Mgmt 643 - Test 1 - Partnerships & Corporations

Front 1

(Regular) Partnership definition

Back 1

voluntary association of 2 or more persons(companies) engaged in one or more businesses as co-owners for profit

Front 2

Joint Venture

Back 2

voluntary association of 2 or more persons engaged in 1 and only 1 business as co-owners for profit

Front 3

Define/describe the partnership agreement

Back 3

Written document creating the Partnership (Pr) that includes a Name, Term, Financial arrangements, Management, and Dissolution

Front 4

Each partner (pr) in a regular Pr owns an undivided % interest in Pr which entitles the pr to various privileges such as:

Back 4

1) Management Rights - right to participate in management decisions unless managing partner is chosen to handle daily operations

2)Right to profits, losses, and other distributions

Front 5

Each partner in a regular partnership shares in profits, losses, and other distributions. Describe in detail these rights:

Back 5

1)Rigth to share equally in a Pr's profits UNLESS Pr agreement states to the contrary and losses in THE SAME PERCENTAGE AS PROFITS!

2)Right to share in Pr property upon dissolution

Front 6

Duties and privileges of partners in a regular Pr

Back 6

Fiduciary duty - like loyalty; parters have loyalty to other pr's and Pr - can't compete against Pr

Front 7

In a regular Pr, describe the P vs. A relationship in relation to the pr's

Back 7

1) pr is agent to Pr which is the P (principal) and to all other pr's

2)All rules of agency apply to pr's in Pr
A : P :: pr : Pr

Front 8

If a regular Pr was to dissolve (or need to pay its debts now) how would a creditor's claim on their assets be satisfied?

Back 8

1) Pr creditors - 1st look to Pr assets, then to individual pr's assets because prs have UNLIMITED LIABILITY FOR Pr DEBTS!

2) Individual pr's creditors look 1st to individual pr's other assets and THEN to pr's interest in Pr (profits and property)

Front 9

Can a creditor become a new pr?

Back 9

NO, not unless permitted

Front 10

Assignability - Unless a Pr Agreement states to the contrary,

Back 10

a pr can assign his rights to receive profits and property from Pr to 3rd party, but not the right to make Pr decisions

Front 11

Describe the two step process of partnership termination

Back 11

1) Dissolution - "snap shot" - point in time when Pr states to discontinue

2) Winding up - "moving picture" - ongoing process of ending the Pr

Front 12

Name and describe the 3 causes of a regular Pr dissolution

Back 12

1) Acts of the pr's - Agreement; withdrawal; new Pr

2) Operation of law - Death; Bankruptcy; Illegality

3) Court Dissolution - Incapacity; Business Impracticality; Misconduct; Dead-lock

Front 13

Describe the "winding up" procedure of termination in a regular Pr

Back 13

1) Selection of Liquidating Partner
2) Collect money owed to Pr by other people
3) Liquidation (turning Pr into $)
4) Pay outsanding bills
5) Distribute remaining assets to pr's IN SAME % AS PROFITS unless Pr Agreement states to the contrary

Front 14

Describe a regular Pr's liabilities

Back 14

Dissolution does NOT wipe out Pr liabilities
Pr is primarily responsible for Pr liabilities BUT independent pr's are secondarily responsible for Pr liabilites because of JOINT AND SEVERAL LIABILITY - "Unlimited Liability" is the biggest problem w/ regular Pr.

Front 15

What are two methods of Continuation - that is ways to avoid a regular Pr dissolution?

Back 15

1) Buy-Sell Agreement or in Pr Agreement - Pr can continue after dissolution event (i.e. death) by purchase of deceased pr's interest if mandatory or optional buy-sell

2) Value "negotiated in good faith" or whatever Pr Agreement defines as its "book value"

Front 16

Define a Limited Partership (Ltd. Pr)

Back 16

Pr with one or more regular (general) pr's who have unlimited liability and one or more limited pr's whos liability is limited

Front 17

What are 3 advantages of having a Limited Partnership?

Back 17

1) limited liability of limited partners
2) Flexibility of financing
3) No double taxation (not a corporation)

Front 18

What are 3 disadvantages of having a Limited Partnership?

Back 18

1) Lack of direct control by ltd. pr's. (aka "silent prs")
2) sale of Limited Pr interests are securities - therefore compliance with federal securities laws is necessary
3) Texas Margin Tax - applicable to Ltd. Pr's too

Front 19

What is listed in a Limited Partnership Agreement?

Back 19

1) capital contributions of pr's - initial and additional amounts must be agreed upon

2) creation of ltd pr's and general pr's

3) Managing General Partner - runs the Ltd Pr. Why? Unlimited Liability

Front 20

Discuss the method of financing an Ltd. Pr.

Back 20

1) capital contributions from limited and general pr's: cash , property and/or guarantees of Ltd.Pr. loans
2) Securities laws and state and federal laws must be complied with

Front 21

Describe the rights and liabilities of a Managing General Partner in a Limited Partnership

Back 21

Unlimited personal liability - unless General partner is a 1) corporation or 2) a Limited Liability Company

Ordinary matters are handled by the Managing General Partner BUT extraordinary matters (dissolution, etc) require the vote of ALL gerneral and limited prs.

