus the benefits of partnership tax status

Answer 19

Organizers must file articles of ORGANIZATION Includes: - name of the LLC (LLC designation) - address of registered office - name of registered agent

Answer 20

Owners "members" may manage, or they may delegate control to a team of managers

Answer 21

LIMITED LIABILITY: Same limited liability as shareholders in a corporation LIMITED LIQUIDITY: u.o.a., full membership interest cannot be transferred without unanimous consent of the members LIMITED LIFE: u.o.a., LLC dissolves upon unanimous consent of the members LIMITED TAX: Same limited tax benefits of a partnership

Answer 22

Taxed Like a partnership 100 or less shareholders; No foreign shareholders

Answer 23

1. Restriction is CONSPICUOUSLY noted on the share certificates or OTHERWISE KNOWN by the purchaser, 2. Restriction is for a REASONABLE PURPOSE, and 3. right of first refusal; requires corporation/other to approve sale/purchase the shares; or prohibition to transfer to a designated class of persons (e.g., foreigners to maintain S status)

Answer 24

DEFINITION A Promoter is a person who procures commitments for capital and other instrumentalities that the corporation will use after it's formed. TO WHOM DUTY IS OWED Promoters owe a fiduciary duty to each other, the corporation, and the investors. DUTY OWED This entails a duty of good faith and fair dealing (can't secretly profit) REMEDY Turnover unfair profit or rescind the transaction

