Business Structures

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Questions and Answers

What is the most basic and common business structure?

Sole proprietorship

A corporation's rights and obligations are separate from those of its owners or managers.

True (A)

According to the Revised Uniform Partnership Act (RUPA), what is a partnership?

An association of two or more individuals who carry on as co-owners of a business for profit.

A partnership is a legal entity distinct from its owners.

<p>True (A)</p> Signup and view all the answers

A partnership always requires formalities.

<p>False (B)</p> Signup and view all the answers

To prevent injustice, a partnership by estoppel may be recognized even when an actual partnership exists.

<p>False (B)</p> Signup and view all the answers

What is a major disadvantage of a general partnership?

<p>Each partner has unlimited personal liability for all losses and debts of the business.</p> Signup and view all the answers

What does a partner's transferable interest consist of?

<p>A partner's share of partnership profits and losses and the right to receive distributions.</p> Signup and view all the answers

Partners and their creditors, assignees, executors, and heirs do have an interest in specific partnership property.

<p>False (B)</p> Signup and view all the answers

An advantage of a partnership (general or limited) is that it is a tax-paying entity.

<p>False (B)</p> Signup and view all the answers

How are the rights, duties, and liabilities of partners defined?

<p>Largely defined by the law of agency.</p> Signup and view all the answers

What vote is required to amend a partnership agreement?

<p>Unanimous vote (B)</p> Signup and view all the answers

What does the power of apparent authority give an agent?

<p>The power to act on behalf of a principal based on the words or actions of the principal that would reasonably induce a third party to rely on the agent's authority.</p> Signup and view all the answers

The duty of care is to engage in (1) knowing violations of the law, (2) intentional wrongdoing, or (3) gross negligence.

<p>False (B)</p> Signup and view all the answers

What are partners jointly and severally liable for?

<p>The full amount of any partnership obligations, including torts and crimes committed by another partner within the ordinary course and scope of the partnership business or with the authorization of the other partners.</p> Signup and view all the answers

Admission into an existing partnership results in liability for partnership obligations incurred prior to admission only to the extent of the new partner's capital contribution.

<p>True (A)</p> Signup and view all the answers

What is dissociation in the context of a partnership?

<p>A partner's ceasing to be associated in the business of the partnership.</p> Signup and view all the answers

A statement of dissociation may be filed by the partnership or a dissociated partner. It is deemed to provide notice of dissociation _____ days after filing.

<p>90</p> Signup and view all the answers

What is winding up?

<p>The administrative process of settling partnership affairs, including the use of partnership assets and any required contributions by partners to pay creditors.</p> Signup and view all the answers

Partnership creditors are paid in full to the extent of partnership assets before any distributions are made to partners or their personal creditors.

<p>True (A)</p> Signup and view all the answers

What is an LLP?

<p>A general partnership with limited liability in which a C corporation may be a partner.</p> Signup and view all the answers

In most states, partners in an LLP have unlimited liability for the acts of other parties.

<p>False (B)</p> Signup and view all the answers

What is a joint venture?

<p>An easily formed business structure common in international commerce.</p> Signup and view all the answers

A limited partnership exists under common law.

<p>False (B)</p> Signup and view all the answers

According to the Revised Uniform Limited Partnership Act (RULPA), what is a limited partnership?

<p>A limited partnership that has one or more general partners and one or more limited partners.</p> Signup and view all the answers

What must a general partner do in a limited partnership?

<p>Manage the partnership and have full personal liability for debts of the partnership.</p> Signup and view all the answers

Limited partnership interests are securities that do not need to be registered with the SEC.

<p>False (B)</p> Signup and view all the answers

A limited partner has a fiduciary duty to the limited partnership.

<p>False (B)</p> Signup and view all the answers

What must be filed to create a limited partnership?

<p>A written certificate of limited partnership signed by all general partners must be filed in the state where it is organized to give creditors notice of the limited liability of the limited partners.</p> Signup and view all the answers

It is possible to admit new general or limited partners without the unanimous written consent of all partners.

<p>False (B)</p> Signup and view all the answers

How many months' notice does a limited partner need to give before withdrawing from the partnership?

<p>6</p> Signup and view all the answers

The bankruptcy, incapacity, or death of a limited partner dissolves the limited partnership.

<p>False (B)</p> Signup and view all the answers

How are general and limited partners treated in the distribution of assets after dissolution?

<p>Equally</p> Signup and view all the answers

Who can be members of an LLC?

