Ba/corps 8-14

Front 1

Under which circumstances a partner may be liable for the obligations of a LLP?

Back 1

None in Minnesota!
Pursuant to §323A.0306 (c): an obligation of a partnership (only) incurred while the partnership is a LLP, whether arising in contract, tort, or otherwise is solely the obligation of the partnership.

Front 2

What are the conditions to maintain the limited liability of a LLP?

Back 2

Each calendar year, an annual renewal must be filed and a fee must be paid with secretary of state (§323A.1003).
Retroactive reinstatement is possible.

Front 3

When does a LLP become effective?

Back 3

A partnership may only become a LLP by filing a statement of qualification (§1001 (c) & (e)). The effectiveness of its status may be delayed to a date specified in the statement.

Front 4

What makes a LP attractive?

Back 4

- First "middle ground entity" to combine partial limited liability and pass-through taxation.
- LP allows one or more General Partner to retain the control of a business and raise capital from one or more passive Limited Partners who enjoy limited liability (private equity funds).

Front 5

How is a LP managed?

Back 5

Any matter relating to the activities of the limited partnership may be exclusively decided by the general partners, which have equal rights in the management.

Front 6

What are the consequences of a limited partner participating in the management of a LP?

Back 6

In Minnesota (unlike NY or Del), a limited partner enjoys limited liability, "even if the limited partner participates in the management and control of the LP" (§321.0304).

Front 7

What is a Limited Liability Limited Partnership (LLLP)?

Back 7

A LLLP is a LP in which even general partners have limited liability (same as LLP for liability purposes -- but differences in structure of management).

Front 8

- What is a S corporation?
- What are the requirements to qualify as such?

Back 8

- A S Corporation election is a tax election that targets small closely owned corporations and provides for a favorable pass-through taxation.
- To be eligible, a corporation must NOT:
1. Have more than 100 shareholders;
2. Have shareholders who are non resident aliens or non-individuals, and;
3. Issue more than one class of stock.

Front 9

What are the main characteristics of a LLC?

Back 9

- A LLC provides its "members" with:
1. Limited liability, even if a member participates in the control of the business (but can be pierced);
2. Pass-through tax treatment (initial objective, now "check the box");
3. Strong freedom to contractually arrange the internal operations of the venture.
- Now accounts for almost half of all incorporation. Very attractive for SME.

Front 10

How is a LLC managed?

Back 10

The business and affairs of a LLC is to be managed by a board of governors.
However, members can take control through unanimous vote (§322B.606).

Front 11

How are profits/losses and voting rights shared among members?

Back 11

The default rule is that profits/losses and voting rights are to be allocated among members in proportion to the value of their contributions (§322B.326).

Front 12

How is a Corporation formed?

Back 12

One natural person may act as an incorporator of a corporation by filing with the secretary of states the articles of incorporation (§302A.105).
The corporate existence begins when the articles are filed accompanied by a payment of 135$ (§302A.153 -- same rules as LLC). When articles filed and fees paid, incorporation is presumed and secretary must issue a certificate of incorporation (§302A.155).

Front 13

What are the required provisions the articles of incorporation shall contain?

Back 13

They shall contain (§302A.111):
- the name of the corporation (must include "Co", "Limited", etc. -- may be reserved);
- the address of the registered office (where mandatory documents will be sent/company will be served);
- the aggregate number of shares that the corporation has authority to issue;
- the name/address of each incorporator (usually the lawyer).

Front 14

What is the definition of a "promoter"?

Back 14

A person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes initiative in founding and organizing the business or enterprise of an issuer.
A promoter is personally liable on the contract and will remain severally liable along with the corporation if it is subsequently formed and adopts the contract

Front 15

If an entity is subsequently incorporated, is a promoter off the hook?

Back 15

- Only in the event of a novation, whereby the Corporate entity is substituted for promoter on a contract. Three elements: (1) corporation agrees to be bound; (2) corporation agrees to substitute for the promoter AND (3) third party accepts that substitution (How v.Boss).
- In the event of an adoption, where the corporation simply accepts the benefits of the contract or signs it: corporation becomes additionally liable and the promoter is not off the hook.

Front 16

What are the two types of defective corporations?

Back 16

1. De facto corporations: if good faith attempts to comply with the appropriate formation requirements but fails to comply with a technical requirement. Not recognized in MN since enactment of §302A.161/Jetmar.
2. Corporation by Estoppel: a case-by-case theory that really only applies in contractual situations where there’s an association but no actual attempt at incorporation. The party typically relies on the idea that there is a corporation.

Front 17

What are the legal consequences if a corporation by estoppel is recognized?

Back 17

1. The corporation will be estopped from disregarding a contract or obligation on the basis that it was not validly formed.
2. The promoter who acted on behalf of the purported corporation (knowing the corporation has not yet been formed) will also be liable to the other party for such contracts and obligations.
3. If several promoters, they could be deemed to have formed a partnership and be jointly and severally liable.

Front 18

Is the law governing defective corporations the same for corporations and LLCs?

Back 18

Yes. Since the rules applicable to LLC are mainly based on the law applicable to corporations, both entities are governed by the same rules/case law regarding defective corporations.