Answer 25

``` PROMOTER'S LIABILITY A person (promoter) who acts on behalf of a corporation, KNOWING there has been no incorporation, is personally liable for any obligations incurred ``` CORPORATION'S LIABILITY Corporation incurs liability on a promoter's contract when it adopts the contract. Adoption can be express (resolution of the BOD), or Adoption can be implied (willingly and knowingly accepting the benefits of the contract) PROMOTER RELIEVED OF LIABILITY Promoter is liable even if corporation adopts contract. Promoter is relieved of liability only if NOVATION- agreement among all parties that the corporation shall be substituted for the promoter).

Answer 26

PRE-INCORPORATION SUBSCRIPTION AGREEMENT: Offer to purchase shares once corporation is formed

Answer 27

SUBSCRIBER: rescind agreement (b/c it was illegal) ``` ATTORNEY GENERAL: Fine Injunction Disgorgement of proceeds Any other appropriate relief ```

Answer 28

Corporation does not have to accept the offer once the corporation is formed subscriber's offer is irrevocable for six months (unless subscription agreement provides or consent of other subscribers) subscription agreement must be registered as a sale of a security with the attorney general

Answer 29

1. corporation may collect as it would any other debt 2. Forfeiture: rescind the agreement and keep whatever subscriber has already paid: - corporation must send notice of default to the subscriber, and 2. corporation gives subscriber at least 20 days to cure

Answer 30

Parties will be treated as if a corporation existed if parties 1. COLORABLY comply with incorporation statute, and 2. act in GOOD FAITH,

Answer 31

Persons (including 3Ps) acting as though a corporation exists will be estopped from denying corporation's existence.

Answer 32

1. Name of the Corporation (including company/corporate/incorporated designation) 2. Number of Shares authorized to be issued 3. Street address of Corporation's registered agent 4. Name, address, and signature of each incorporator.

Answer 33

Each share gets as many votes as there are positions to be elected. This is the default unless AOI provides otherwise. However, to cumulatively vote: 1. the meeting notice must CONSPICUOUSLY state that cumulative voting is authorized; OR 2. a shareholder gives written notice to the corporation not less than 48 hours before the meeting OR announces his intention to vote cumulatively at the beginning of the meeting.

Answer 34

Directors may be removed with or without cause. Shareholders may remove directors. - If director elected by a group, only members of that group may vote on removal. - If director elected by cumulative voting, the director cannot be removed if votes cast against removal would be sufficient to elect director through cumulative voting.

Answer 35

REGULAR MEETINGS: No notice required SPECIAL MEETINGS: 2 days notice required. Must include day, time place of meeting.

Answer 36

A MAJORITY of the directors, unless AOI provide otherwise But never less than 1/3 Quorum can be broken by walking out

Answer 37

Actions are approved by a MAJORITY of the directors present at a meeting at which a quorum is present Director deemed to have assented to action taken unless his or her dissent/abstention is entered into the minutes of the meeting

Answer 38

Officers can be removed with or without cause by BOD. Officers can only be removed by the BOD if in violation of a contract, normal contract remedies apply

Answer 39

RULE Declaration of distributions is in the discretion of the BOD SOLVENCY LIMITATION: Can't declare distributions when Corporation is unable to pay its debts as they become due; or Corporation's liabilities exceed the corporation's assets plus any preferential rights of shares above the distribution

Answer 40

Directors are fiduciaries of their corporation and owe the corporation a duty of care. Pursuant to this, in making decisions for the corporation, directors must act 1. In good faith; 2. with the care that an ordinarily prudent person would exercise in a like position; and 3. In a manner the director reasonably believes to be in the best interest of the corporation

Answer 41

In discharging duties, a director is entitled to rely on information from 1. Corporate officers/employees the director reasonably believes to be reliable and competent; 2. Outside experts as to matters the director believes to be in their competencies; 3. A committee of the board if the director believed the committee merits competence

Answer 42

Directors have a duty not to waste corporate assets by OVERPAYING for property or employment services

Answer 43

AOI can limit/eliminate BOD personal liability. But NO provision can limit/eliminate liability for the following: 1. Breach of duty of loyalty; 2. Acts/omissions not in good faith (or which involve gross negligence, intentional misconduct, or a knowing violation of law); 3. Unlawful distributions; 4. Transactions giving director an improper personal benefit

Answer 44

When director (or person/entity close to director) buys from or sells to the corporation

Answer 45

1. Conflict-of-Interest transactions | 2. Usurpation of Corporate Oportunities

Answer 46