<p>Individuals and any corporate and noncorporate business entities.</p> Signup and view all the answers

How is an LLC formed?

<p>By filing articles of organization with the appropriate secretary of state (or the equivalent).</p> Signup and view all the answers

Funding of an LLC is from members' _____.

<p>contributions</p> Signup and view all the answers

Members of an LLC must be taxed as partners in a partnership (a pass-through entity).

<p>False (B)</p> Signup and view all the answers

By default, how is an LLC managed?

<p>Member-managed, unless the articles provide otherwise.</p> Signup and view all the answers

Member-managers in an LLC have unlimited liability.

<p>False (B)</p> Signup and view all the answers

According to the Model Business Corporation Act (MBCA), how are corporations established?

<p>Under state law.</p> Signup and view all the answers

How is a separate legal entity created?

<p>Under a state statute by filing its organizational document (articles of incorporation) with the proper state authority.</p> Signup and view all the answers

Who elects a board of directors and approves fundamental changes in the corporate structure?

<p>Shareholders (owners)</p> Signup and view all the answers

A foreign corporation is one that does business in a country other than the one in which it is incorporated.

<p>False (B)</p> Signup and view all the answers

What does a promoter do?

<p>Arranges for the formation of the corporation and provides for the financing of the corporation and for compliance with any relevant securities law.</p> Signup and view all the answers

A corporation is liable for a preincorporation contract because a promoter is an agent of a nonexistent entity.

<p>False (B)</p> Signup and view all the answers

A preincorporation subscription agreement is irrevocable for _____ months, unless otherwise provided in the agreement, or all subscribers consent to revocation.

<p>6</p> Signup and view all the answers

What gives notice of any limitations on the authority of a partner?

<p>Statement of Partnership Authority</p> Signup and view all the answers

What items must the Articles of Incorporation include?

<p>Corporation's name, number of authorized shares, street address of the initial registered office and name of the registered agent, name and street address of each incorporator</p> Signup and view all the answers

What is the standard for liability of Officers and Directors

<p>Personal liability for honest errors of judgement if they acted in good faith and the decisions was not motivated by fraud, conflict of interest, or illegality and they were not grossly negligent</p> Signup and view all the answers

Flashcards

Sole Proprietorship

A business structure with one owner with unlimited personal liability.

General Partnership

A partnership formed without statutory formalities.

Partnership Profit/Loss Sharing

Partners share profits equally and losses in the same proportion as profits, unless agreed otherwise.

Joint and Several Liability

Partners are individually and jointly liable for partnership obligations.

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Dissociation

A partner's ceasing to be associated in the business

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Winding Up

Administrative process of settling partnership affairs.

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Limited Liability Partnership (LLP)

A general partnership with limited liability.

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LLP Requirements

Partnership that must file a statement of qualification with the secretary of state and maintain professional liability insurance.

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Joint Venture

Association of co-owners in a specific undertaking for profit.

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Limited Partnership

Partnership created solely under a state statute.

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General Partner

Manages the partnership and has full personal liability for debts.

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Limited Partner

Does not manage; contributes capital and has limited liability.

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Limited Liability Company (LLC)

A hybrid business structure with corporate liability protection and partnership tax benefits.

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LLC Members

Owner-investors of an LLC.

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Articles of Organization

Document filed with the state to form an LLC.

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Operating Agreement

Internal agreement governing LLC operations.

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LLC Capitalization

Funding an LLC using members' contributions.

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LLC Taxation Options

LLCs can elect to be taxed as a partnership (pass-through) or a corporation.

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Articles of Incorporation

Document filed with the state to create a corporation.

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Corporate Bylaws

Governs internal structure/operation of the corporation.

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Usurping Corporate Opportunity

A director must give the corporation the right of first refusal.

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Corporate Officers

Officers are agents of, and manage, the corporation.

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Corporation Disadvantage

Limited individual control of a business operated by managers, not owners

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Study Notes

  • The material covers business structures, contrasting them with sole proprietorships.
  • An individual in business defines a sole proprietorship, bearing unlimited personal liability, direct profit taxation, full operational control, and sole capital provision.
  • Sole proprietorships are created and ended at the proprietor's discretion or upon death, involving no formalities.
  • The material examines: general partnerships formed without legal requirements, limited partnerships formed by law, and limited liability companies (LLCs) that combine elements of corporations and partnerships.
  • A corporation stands apart as a distinct legal entity with perpetual existence, where its rights and responsibilities are separate from its owners or managers.

