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32 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Corporation |
A corporation is a distinct legal entity that can conduct business and own property in its own right, separate from its owners.
A corporation shields its owners from liability from damages caused by the corporation. |
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1. Pre - Incorporation: Promoters |
A promoter is a person acting on behalf of a corporation not yet formed. |
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Promoters as Fiduciaries |
Promoters are fiduciaries of each other and the the corporation, thus no secret profits in dealing w/ corporation |
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Pre Corporation contracts |
Corp is not liable for pre corporation contracts unless: 1. K is expressly adopted (BOD resolution) or 2. K is implied that adopted (knowledge of K & acceptance of its benefits) once it is validly formed. |
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Liability for Pre-Incorporation Ks entered by Promoter |
A. Promoter is always liable until there is a novation
B. Corporation is never liable until there is an adoption. |
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2. De Jure Corporation |
One formed in accordance w/ the law = incorporators sign & file articles of incorporation w/ SOS |
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Articles of Incorporation require: |
APAIN A - authorized shares P - purpose A - agent listed for the business I - Incorporators N - name indicating type of Corp status |
APAIN |
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Agency issues |
Express authority Implied authority Apparent authority |
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De Facto Corporation |
Will still be treated as a corporation, with limited liability, if the organizers: 1. Made a good faith effort to comply with the incorporation process 2. Have no actual knowledge of the defect in Corp. stAtus |
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Closely Held Corporation |
The officers, directors and SHs are the same people |
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A. Shareholder agreement eliminates Corp. formalities |
Shareholder agreement eliminated Corp formalities require: 1) unanimous SH election in writing evidenced in articles, bylaws or filed agreements AND 2) reasonable share transfer restriction (i.e. no public trading |
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Advantages |
1) no veil piercing even if failure to observe formalities and 2) possible S Corp status (tax advantage). |
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S Corporation |
Must have no more than 100 SHs who are individuals residing in the US only and only one class of stock ; taxed as partnership |
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Professional Corporation |
Incorporated by licensed professionals (i.e. lawyers, accountants, medical professionals) |
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Requirements for Professional Corporation |
1. Organizers must file articles w/ name designated as “professional corporation” or “PC” 2. SHs must be licensed professionals 3. Corp may practice only one designated profession 4. Professionals have personal liability for own malpractice 5. Professionals have limited liability I.e not liable for each other’s malpractice or obligations of the Corp itself |
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Corporation by Estoppel |
C/L where one who is dealing w/ a business as a Corp may be estoppel from denying its corp status.
Estoppel only applies to contracting parties not tort victims. |
Cuz all along you’ve been dealing with them as a corporation |
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Piercing the Corporate Veil |
Generally, shareholders are NOT liable for corporate obligations EXCEPT that the courts will pierce the corporate veil to avoid fraud or unfairness |
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A. Alter Ego |
Failure to observe Corp formalities (meetings, votes, commingling if funds) |
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Undercapitalization |
Failure to maintain sufficient funds to cover foreseeable liabilities or |
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Fraud |
In tort actions against Corp a plaintiff needs to show that the Corp is an instrument of the shareholder but no burden to prove fraud |
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ACTION BY & LIABILITIES OF DIRECTORS & OFFICERS |
1. Directors 2. Officers |
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1. Directors |
Responsible for management of business & affairs of Corp; SHs can remove directors before term expires with or without cause |
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Fiduciaries |
Directors are fiduciaries who own duties of Care, Loyalty, Full Disclosure, Good Faith & Fair Dealing |
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Business Judgement Rule |
A court will not disturb directors business decisions and will find compliance either the duty of care, if 1.) director takes reasonable steps in becoming informed 2.) his decision is rationally based 3.) he acts in good faith and refrains from self dealing with a corporation
If BJR is met, the directors are not liable for the due care violation.
If director fails BJR Test, analyze liability under duty of due care |
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Duty of Care |
1) good faith business judgment 2) best interest of the corporation 3) exercising reasonable care, including reasonable investigation; unless articles limit liability for breach of duty of care - issue raised when board votes |
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Partnership |
A partnership is created when two or more people engage to co own a business for profit.
In any partnership, there he also a fiduciary relation between the partners, each other and the partnership. |
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Prima Facie Partnership |
Sharing of profits is prima facie Evidence of a partnership relationship. Other relevant indications of partnership are: 1. Obligation to share losses 2. The intent of the parties 3. The language of the agreement 4. The ownership control of s partnership business and assets 5. The community of control of administration 6. The manner in which the parties present themselves Rotherham parties 7. The rights and obligations of the parties upon th |
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Types of Partnerships |
1. Sole proprietorship 2. General partnership 3. Limited liability partnership 4. Limited partnership 5. Limited liability limited partnership 6. Limited Liability Company |
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1. Sole proprietorship |
Business owned by a single person and is personally liable for all business obligations |
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2. General Partnership |
Is the most basic partnership entity. All partners: - manage business - personally liable - share profits and losses - in absence of an agreement |
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Limited liability partnership |
Similar to general partnership except by stature partners have no personal liability for firm obligations hat exceed the assets of the partnership, however liable for claims arising from misconduct. |
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3. Limited Partnership |
General partnerships in all aspects except that the partners are not liable for the partnership obligations unless: 1. Limited partner is also general partner or participate in control of the business.
2. limited partner also liable if 3rd last would reasonable believe based on limited partners conduct that limited partner is a general partner
3. Limited partner is liable to creditors who extend credit if he knowingly lets his name be used in the name of the limited partnership and the creditors lack actual knowledge that he is not a general partner |
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