1. Transactions approved by MAJORITY of the directors, without conflicting interests in the transaction, after all material facts have been disclosed; 2. Transactions was approved by a majority of votes entitled to be case by SHs, without conflicting interests in the transaction, after all material facts have been disclosed; or 3. The transaction was FAIR to the corporation, in light of all circumstances

Answer 47

Directors and officers may not usurp a business opportunity from the corporation without first giving their corporation an opportunity to act. (does not apply to SHs) The business must have an INTEREST OR EXPECTANCY in the opportunity. The closer the opportunity is to the corporation's line of business, the more likely a court will find it to be a corporate opportunity.

Answer 48

"No It Aint": Factual argument that opportunity is too far removed from the corporation's line of business (*only real viable defense) "Can't afford it": Corporation can't afford to take advantage of the opportunity (will usually fail) "I Quit": Director/Officer quits after opportunity is made. (Doesn't really help...)

Answer 49

The Corporation may 1. Recover profits that the director made from the transaction; or 2. Force director to convey the opportunity to the corporation (constructive trust) for whatever consideration the director used to purchase the opportunity

Answer 50

MANDATORY Director/Officer successfully defends a proceeding ``` DISCRETIONARY Director/officer 1. acted in good faith 2. in the best interest of the corporation, and 3. not unlawfully ``` UNAVAILABLE Director/officer found liable to the corporation; or director/officer received an improper benefit

Answer 51

SIMILARITIES 1. Fiduciary: Fiduciary who owes corporation duties of care and loyalty 2. Liability: Not personally liable for corporation's debts 3. Removal: Can be removed with or without cause DIFFERENCES 1. Election/Removal: Directors elected/removed by SHs. Officers elected/removed by Directors 2. Role: Directors make overarching decisions about the corporation. Officers carry out corporate policies and operate the corporation on a day-to-day basis 3. Agency: Directors are not agents of the corporation. Officers are agents of the corporation (have actual/apparent authority)

Answer 52

GOVERNANCE: SHs can elect any governance style LIABILITY OF SHS: SHs cannot be personally liable SPECIAL REQUIREMENTS: - must state corporation is a statutory close corporation in the AOI - Each share certificate must conspicuously state that the corporation is a statutory close corporation RIGHT OF FIRST REFUSAL: each share subject to right of first refusal. SHs must first offer shares to corporation before selling to 3P

Answer 53

Elect directors extraordinary corporate acts

Answer 54

Only SHs who own shares on record date may vote. Record date may not be more than 70 days before meeting

Answer 55

Not less than 10 days nor more than 70 days before a meeting Must include time, date, place, and if applicable, special purpose of meeting

Answer 56

Must be in writing

Answer 57

DURATION: Valid for 11 months REVOCABILITY Normally freely revocable by grantor Not freely revocable if writing states it is irrevocable and it is coupled with an interest. DEATH/INCAPACITY Death/Incapacity of grantor does not revoke proxy unless corporation (1) receives notice of death/incapacity, and (2) has time to act on it

Answer 58

QUORUM: Majority of votes entitled to be cast (cannot break quorum by walking out) APPROVAL OF ACTION: Votes cast in favor exceed votes cast against FUNDAMENTAL (EXTRAORDINARY) CHANGES: approved by 2/3 of all outstanding shares entitled to be voted

Answer 59

SH may inspect corporate documents (books, papers, accounting records shareholder records) if 1. Five (5) days written notice, and 2. Notice states proper purpose ----- (no proper purpose necessary for AOI, bylaws, minutes of SHs meetings, etc)

Answer 60

APPLICABILITY To newly issued shares issued for money UNAVAILABILITY Shares issued within 6 months after incorporation Shares issued without general voting rights ((Holders of nonpreferential voting shares have no preemptive rights in any class of preferred shares unless the preferred shares are convertible into shares without preferential rights))

Answer 61

only if director/officer breaches duty owed only to the SH bringing the suit (e.g., wrongful denial of inspection rights)

Answer 62

When a director, officer, or third party breaches duty owed to the corporation, and corporation has not vindicated its own rights: SH can bring an action on behalf of the corporation seeking to vindicate the corporation's rights

Answer 63

STANDING 1. SH must have been a SH at the time of the action/inaction complained of OR must have become an SH through transfer by operation of law from one who was a SH at such time. 2. SH must be able to FAIRLY and ADEQUATELY represent the interests of the corporation DEMAND REQUIREMENTS SH must allege with particularity any efforts made to obtain the action he desires from the directors, OR state the reason for his failure to obtain the action or for not making the effort Pre-suit demand is excused if demand made to the alleged wrongdoers would be futile RECOVERY Goes to the corporation (unless this would result in wrongdoers reaping a windfall). SH may recover attorney's fees if successful

Answer 64

Same duty owed by partners in a PARTNERSHIP: Duty of Loyalty Duty of Good faith

Answer 65