General Partnerships

  • A partnership, as per the Revised Uniform Partnership Act (RUPA), is when two or more people co-own a business for profit.
  • A business encompasses any trade, occupation, or profession.
  • A partnership is legally separate from its owners.
  • General partnerships offer the advantages of no required formalities, duration limits, or governmental filings.
  • Forming a partnership does not require a formal agreement (oral or written) or even the intention to create a partnership.
  • Partnership agreements are subject to the Statute of Frauds; contracts that cannot be fulfilled within a year must be written or have a valid electronic form.
  • Fictitious name statutes exist in many states, requiring businesses to disclose ownership for creditor transparency.
  • Intention to form a partnership is not needed, but co-owners must aim to make a profit, regardless of actual earnings.
  • Sharing profits infers partnership status, unless payments are for debt, principal, rent, wages, or interest.
  • Non-profits cannot be partnerships.
  • A partnership exists when its elements are present, regardless of the parties' intent.
  • A partnership by estoppel may be recognized to prevent injustice, even without an actual partnership.
  • Duties and liabilities of a partner might extend to a non-partner (purported partner).
  • A purported partner is someone represented as a partner or who has agreed to such representation.
  • A third party can claim the existence of a partnership if they reasonably relied on a representation and suffered damages.
  • General partnerships cannot raise funds by selling shares.
  • Partners share profits equally and losses in the same profit proportion, unless agreed otherwise per RUPA.
  • Each partner holds unlimited personal liability for all business losses and debts, posing a major general partnership disadvantage.
  • Partners have the right to distributions, including transfers of partnership property for profits, service payments, or reimbursements.
  • Compensation for services is the right to a profit share, not payment for services, unless agreed otherwise.
  • A partner's transferable interest covers their profit/loss share and right to distributions.
  • Transferring a partner's interest does not terminate rights (except the transferable interest) or obligations, including debt liability, nor does it cause dissociation or dissolution.
  • Assignees or heirs of a deceased partner do not gain partner rights or liabilities; they only share in profits, losses, and distributions.
  • Assignees do not automatically become partners, gain agency rights, or have management control.
  • Partners, creditors, assignees, executors, and heirs cannot claim interest in specific partnership property, preventing creditors from targeting it.
  • Creditors can only pursue a partner's interest, as partnership assets secure partnership debts.
  • If acquired with partnership assets, property belongs to the partnership.
  • A partner's death transfers their partnership interest as personal property via will, with heirs as assignees, not partners.
  • The estate doesn't become a partner.
  • A partner's death leads to dissociation, not dissolution
  • Remaining partners can opt to continue the business.
  • The estate is responsible for the deceased partner's share of partnership liabilities.
  • A creditor can only seize a partner's transferable interest through a court-ordered charging order (lien).
  • Partnerships, whether general or limited, are tax reporting entities, not tax-paying ones.
  • The partnership's profit or loss is passed on to its partners.
  • Rights, duties, and liabilities are defined by agency law; however, partners can agree to limit their rights.
  • Each partner can equally participate in partnership management.
  • Majority rule applies for ordinary matters.
  • Unanimous consent is needed to change partnership agreements, admit new partners, and handle non-routine issues.
  • Partners can access and copy partnership documents and records.
  • Demands for information must be reasonably honored.
  • Partnership property access is restricted to partnership business.
  • Choosing associates means all existing partners must approve a prospective partner, granting them full rights, duties, and liabilities.
  • Each partner serves as both a principal and an agent.
  • General partnerships and partners are bound by contracts made by partners within actual or apparent authority.
  • Apparent authority allows an agent to act for the partnership based on actions that suggest they have the power.
  • Actions within a partnership or similar business's usual scope are considered within apparent authority.
  • The partnership isn't bound, without ratification by other partners, if a partner acts without actual or apparent authority.
  • RUPA lets the partnerships file a statement of partnership authority to specify any limits.
  • Partners' duties are primarily fiduciary, including loyalty and care, meaning they cannot compete, act with adverse interests, or exploit partnership opportunities.
  • Duty of care restricts engagement in legal violations, intentional misconduct, or gross negligence.
  • Partners must act in good faith and with fair dealing.
  • Partners are jointly and severally liable (individually and as a partnership) for all partnership obligations, including negligence and crimes.
  • Liability extends to torts committed by partners within the scope of business or with authorization.
  • A plaintiff can sue a partner or the partnership, holding personally liable only those named on the judgment.
  • Partners bind the partnership via contract when acting under real or apparent authority.
  • New partners in an existing partnership bear limited liability for prior obligations, capped by their capital contribution.
  • Departing partners remain liable for debts predating their exit, unless creditors consent otherwise.
  • Partners may set a fixed duration or task for the partnership's undertaking.
  • Partnerships can be at will and continue until the partners dissolve the business, lacking specific end dates or tasks.

