Cla Review Manual: Business Orgs (Chapter 10)

Front 1

Where can you find the laws about business orgs?

Back 1

The Uniform Partnership Act (UPA), the Revised Uniform Limited Partnership Act (RULPA), and the Revised Model Business Corporation Act (RMBCA)

Front 2

What are some advantages of a sole proprietorship?

Back 2

flexibility

if the business sells goods, the owner must obtain a sales tax license, and if the business will have employees state and fed tax id numbers must be obtained; some need special licenses (taxi, child care)

Front 3

What are disadvantages of a sole proprietorship?

Back 3

It is treated as an extension of its owner for income tax purposes; capitalization of the business comes from the owner

Liabilities are the unlimited personal liabilities of its owner, making it possible for the owner to lose all personal assets;

limited by the life of its owner

Front 4

What governs a general partnership?

Back 4

The Uniform Partnership Act (UPA)

Front 5

What constitutes a partnership?

Back 5

It has to be at least two "people." A person can be an individual, partnership, corporation, or other entities.

Intent to associate - formal written; verbal agreement; conduct of partners

Shared equally by the partners unless otherwise specified in writing

Finally, it must be "for profit"

Front 6

How are partnerships taxed?

Back 6

It's a "pass-through" entity for taxation purposes, which means that each partner is taxed on his proportionate share of deductions, credits, profits, and losses at the personal income tax rate applicable to that partner. The partnership is taxed separately,

Front 7

What about the formation and existence of a partnership?

Back 7

1) sales tax license
2) other licenses
3) state and fed tax id numbers
4) good idea to have written agreement
5) when there are no terms, it falls to the UPA rules

Front 8

How long can a partnership exist?

Back 8

any length of time; if more than one year, there has to be a written agreement to comply with the Statute of Frauds

if no term is stated, then partnership is "at will" which may be terminated by any partner upon notice to the other partners

Front 9

When is registration of a partnership required?

Back 9

If less than all of the partners' names are used or if an entirely different name is used, most state do require it.
Sanctions for noncompliance vary from state to state; usually they deny the partnership is denied the right to use that state's court systems

Front 10

Is a partnership viewed as an aggregate of its partners or a separate legal entities?

Back 10

common law - a partnership was viewed as an aggregate of its partners

UPA - aggregate for some situations; separate entity for others

Example: all partners are personally liable for partnership debts; yet the partnership may acquire etc property & partnership assets, liabilities, and transactions are separate from those individual partners

tax laws treat partnership as aggregate by attributing income and expenses to individual partners

Front 11

What about partnership's property?

Back 11

Property may be held in the partnership's name of may be held in the partnership's name or any partner as agent.

If it's purchased with partnership's funds, then it belongs to everyone.

you can't sell it without everyone's consent

you can't sell your fraction of the partnership

creditors can't go after one partner's property to satisfy individual debts

if a partner dies, that portion belongs to the rest of the partners

Front 12

What about the financial structure of a partnership?

Back 12

if no value is stated, it will be presumed that contributions were equal and profits will be divided equally

Front 13

What is partnership interest?

Back 13

It is calculated by a formula that includes the partner's initial contribution and subsequent advances, increased by surplus profits and decreased by undistributed losses and withdrawals from the partnership

Front 14

What are the rules about specific partnership property?

Back 14

Must state the amount of capital each partner is contributing or it will be assumed equal. Property purchased with partnership funds belongs to all partners equally. Can't sell it without consent of the other partners.

Front 15

What about management?

Back 15

The law presumes that all partners will devote their full times and attention without compensation. If they want something different, they must say so in the partnership agreement.

Front 16

Silent Partner

Back 16

One who assumes all benefits and burdens of her partner status except for management

Front 17

Liability of Partners

Back 17

Members of a general partnership have unlimited liability to partnership creditors if the assets of the partnership.

Front 18

What happens when a partner leaves a firm?

Back 18

Remains personally liable for the debts incurred while she was a partner in the firm unless an indemnification provision is included in the original partnership agreement.

Front 19

When is a partnership dissolved/terminated?

