Corporations Outline
Definition:
legal entities which offer limited liability for the investors and which may provide a tax advantage.
Corporate Theories
1. State charters: st can push you around; heavy liability
K theory: K b/w SH and directors; corp seris of K subj to negotiations and alterations
Team theory: part of team and team produces all together for progress
What law governs corp?
state in which inc
internal affairs of corp governened by that state law of inc
agency law
truck driver for corporation gets in accident
who can bind corp on contract
did have apparent authority
lead 3rd party reasonalbe belive had authority
then can bind
Federal securites law
1933 act governs when corp initailly try to arrange money trhougth stock
must make disclosures requried by act
1934 act
solicit votes of people have to comply with section 14
shareholder proposals and anti-fruad (10b)
Corporations v. Business entities (chart pg. 2 suppl)
2 Elements you always want:
A. Limited liability
Partnerhsip taxation
Corpoaration gives hsareholders limitd liability.
ordinarily not personally liable for corporate debts
this same with LLC
LLP-in IL SH still liable for torts of those under LL parnter’s control and LLP liable for ordianry contract debts.
Regular partnerships
one tax rate by the indiv
end when partners die
can create by handshake
can sell rights to profits
cannot make someone a partner involuntarily—but can K around this to allow for a partner with a vote, etc…
is personal liability
default b/w two or more people
Limited partnership: general partner runs then inverstors LP
enjoy same liability protection as SH
limited partners cannot participate in control of venture and have limited liabl
if someone believes you are not a limited partner then you are gonna be liable
if participate in running the bus then subject yourself to unlimited liability
If a person falsely believed they were a limited partner, they can escape liab before reliance by a third party on that person’s status as a general partner. If there has already been reliance in GF then past debts are subject to liab.
· How show erroneously bleived LP
· peson contributed capital
· erroneously believed LP
· not GP or bound by its obligations
· promptly renounce interst upon ascertaining the mistake
LP’s can contribute cash and property but NOT services
If GP a corp, the corp is personally liable; SH are not liable nor is LP liable just b/c he is a she or office holder of the corp (safe harbor provison)
have partnership taxation
advice and suggestion to GP not usually enough for liable, either is:
· hire and fire GP
· contractor for or agent or employee of limited partnership
· acting as surety for limited partnership
· requesting mtgs
· proposing, approving, or disapproving sales, lease, mortgage of LP, indebtedness of LP
Is a commission proprosal that woud allow LP to participate in manage, but no states have yet to adopt it.
LLP
register with SOS
IL-have incomplete protection from liabl
just like regular parnership but register with state
suppl 115-116
Master LP:
if publicly traded, taxed like corp
but can “check-the-box” and pick how taxed
S
need 2 people for LLC, now must sts say 1 ok
Illionois Law
can form LLC for anything but:
i. banking; except accepting/executing trusts
ii. insurance
iii. dentistry unless all members managed and licensed
iv. practice of medicin unless all members and magers are licensed in IL
v. CAN have for JD office but can not limit liabl beyond that over general law firm
Name
must be distinguishable fom others on record with SOS
has to contain inc, corp, or lim, LLC
must be distinguishable from records at SOS
can conduct bus under an assumed name to the same extent an indiv may- purpose must be to not defraud the public
IL-can use name of a corp that is not a copr of IL, but can still be liable for copyright or trademark
What can be in operating agreement?
IL pg. 80-81
can eliminate liab for mis-manage
can limit duty of loyalty
can say compete in certain areas
can alter but NOT limit FD
Who can bind LLC?
Member-managed
every member unless specifically restricted and 3rd party knows it is restricted-put in operating agree
not enough to protect if 3rd party thinks you have authority…should make clear!
Manager-managed
manager can bind
can limit but should disclose that b/c of appearance then can still bind
C Corp
double taxation
corp taxed