Dissociation and Termination

  • Dissociation occurs when a partner leaves the partnership, potentially owing damages if wrongful.
  • Dissociation Reasons include, giving notice to withdraw, an event specified in the agreement, expulsion, incapacitation, or bankruptcy.
  • Management rights end upon dissociation, except for winding up affairs.
  • After dissociation, the partnership may continue if the exiting partner's interest is bought; otherwise, dissolution starts.
  • Agreements to protect exiting partners from debts do not shield them from third-party liabilities.
  • Dissociation doesn't automatically dissolve the partnership, unless initiated by express will.
  • A dissociation statement can be filed, providing notice 90 days later.
  • This notice ends the partner's apparent authority and post-dissociation liability
  • A dissociated partner has 2 years of apparent authority to bind the partnership and remains liable for prior debts.
  • Dissolution and winding up occur after specific events or may not occur at all.
  • Dissolution may happen automatically by law, such as when the partnership's purpose becomes illegal.
  • Courts may order dissolution if achieving the partnership's economic goal becomes unfeasible.
  • A partner's authority ends upon dissolution, save for winding up tasks.
  • A partner's apparent authority may continue during winding up unless dissolution is communicated.
  • Partnership liability continues post-dissolution.
  • Most fiduciary duties remain for partners.
  • Any partner who hasn't wrongfully dissociated can file a dissolution statement for 90-day notice to non-partners.
  • A partnership can continue after dissolution if all parties waive winding up and termination rights.
  • Winding up is settling partnership matters, using assets and contributions to pay creditors.
  • The RUPA prioritizes partnership creditors over partners and their creditors, with partner-creditors sharing equally.
  • Surplus funds are paid to partners in cash.
  • Partners cannot demand, and are not obliged to accept, noncash asset distributions.
  • When accounts have debit balances, partners must contribute the deficit amount.
  • In case a partner cannot contribute, the other partners must cover the shortfall, in the proportion to which they share losses.

Limited Liability Partnership (LLP) and Joint Ventures

  • LLPs offer limited liability in a general partnership, where a C corporation can be a partner.
  • They’re beneficial for unincorporated professionals.
  • Partners avoid double taxation and personal holding company tax, often exclusively used by professionals in many states.
  • LLPs must file a statement of qualification with the secretary of state.
  • They must also maintain professional liability insurance.
  • In most states partners have limited liability for debts and acts of other parties, based on LLP asset value, with a full shield statute.
  • Partners are still liable for their guarantees, wrongful acts, and supervisory roles over employees' actions.
  • Joint ventures, common in international trade, involve co-owners in specific projects for profit, generally treated as partnerships.
  • Venturers typically have less explicit authority compared to partners.

Limited Partnerships

  • Limited partnerships are statutory, not common law, requiring state creation and partner funding.
  • Adherence to the Revised Uniform Limited Partnership Act (RULPA) is common, mandating general and limited partners within the entity.
  • At least one general partner is needed to manage the partnership and bear full personal liability.
  • A person can assume roles of both general and limited partners, provided they adhere to the rights and liability.
  • Limited partners invest without management involvement, subject to partnership agreement exceptions.
  • Contributions from limited partners may be in cash, services, or other property.
  • Limited partnership interests qualify as securities, necessitating SEC registration unless exempt.
  • Interests are intangible because limited partners cannot claim specific partnership property.
  • Limited partners do not manage the partnership or have fiduciary responsibilities.
  • States require filing a written certificate of limited partnership, signed by all general partners, for limited liability.
  • If not properly filed, the entity will be treated as a normal general partnership.
  • Limited liability is similar in operation to that of a general partnership.
  • Profits and losses are allocated according to contribution value, without contradictory agreement.
  • Unless set otherwise by agreement, a general partner in a limited partnership holds the same rights, power and duties as in a general partnership.
  • Admitting new partners, be they general or limited, requires unanimous consent.
  • General partners can assign interest to creditors without terminating the partnership.
  • A limited partner can propose/vote on matters that do not directly control partnership operations (e.g. admission/removal of general partner).
  • Limited partners can withdraw with 6 months notice/per partnership agreement, provided doing so does not impair creditors' rights.
  • Limited partners may transact with the partnership (e.g. becoming a secured/ unsecured creditor).
  • Limited partners can access/inspect partnership records (including tax returns).
  • The can assign limited partnership interests and have similar consequences to general partners’ assignments (assignees do not become substituted limited partners).
  • Charging orders from court to obtain liens on a partner’s transferable interest can be issued if a limited partner is insolvent.
  • Limited partners hold the right to apply to dissolve a partnership and obtain an accounting of partnership affairs.
  • Limited partners are liable for their share of partnership profits in taxable income and partnership liabilities (only to the extent of their capital contribution).
  • Limited partners cannot participate in the business's control or day-to-day decisions.
  • Knowingly allowing their name to be used or being held out as participating in management can lead to liability (limited to people who reasonably believe they are a general partner).