Back 19

When any partner leaves, the partnership is dissolved. The remaining partners form a new partnership.

Front 20

When else is a partnership terminated/dissolved?

Back 20

It can be terminated by an agreement of the parties. Death, disability, the partnership becoming unlawful are other reasons.

Front 21

What happens to the liquidated assets when a partnership is dissolved?

Back 21

If remaining partners don't want t to continue, they have to give a notice of dissolution to all persons who may have a claim against the partnership. All assets are liquidated and creditors are paid first.

Front 22

What is a Limited Partnership?

Back 22

They have no liability for debts of losses beyond their investment in the partnership.

Front 23

What happens if a person is both a general partner and a limited partner?

Back 23

That person has the liabilities of a general partner in relation to creditor. A corporation may be a general partner in most states, which may diminish the concept of unlimited personal liability of the general partner.

Front 24

How to limited partnerships differ from general partnerships?

Back 24

1. It can only be formed only by complying with specific statutory requirements, which include filing a certificate to provide notice to creditors. A general partnership does not have any formal filing requirements.

2. A limited partner may not participate in management or control of the business.

Front 25

How does one form a limited partnership?

Back 25

You have to sign and file a certificate with the SoS showing the name and address of the LP; name and address of each partner, and ID of an agent for service.

Need to file any amendments or changes.

Need to file a partnership agreement

Front 26

What is RULPA?

Back 26

Revised Uniform Limited Partnership Act put i place in 1985 by the National Conference of Commissioners on Uniform Limited Partnership Act

Front 27

What are the rules about LP's names?

Back 27

LP has to be part of the firm's name.

The surname cannot be used as part of the firm unless that person is also a GP or the firm had the name before admitting the LP.

Front 28

What records does RULPA require a LP to keep?

Back 28

1. a current list of names and addresses of all partners
2. a copy of the certificate of limited partnership and all amendments
3. a copy of all financial statements and tax returns for three years; and
4. a copy of any written partnership agreement that exists

(also it must maintain an agent for service of process)

Front 29

What about the financial structure of a LP?

Back 29

The profits, losses, and distributions are allocated among partners according the agreement. If there isn't one, RULPA says that it's done on the basis of contributions

General partnerships says that it's equal

Front 30

What kind of management activities are permitted by RULPA for LPs?

Back 30

1. serving as a contractor, agent, or employee of the LP or of a GP

2. consulting of advising a general partner concerning the limited partnership's business

3. acting as a surety for the limited partnership

4. voting on vital partnership matters (dissolution, removal of a GP, etc).

Front 31

Who manages LPs?

Back 31

The general partners manage and incur personal liability to creditors if partnership assets are insufficient.

Front 32

Can LPs participate in any management?

Back 32

Nope. They can have voting rights of GPs let them. If not, RULPA only gives them voting rights regarding the admission of a new partner (must be unanimous)

Front 33

What about liability for a limited partner?

Back 33

They are only a liable to the extent of their investment in the business, but there are 3 exceptions:

1. the LP's name appears in the name of the LP
2. the LP participates in the management of the business in an unlawful way
3. false statements are made in the certificate of limited partnership, and the limited partner takes no action to correct the defect

Front 34

How are LPs dissolved and terminated?

Back 34

By agreement of the partner

also by the the withdrawal of the GP unless there are provisions in place or if everyone consents to a continuation

Front 35

What happens to the assets of a dissolved LP?

Back 35

firm assets are collected and distributed according to statute; outside creditors are paid first

Front 36

What is a Joint Venture?

Back 36

The combining of efforts by two or more persons for one transaction or for one event only. Example: between an entertainer and a promoter, for a concert or show

Front 37

What is a joint stock company?

Back 37

also joint stock association; happens when its members pool their capital into a private fund instead of owning his or her own stock separately

Front 38

What is a corporation?

Back 38

An artificial person created by or under authority of statutes to carry on a business or activity separately from its creators, owners, or investors. It has unlimited liability for corporate obligations; however its owners' liability is limited to the amount of their investments

Front 39

How do you establish personal jurisdiction for a corporation?

