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68 Cards in this Set

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What is a partnership? (#56)
An association of two or more persons to carry on a business for profit as owners, regardless of intent to form a partnership.
What is the relevant code for partnerships? (#56)
Texas Revised Uniform Partnership Act ("TRUPA") and the TX Business Organizations Code (TBOC) (for partnerships formed on or after January 1, 2006.
What is the TX rule regarding preemptive rights? (#55)
SH of corp incorp before Sept 1, 2003 have preemptive rights unless the articles specifically provide otherwise.

Shareholders of corporations incorporated after Sept 1, 2003 have preemptive rights only if the articles provide for them.
May a director issue shares of a corp?
No, in TX, only the BOD may authorize shares and determine proper consideration.
What kind of authorization is necessary for sale of all, or substantially all, of a corp's assets?
This is a fundamental corp change and must be authroized by the holders of at least 2/3 of outstanding shares.
What should a SH do if she has preemptive rights but is denied by the corp in purchasing newly issued shares?
Sh must offer corp the issue price and bring suit w/in 1 year after she gets notice from the corp that shares will be distributed w/o regards to her preemptive rights. OR within 4 years of the date on which corp distributed those shares (whichever is earlier).
What are the requirements for the right to inspect books and records?
Anyone who has been a shareholder for at least 6 months immediately preceding demand or owns at least 5% of the outstanding shares has a right to examine books and records upon showing of a proper purpose.
What is a proper purpose for SH reviewing books and records?
A purpose reasonably related to one's interest as a SH.
What can Sh collect if she has to bring suitto review records?
If she wins, SH can collect expenses, including atty fees.
Does TX law require more than one director?
No - that was the old law. The new law allows 1 director, but a SH may call a special meeting to expand the board.
What is required for a SH to call a special meeting?
Owns 10% of the outstanding shares entitled to vote.
What are the req for a SH to have the right to inspect books and records? (#54)
Anyone

1) who has been a SH for at least 6 months immediately preceding her demand, or owns at least 5% of the outstanding shares AND

2) a proper purpose
What is the restriction on a limited partner's liability in a limited partnership? (#53)
A limited partner is not personally liable unless he participates in control;

He is also liable to anyone who transacts business with the LP reasonably believing, based on his conduct, that he is a general partner.
Does later registrations as a limited form of business organization shield a partner from liability? (#53)
No.
What are the safe-harbors for a limited partner's ability to act w/o "participating in control"? (#53)
This is a NON-EXCLUSIVE LIST:

- acting as an employee or agent of the LP
-advising a general partner on any matter, including the LP's business
- participating in a partner's meeting
- approving the incurrence of indebtedness
- acting as an officer, director, or SH of a corp general partner
What is the limit of liability for a partner in a LLLP (limited liability limited partnership)? (#53)
It shields partners from vicarious liability for firm contracts and for torts committed by another partner or a firm employee, unless they were supervising the tortfeasor, were directly involved in the tort, or knew about the tort when it occurred and did nothing to stop it.
Who has liability for torts in business associations? (#53)
Tortfeasors are always liable for their own torts no matter what business form is used.
If you start off w/ a general partnership, you incorporate, and then incorporation fails, how can you approach the problem?
1) Look for de facto corporation (effect in TX is unclear)

2) Look for corp by estoppel (effect in TX is unclear)

3) Look at it from partnership perspective
If you start off w/ a general partnership, you incorporate, and then incorporation fails, how can you approach the problem?
1) Look for de facto corporation (effect in TX is unclear)

2) Look for corp by estoppel (effect in TX is unclear)

3) Look at it from partnership perspective
Can a partner's obligation to make a contribution to partnership be compromised?
Yes, with the consent of all of the partners.

An obligation to contribute is only enforceable if it is in writing.

However, a creditor who extended credit to the LP BEFORE the compromise may enforce the original obligation.
What is required for a LP to come into existence?
A certificate must be filed w/ the secretary of state.
Can a partner's obligation to make a contribution to partnership be compromised?
Yes, with the consent of all of the partners.