Termination of Limited Partnership

  • Limited partnerships can be dissolved by specified events/times, partner consensus, or court orders.
  • Dissolution also occurs with a general partner's withdrawal (death/retirement), although the agreement may allow business continuation (if any).
  • The limited partner being declared as bankrupt or deceased, or a transfer of the limited partner’s interest is not sufficient for the limited partnership to be dissolved.
  • If no general partner remains, limited partners can agree to continue the business/appoint a new general partner.
  • A decedent's estate representative holds the rights/liabilities of the limited partner only to settle the estate.
  • Wind up is done by a non-dissolving general partner (if no general partner exists it is performed by a limited partner court designee).
  • Distributions treat general and limited partners equally, with assets distributed as follows (absent contrary agreement):
  • Creditors, including partners who are creditors.
  • Current and former partners from past unpaid distributions.
  • Partners as returns of heir contributions and according to the limited partnership agreement.

Limited Liability Companies (LLCs)

  • An LLC is a business structure that offers a blend of corporate limited liability with partnership tax benefits.
  • It’s a legal entity separate from its owner-investors, called members.
  • Members can be individuals, corporations, or other business entities.
  • LLCs can be formed for any lawful reason under state law.
  • LLCs need the filing of articles of organization with the appropriate state authority by one or more persons.
  • The articles of organization should include: name of LLC, the location of the place of business, the agent’s information, and whether mangers will manage the LLC.
  • An operating agreement is not required, but is recommended, and can outline sharing of profits and losses, voting rights and circumstances causing dissolution.
  • LLCs must maintain a registered agent and office in the state at all times.
  • Funding is based on member's contributions, which can include property, services, and obligations, unless agreed otherwise.
  • LLC interests may be considered securities, requiring state/federal regulation.
  • Unless there is an agreement against it, statutes typically outline that profits/losses/distributions are shared based on the value of contributions from members.
  • Members can transfer their financial share without dissolving this class of business, and the ownership is treated as personal property.
  • However, the transferee does not become a member.
  • LLCs may elect to be taxed as a partnership, however single member LLCs are taxed as sole proprietorships and can be advantageous if reinvestment in the LLC is wanted (corporate rates are lower than personal rates).
  • The default is member management unless otherwise directed.
  • Business decisions are made by the majority and members have a right to participate.
  • Manager-managed LLCs see mangers (who need not be a member) holding equal rights and and business matters being decided by them or the majority.
  • The liability of member-managers is limited.
  • LLC's can terminate/dissolve if they adhere to the following:
  • Occurrence of a specified event
  • Agreed percentage of members consenting
  • Member death (when relevant)
  • A judicial determination of frustration of purpose/impracticality/inappropriate behavior/liquidation equitability.
  • Member dissociation without relevant operating agreement clauses.