1. Judicial Dissolution: if directors have acted or will act in a manner that is ILLEGAL, OPPRESSIVE, or FRAUDULENT 2. REARRANGEMENT: Court can rearrange the legal status of the corporation if the directors act UNFAIRLY or OPPRESSIVELY. For example - removing officers - ordering payments of dividends or damages; or - ordering purchase of the shares of the oppressed SH

Answer 66

Three situations in which court will pierce the corporate veil of limited liability and reach the shareholder's personal assets: Alter Ego Inadequate Capitalization Avoidance of CURRENT Obligations, Fraud, or Evasion of Statutory Provisions

Answer 67

Corporation ignores corporate formalities, such that it may be considered the "alter ego" of a shareholder (human/other corporation). Look for a. COMMINGLING of personal assets with corporate assets b. failure to observe corporate FORMALITIES (no board meetings, elections, etc.) Nuances: - Not applicable to statutory close corporations - Sloppy Administration, without injustice, is not enough to PCV

Answer 68

Inadequate Capitalization at TIME OF FORMATION SHs must contribute sufficient capital for the corporation to cover prospective liabilities

Answer 69

Avoidance of CURRENT (personal) obligations, fraud, or evasion of statutory provisions Note: there's nothing wrong with incorporating to avoid possible FUTURE personal liability

Answer 70

1. BOD adopts resolution recommending the change 2. Written notice of SH's meeting is sent to SHs explaining the change to be voted on; 3. SHs approve changes by at least 2/3 majority of votes entitled to be cast (i.e., all issued votes in corporation); and 4. The changes in the form of the articles are filed with the state

Answer 71

1. Amendment of Articles 2. Merger, Share Exchange, and Conversion 3. Sale of Substantially All Assets 4. Dissolution & Liquidation

Answer 72

SHAREHOLDERS OF DISSOLVING CORPORATION SHAREHOLDERS OF SURVIVING CORPORATION, Unless: 1. Its articles will not change after the merger; 2. Its SHs' rights will not differ after the merger and they will hold the same number of shares; 3. Shares issued as a result of the merger (to new SHs, usually) will comprise no more than 20% of the voting power of the corporation

Answer 73

A parent corporation may merge a subsidiary into itself without the approval of the subsidiary's shareholders, if 1. parent corporation owns at least 90% of the outstanding shares of each class of subsidiary's stock; and 2. parent mails a copy of the plan of merger to each SH of the subsidiary

Answer 74

Constitutes Fundamental Change if outside the ordinary course of business. Generally, sale of 75% of corporation's assets that also account for at least 75% of corporation's revenues. Mortgages/security interests and pledge's don't count

Answer 75

SHARES NOT ISSUED/BUSINESS NOT YET COMMENCED can be dissolved by a majority of the incorporators DISSOLUTION BY CORPORATE ACT Follow approve fundamental change procedure

Answer 76

For SHs who vote against fundamental corporate change: right to have shares appraised and purchased by the corporation at a fair price MARKET-OUT EXCEPTION: publicly held corporations with at least 2000 SHs and the shares have mkt value of at least $20M PROCEDURE 1. Notice of meeting includes SHs right to dissent 2. SH gives notice before meeting of intention to exercise the right AND can't vote in favor of the change 3. Corporation must give SH notice of approval within 10 days of the approval of the change 4. SH must demand payment 5. Corporation must pay corporation's estimate of fair value 6. SH has 30 days to submit her own estimate of fair value 7. If Corporation disagrees, it must file an action in court within 60 DAYS of receiving SH's demand (if not, Corp is stuck paying SH's estimate)

Answer 77

*Single overriding factor is RIGHT TO CONTROL: also consider (Charlotte Capers South Carolina PFD) 1. characterization by parties 2. distinct business/occupation 3. Custom regarding supervision 4. Skill required 5. Tools and facilities 6. Period of Employment 7. Basis of compensation

Answer 78

Partners are agents of the partnership (for the carrying on of usual partnership business); therefore, the partnership is liable for authorized contracts; and torts

Answer 79

All Partnership Debts Co-Partner's Torts

Answer 80

ACTS IN THE ORDINARY COURSE OF BUSINESS [automatic apparent authority]: Binds the partnership and thereby binds other partners ACTS OUTSIDE THE ORDINARY COURSE OF BUSINESS [require actual authority]: Partnership will not be bound unless partner has ACTUAL AUTHORITY

Answer 81

To terminate the apparent authority

Answer 82

REQUIREMENT: - register with state - business name includes LLP LIABILITY Partner in LLP NOT PERSONALLY LIABLE for debts and obligations of partnership arising from TORTS committed by co-partners. Still liable for her own torts and those of someone she supervises

Answer 83

LIABILITY: up to contribution LOSING LIABILITY 1. LP'r is also a General Partner 2. Conducts day-to-day control and 3P reasonably believes LP'r is a general partner; OR 3. knowingly permits name to be used improperly in the name of the P'Ship

Answer 84

u.,o.,a., to all partners (general/limited), IN PROPORTION TO THEIR CONTRIBUTIONS

Answer 85

in proportion to contribution

South Carolina - Agency, Partnerships, Corporations Flashcards

(109 cards)