Back 39

It is a citizen of the state of where it is incorporated as well as where it does business

Front 40

Public corporation

Back 40

created by govt entity to administer govt purposes; local gov may create a municipal corps to administer the affairs of a city

fed gov: Federal Home Mortgage Association

Front 41

Private corporation

Back 41

made my private persons for private purposes, either non-profit or for-profit

Front 42

Nonprofit corporation

Back 42

usually educational, religious, or charitable; not for the purposes of enriching those who run it

Front 43

Business corporation

Back 43

for-profit; the profits are to be distributed among its owners

Front 44

Publicly held corporation

Back 44

owned by many shareholders and the stock is publicly traded

Front 45

Closely held corporation

Back 45

owned by one shareholder or a small, closely connected group of shareholders

Front 46

Professional corporation

Back 46

a type of closed corporation formed by a group of professionals (lawyers, accountants, doctors) to carry on the practice for which they are licensed

These shareholders are personally liable; incorporate for tax benefits and retirement plans

Front 47

Domestic corporation

Back 47

one which operates in the same state in which it was organized or created

Front 48

Subsidiary Corporation

Back 48

one whose stock is owned entirely or in substantial part by another corporation

Front 49

Chapter S corporation

Back 49

small business corp which may elect to have its undistributed taxable income taxed to its shareholders as if it were a partnership; they generally avoid corporate income taxes on profits and corporate losses may be claimed by shareholders

Front 50

Foreign Corporation

Back 50

One operating in a state different from the one in which the corporation was created

Front 51

Parent corporation

Back 51

the corporation owning the majority of shares in a subsidiary corporation

Front 52

Limited Liability Company

Back 52

corporate form authorized by a growing number of states intended as a hybrid of the most attractive characteristics of partnership and corporations

Front 53

Advantages of incorporating

Back 53

free centralization of management
free transferability of ownership interests
perpetual existence
limited liability of owners

Front 54

Disadvantages of incorporating

Back 54

not good for small businesses

all the above things can be stated in a partnership agreement

it's expensive and complicaed

need to consider how important limited liability is and if fed income tax is favorable

Front 55

Promoter

Back 55

A person who plans and organizes the business affairs of the intended corporation. This includes arranging capital, development of the business ideas, securing property and personnel

Front 56

What about liability for a promoter?

Back 56

The promoter who contracts on behalf of a proposed contract is liable on the contract unless she discloses that the corporation has not yet been formed.

if it's considered "pre-incorporated" - the promoter may characterize the transaction as an offer to the corporation, to be accepted or rejected after its formation

Front 57

What is the MBCA nd RMBCA?

Back 57

The Model Business Corporation Act and the Revised one

Front 58

Who makes the laws regarding incorporation?

Back 58

Governed by state. Delaware has some of the least restrictive, so that's why a bunch of businesses incorporated there

Front 59

Incorporators

Back 59

draft and execute a document called articles of incorporation; it can incorporate another corporation

Front 60

Articles of Incorporation

Back 60

this is submitted with a fee to the secretary of state who issues a certificate of incorporation if the articles meet all statutory requirements

Front 61

What are required contents of the articles of incorporation?

Back 61

1. The name of the corporation

2. Its duration (whether perpetual or for a specific, limited time)

3. the purposes for which it is organized

4. a statement of the authorized classes of stock, the authorized number of shares, and the rights and preferences of shares and shareholders

5. address of the corporation's registered office and the name and address of the registered agent

6. the names and addresses of the original directors comprising the board of directors

7. the name and addreses of each incorporator

Front 62

Bylaws

Back 62

Written rules which supplement the articles of incorporation in governing the corporation's internal affairs

Front 63

de jure corporation

Back 63

one which has complied with all statutory requirements governing its organization and existence

Front 64

de facto corporation

Back 64

not a corporation; failed to comply with statutory requirements for organization and existence; legal fiction to prevent creditors from coming after people individually

Front 65

corporation by estoppel

Back 65

when a third party deals with a corporation unaware of its defective organization and relying solely upon the corporation's credit, the third party is prevented from holding owners personally liable.

Front 66

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Back 66

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