Characterizations of Entities

  • General partnerships are characterized as follows:
    • They require no formalities, meaning that there are no filings with the state and can be formed based on an oral or written agreement..
    • Capitalization consists of resources of general partners.
    • Operating procedure provides each partner equal right to participation in management.
    • Liability results in the partners being jointly and severally liable for the operation.
    • Transferability allows for transfers of financial interest, but not the loss of partner duties.
    • They are only subject to taxation at reporting level for partners.
    • Dissociation results and requires dissolution and winding up.
  • Limited partnerships require filings with the state to adhere to formalities.
    • The capitalization comes via general and limited partner resources.
    • The general partner has complete management rights and the limited partner has none.
    • Operations and liability provide general partners with unlimited liability.
    • Limited partners are only liable up to capital contribution.
    • The partner transferability allows for some financial transfers, but no affect on duties.
    • They are subject to the same taxation policies as general partnerships.
    • Termination of this entity occurs after the event of a partnership dismissal.
  • Limited liability partnerships, or LLPs, require adherence to formalities and filing with the secretary of state as well as maintenance of professional liability insurance.
    • For capitalization, resources of the partnership are used.
    • This form of liability provides partners the opportunity to operate with limited liability except in cases of issues due to their own malpractice.
    • Partner transferability again allows for only financial transfers as in other partnerships.
    • They also operate with the same taxation policies as the two forgoing styles of partnerships in that only partners are taxed at a reporting level.
    • Term of the entities occurs and can be terminated by adhering to similar regulations from partnerships.
  • Limited liability companies require adherence to formalities with the filing of the organizations articles set with the secretary of state.
    • Operations depend on organization and the members rights to management as well.
    • Transferability is only able to see the transfers of interest to limited members, or otherwise transferees that are unable to participate.
    • They may elect to operate with taxation that flows down, or those of an entity and dissolution requires liquidation.

Corporate Formation

  • Corporations are in effect depending on the regulation set under the state law.
  • The Model Business Corporation Act (MBCA) was issued to see some assistance to state lawmakers to see what establishments can fall under.
  • There are standards that apply to both publicly and closely held.
  • Corporations are separate legal entities formed under state statute via organizational document submission (incorporation articles).
  • A corporation can be traded as a legal and distinct from those that oversee.
  • Shareholders elect directors and approve a board of them to implement the change.
  • There are some characteristics for the forms of closely held corporations
  • They only host a few shareholders.
  • Stock is unable to be sold to the public.
  • Most officers and directs are owned in common.
  • There are shareholder mangers present.
  • Foreign status for the corporation needs to operate is is that a trade done within their state needs to happen in another, they need to file a certificate indicating their authority to operate in accordance to state regulations.
  • These certificates are able to oversee an operation or run the real-estate side and operations need to abide.
  • There needs to be a set of codes governing S corporations.
  • Professionals all have benefits they receive with such incorporation and need a license to operate.
  • Preincorporation contracts sees a promoter arranging the formation while also securing finances.
  • Also, prior to setting up, there needs to be specific contracts.
  • There is personably liability generally for promoters and any costs, and not for the corporation because it fails to be a legal identity.
  • This needs to occur to contract and promote is also done so from delegating corporation duties as well as assignment of rights.
  • The corporations are created with any specific number of shares that have values.
  • The entity name has to be unique and distinct.
  • There are processes for electing members and initial directors that can be named in the articles, and these are followed by resignations.
  • Board members need to take in the needs of the structure with the new bylaws.

Operations of the Corporation

  • A corporation needs to always act in a means that it finds best and must hold itself liable.
  • There is a need for agency under the law for proper responses and civil conduct and needs to happen within the scope of a position.
  • A corporation also needs to see all powers and has some actions removed with that power.
  • There is no basis to allow a lack of power.
  • Suits should be able to allow a defence.
  • Shareholders are can an injunction
  • There needs to be proceedings for prosecution actions for illegal/incorrect practice.
  • Courts will always be able to remove forms and see if its used just for wrong doing with a veil test.
  • When an entity is disregarding shareholder/corporation formalities some things should be in consideration, as well as the assets used and formalities are very important to uphold or else dissolution can occur.

Financing in Corporations

  • With financing through debt ownership does not transfer.
  • Corporation runs the possibility of having risks.
  • Shares and voting power transfers, and with shares is equity with ownership is not transferred and creditors possess and a place of priority on remaining assets.

Distributions in Corporations

  • Boards have a proper ability to assign distributions.
  • If its declared, distributions are able to be seen.
  • Stock splits do not increase proportionate numbers.
  • They must authorize its distribution.
  • Directos are only able to declare a resolution of the situation when its not unsecured for shareholders and dividends.
  • Then there is a way to return for capital and payments in cash or such.
  • All have to be paid under preferred before they distribute.
  • Cumulative shares are in arrears.
  • Liquidations are often a return and not on their dividends share basis.
  • Stock has shares/dividends in shares.
  • All surplus has to be earned and taxed with retained earnings.
  • A stock split can happen to reduce costs.