An obligation to contribute is only enforceable if it is in writing.

However, a creditor who extended credit to the LP BEFORE the compromise may enforce the original obligation.
What is required for a LP to come into existence?
A certificate must be filed w/ the secretary of state.
If one erroneously, but in good faith believes herself to be a LP, how can she avoid future liability?
By filing a certificate w/ the secretary of state, but that will NOT shilef her from liability to creditors who transacted business with the LP beforehand.
What must directors do after the secretary of state issues an acknowledgment of incorporation?
The directors named in the certificate of formation must hold a organizational meeting to adopt bylaws and elect officers (the meeting may be held outside TX).

Directors must give at least 3 days' notice, stating the time and place of the meeting

No minutes are required.
How can a director or shareholder waive notice?
In writing to the secretary

Attendance
Can president and secretary be the same person in a corporation?
Yes -- one person may hold multiple offices
What is valid consideration for shares?
Board may issue shares for consideration consisting of any tangible or intangible benefit to the corporation or other property of any kind, including cash, promissory notes, services performed or contracts for services to be performed.

In the absence of fraud, the board's judgment as to the value of consideration is conclusive.
What are subscriptions (regarding shares)
An offer to buy shares from a corporation. A corporation may accept a subscription by notifying the subscriber in writing of its assent. If no notice, then no acceptance by corp of offer to buy shares.
What is a limited partnership?
An LP consists of one or more general partners and one or more limited partners. General partners manage the firm and are jointly and severally liable for its debts. Lmited partners are essentially passive investors whose liability is limited to their capital contributions.
What is a limited liablity limited partnership (LLLP)?
It is basically a limited partnership (LP) where the general partner also has limited liability.
What is an LLC?
Members of a LLC have limited liability for firm obligations, except in extraordinary cases where the court pierces the corp veil. Members can manage day-to-day, or managers can manage. LLC gets pass-through tax-treatment like a partnerhsip, UNLESS it CHOOSES to be taxed as a corporation.
How can a corporation get pass-through taxation?
Elect to be taxed under Subchapter S of the IRS code. However, there are many restrictions under subchapter S.
What kind of authority does the president have?
Actual authority for transacting ordinary business. Apparent authority based on her title, any prior dealings, and how similar businesses operate.
When will a court pierce the corporate veil?
To hold Sh liable if the corporation is being used as a sham, to perpetuate fraud or in an unjust manner.
What is the TX limited on piercing the corp veil?
Under TX law, a court's ability to pierce is limited by statute. A court may pierce in a CONTRACT case ONLY if there was ACTUAL FRAUD involved.

Failure to observe formalities is not enough to justify.
How does piercing the corp veil affect non-guilty SH?
It is applied on a SH-by-SH basis.
How are winding up costs of a partnership split?
It is a partnership obligation which partners must bear.
What liability do individual partners have to creditors?
They are joint and severally liable. However, a party must first exhaust partnership assets before going after individual assets.
What is the partnerships' liability for an individual partner's actions?
The partnership is liable for individual misconduct.
What is the de facto corporation doctrine?
A court may treat an invalidly formed corp AS IF it had been formed if:

It requires a state incorporation law, a good faith attempt to comply with it, and an act in the corporate name.

The doctrine might NOT be viable in TX (there is no caselaw)
What is corporation by estoppel?
It bars a person who dealt with what she believed to be a corporation from holding the owners personally liable

The doctrine might NOT be viable in TX (there is no caselaw)
What words must a duly formed TX businesss corp have in its name?
"corporation", company, incorporated or an abbreviation of those words.
What is a restriction on business corp names?
The name cannot contain any word that indicates the corporation is organized for any purpose other than the puroses contained in its cert of formation (eg where using the word "Bank" in the name would be misleading b/c it's not a bank)
Can a corporation make a loan to its directors?
Yes if the laons are necessary or appropriate

HOWEVER, SOX changes this (loans to directors of any type are NOT allowed)
What are the 5 factors listed in the business code for forming a partnership?
1) receipt or right to receive a share of profits,