Front 22

Describe the rights and liabilities of Investors (Limited Partners) in a Limited Parntership

Back 22

Investors liability is limited to agreed investment and corporate shareholders; therefore giving an advantage in raising capital

Front 23

Describe the rights and liabilities of Management (Limited Partners) in a Limited Parntership

Back 23

the management ltd. pr's cannot conduct ordinary business because the lose ltd. pr. protection but can take certain actions like removing the Managing General Partner

Front 24

Describe the dissolution and winding up of a Limited Partnership

Back 24

1) Controlled by the Limited Pr. Agreement or Buy-Sell Agreement
2) Limited pr's can be liquidating pr
3) Similar to regular partnership dissolution EXCEPT for ltd. pr. liability

Front 25

define a Limited Liabilitiy Partnership

Back 25

Partnership composed of 1 or more individuals, regular partnerships and/or corporations

Front 26

Why would one create a Limited Liability Partnership?

Back 26

Allows ltd. liability pr's to avoid Joint and Several Liability for torts of another pr. (Ex. malpractice)

Front 27

Name some advantages of an LLP

Back 27

1) Limited liabilit of ind. pr's to negligence of another firm member the KNEW or had reason to KNOW about
2) Contractual liability? No, like limited pr's
3) Maintains income tax favorable "flow through" status - No double taxation at U.S. level
4) Individual limited liability pr's still have control (not SILENT pr's)

Front 28

Name some concerns of an LLP

Back 28

1) Firm required to maintian malpractice insurance
2) 1 year renewable life - not perpetual
3) Add "LLP" or "PLLP" to firm name
4) Texas Franchise/Margin Tax - LLP's now have to pay this
5) More lie a regular or General Partnership EXCEPT limited liability partners DIFFERENT than regular or general partnership regarding liability

Front 29

Define a corporation

Back 29

Legally created artificial person with rights and duties similar, but not equal to, a person. It is a legal entity separate from its owners (shareholders), managers (directors) and employees (officers and personnel)

Front 30

Name some advantages of incorporation

Back 30

-Limited liability
-Financing flexibility

Front 31

Name some disadvantages of incorporation

Back 31

-Double taxation
-Franchise/Margin Tax

Front 32

Give some different classifications of a corporations

Back 32

-domestic/foreign
-public/private
-business/not for profit
-publicly held/closely held
-regular/professional
-subsidiary (a corporation whose parent owns at least controlling interest in the corporation ex: Ford, Hertz)

Front 33

6 Steps of corporation formation cycle

Back 33

1) Promoter - "idea person", puts idea with people who have $$ or expertise to make it reality

2) Incorporation - legal procedure to be born

3) Articles of Incorporation = Certificate of Formation (1/1/06). This is similar to a constitution

4)Certificate of Incorporation = Acknowledgment of Filing (1/1/06). This is like a corporate charter

5)Organizational Meeting - elect officials

6) Bylaws - statutes; internal organizational procedures (voting when meetings)

Front 34

What are the two BASIC ways a corporation can be financed?

Back 34

Debt securities and equity securities

Front 35

Define debt securities and list 3.

Back 35

$ owed by a corporation to others which must be repaid plus interest
1. Commercial loans
2. Corporate bonds
3. Corporate debentures

Front 36

Define equity securities and list 1.

Back 36

ownership interest in a corporation in exchange for investment of $$$
1. Shares of capital stock sold to shareholders ("owners")

Front 37

Corporate Powers

Back 37

1. Corporation can do almost any thing a person can do if permitted by the govt. and its management
2. Theoretically, it is a business representative democracy - shareholders elect directors who hire officers and employees.

Front 38

Name three important times shareholders vote

Back 38

1 Election or removal of BofD with or without cause
2. Ammendments to Articles of Incorporation
3. Approval of extraordinary matters - merger, for ex.

Front 39

What is a proxy?

Back 39

If shareholders can't attnd and vote at a corporation annual meeting, they give a signed written autority to vote their shares to another (usually corporate management)

Front 40

If managements has the proxies in a corporation (which they usually do), then they control the corporation by selecting the BofD. New federal law:

Back 40

requires an INDEPENDENT audit and governance committee of compensation of BofD

Front 41

Name the 3 major shareholder ownership rights:

Back 41

1. Dividends
2. Preemptive rights
3. Inspection

Front 42

What are corporate dividends?
What are the 2 types?

Back 42

Shareholder return on shareholder investment (similar to interest).
Shareholders, however, don't have a RIGHT to dividends (they are set by the BofD).
1.Cash Dividend
2. Stock dividend (reinvests the cash otherwise given out)

Front 43

What are corporate shareholder's preemptive rights?

Back 43

Right, if permitted in the Articles of Incorporation, for shareholders to purchase additional shares of the corporation to maintain their % ownership (if for example, the corporation what issuing more shares)

Front 44

What is a shareholder's right to inspection?

Back 44

It is the right to inpect the corporation's books and records; the right to the corporation's SH's names and addresses (for possible corporation takeover).

These inspection rights can be changed or limited by the corporation's organizational documents.