Rights of the Shareholders

  • The shareholder does not have to hold officer positions or has direct rights in a general fashion.
  • Shareholders come in primary participation and vote annual through the votes of shares, its called a quorum.
  • There are also rights to be able to fully remove a director, especially in the state that the shareholder votes.
  • Mergers and shared items should be approved by the majority shareholder.
  • Shareholders would also need to approve substantial dispossession.
  • They should adopt the corporation rights for shareholder and amendments.

Voting Rights, Preemptive Rights, and Inspection Rights

  • There could be rights stated per each voting entity that is per share set here.
  • There needs to be fair shares among those in a close corporation that holds shares as an issuance so there can be a good dilutive process, as they also have an interest in the corporations.

Inspection Rights

  • They hold a fundamental set of reasons/rights.
  • Good faith and for shareholder interest is vital.
  • Improper actions do not relate, such as secrets of trades or advantages that create mailing lists for selling.
  • There should for those that disagree fundamental changes for paid fair value in cash.
  • An item that is transferred cant be paid.
  • There needs to certain merges, there also needs to be shareholder awareness (90 share %) that do not necessarily give notice.
  • Share suits are for law suits, for actions and benefits.
  • For losses and damaged then the defence and damages can be for the entire corporation.

Directors and Officers in a Corporation

  • Each area and its state will have some requirements on directors.
  • The initial board follows procedure on when things run and needs to fall in line.
  • Directors oversee policy creation for (1) selecting officers, (2) determining capital structure, (3) proposing fundamental changes, (4) declaring dividends, (5) setting management and director compensation, and (6) adopting bylaws.
  • They are neither trustees nor agents of the corporation, and a director is unable to act individually.

Directors' Fiduciary Duty

  • Director shareholders are loyal to the corporation and they must provide good judgement and loyalty duties.
  • Good acts must be followed and not done in bad faith also the care towards everyone is important to value as people.
  • They can rely on other for the things to present.
  • If there is something with some risk on a product line and something does follow the lines can become void if the profits are done poorly of the business or are harmed and can have first choice.

Officers and the Business Judgement Rule

  • Officers follow what the board says and are elected.
  • There is president, vice president and more.
  • Agents need to manage and have certain powers.
  • Officers all must stay loyal to the corporation.
  • Courts avoid substituting the decision making for those officers and directors that don’t substitute liability.
  • All must act in good and without negligence, as well as some knowledge in business to keep a good standing and know the topics.
  • Most areas allow corporations to have items there that they can do at any time.
  • They may at times be eligible for a court to have a order to show things and why someone should or not be found not eligible.
  • Directors' and officers' fiduciary duty and the duties of care and loyalty must be held and followed.

Mergers, Termination, and Tender Offers

  • Mergers are when corporations join together.
  • One corporation will absorb others while ceasing to not exist and liabilities and shares/ rights will change hands and fall on that new body.
  • In a contraction new shareholders are created and those will cease.
  • Approvals are needed, all members also need special notice on what will occur and the process behind the plans.
  • Those actions can be in effect outside of the general market/ economy.
  • Mergers require a form for them for most of the voting process, the shareholders on such is to require a vote on there actions.
  • Tender Offers happen without most of the board getting asked for approval but are usually very profitable and has some shareholders.
  • Issuing stock is the target.
  • Self is tender.
  • A legal action.

Dissolution

  • Certain situations can dissolve an entities assets, as well as unanimous actions or with shareholders at any given situation of dissolution need to be present.
  • Shareholders could want more money or to seek dissolution, due to the board being less than ethical.

Corporate Advantages and Disadvantages

  • The assets or advantages are some of the common ones stated like there is only limited liability, with good and free and life, and all shareholders will not possess interests in products. In addition corporations offer ease of raising capital and have a lot of constitutional rights that fall under most US statutes.
  • There are some more complex items such as transfers of property.
  • The negative sides include small issues/control, with high tax, fees (substantial) and federal regulation is also big deal.
  • More problems are hostile takeovers, sales and the inability.
  • An S corporation holds formalities when looking closer with capitalization limitations on 100 investors, some limitations are when electing a C corporation instead.
  • When shareholders cant meet some standards, income becomes taxable at the highest corporate standard.
  • As for shareholders, they hold no interests in how they control the corporations, so if they declare bankruptcy or there occurs death it will all remain the same.

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