2) the expression of an intent to be partners

3) sharing or agreeing to share losses

4) participation or the right to participate in the control of the business

5) contributing or agreeing to contribute capital
What is the difference b/w a joint venture and a partnership?
Very little differnce. Both governed by TBOC, but joint venture requires an express agreement on how losses are shared. A partnership doesn't require this (losses follow profits if not defined)
Is a partner entitled to compensation for services?
No...EXCEPT for reasonable compensation for winding up partnership affairs.
NO QUESTION
Remember that with partnerships, profits are different from gross (so taking a chunk of gross revenue will is not the same as taking a chunk of profit)
When may directors take action without a meeting?
ONLY if ALL the directors consent in writing.
When is a proxy irrevocable?
When the proxy form CONSPICUOUSLY states that hte proxy is irrevocable and the proxy is coupled with an interest.
What are some "interests" that qualify to make a proxy coupled with an interest?
- appointment as proxy of a person to whom the shares have been pledged

- a person who has purchased or agreed to purchase the shares

- a corporate creditor who extended credit under terms requireing the appointment

- a party to a shareholder voting agreement

- a corporate employee whose employment contract requires the appointment
What kind of approval do you need for a sale of all or substantially all assets?
2/3 of the outstanding shares authorized to vote
When is a corp not allowed to make a distribution?
If making the distriubtion would cause the corp to be insolvent or exceeds the corp's surplus
What is the test for insolvency?
Whether the corp can pay its debts as they become due in the ordinary course of business.
What are the requirements for a SH to bring a derivative suit?
1) he must have been a shareholder at the time the act complained of or must have become a shareholder by operation of law from someone who was a shareholder at that time (eg by devise or inheritance...but not by gift or sale)

2) he must fairly and adequately represent the interests of the corp

3) He must make a written request on the board to bring the suit.
Do the reqs for bringing a SH derivative suit apply to a close corp?
No
What is the definition of a close corp
Fewer than 35 SH that has no shares listed on a national securities exchange or quoted on NASDAQ
Does a close corp have to be formed as a close corp?
No, as long as it has close corp characteristics, it can be treated as a close corp.
What must a LLC or LP do to use a name?
The name cannot be the same as or deceptively similar to the name of an existing corporation, LLP, or LLC on the records of the Sec of State.

If the name passes the test, you can reserve the right to use the name for 120 days by filing an application w/ the Sec of State and filing a fee.

If the name does NOT pass the test, you can only use it if the other business consents in writing.

Note also that an LP or LLC must end w/ words "Limited Partnership" or "Limited Liability Company", or abbreviations to put 3rd parties on notice that they are dealing w/ a limited liability entity.
May a partner withdraw early from a partnership for a particular undertaking?
Yes, but he will be liable for damages caused by the early withdrawal b/c it is a wrongful withdrawal.
What ordinarily happens if a event requiring windup occurs w/in 60 days after withdrawal?
The partnership interest of a withdrawn partner is automatically redeemed by the partnership for its fair value as of the date of withdrawal.
What happens when a partner wrongfully withdraws before completion of a particular undertaking is completed?
He is not entitled to receive any of the redemption price (less damages owed for wrongful withdrawal) until the undertaking is completed unless he establishes that earlier payment will not cause the partnership undue hardship.
May the partnership agreement vary a partner's power to withdraw by death?
NO! Death is an event of withdrawal. However, an event of withdrawal does NOT require winding up of partnership affairs and the business continues.
Does a transferee have anyh rights to participate in the management or conduct of the partnership's business?
No - they only have a right to receive distributions that would have otherwise gone to the transferor.
When is an agent liable to a third party?
When the principal is undisclosed.
What happens if a corp fails to pay franchise taxes?
It forfeits its corporate privileges, but if the corp corrects the failure w/in 3 years of dissolution, it is reinstated and corp existence generally is deemed to have continued uninteruppted
What kind of effect does failure to pay franchise taxes have on the liabilitiy of officers and directors?
Every officer and director is personally liable for each debt of the corp incurred after the tax was due and before corp privileges are revived.