Business Organizations Outline

 
Business Organizations Haas Spring 2015
 
 
 
 
 
6 areas of Business Organizations:
1) Choice of Entity
2) Corporate Structure
3) Fiduciary Duties
4) Fiduciary Duties of Controlling Stockholders
5) Shareholder Informational Rights
6) Special Problems Relating to Closely Held Corporations
 
Final
·         3 hours
·         Short Essays with word limit
·         Multiple Choice
·         Closed Book
 
Assignment #1 Sole Proprietorship (SP) and General Partnership (GP)
 
·         Will use corporation and company interchangeably
·         Will use shareholder and stockholder interchangeably
 
Forms of a new Business Venture:
1) Sole Proprietorship (SP)
2) General Proprietorship (GP)
3) Limited Partnership (LP)
4) Limited Liability Partnership (LLP)
5) Limited Liability Company (LLC)
6) Corporation
·         Can be broken down into a S Corp and C Corp (taxation purposes)
 
6 Factors in Deciding What Form to Recommend:
1) Who is liable for the debts of that business if the business cannot pay?
2) Who gets to control or manage that entity?
3) How easily can one owner transfer his or her ownership interest to somebody else?
4) How long can this business entity last?
5) How is this business entity taxed? (Taxed at entity level itself or does it benefit from flow through or pass through taxation)
6) How easily can this entity raise additional capital?
 
Sole Proprietorship
·         Most fundamental
·         Most businesses are sole proprietorship
·         Need 2 things: 1) an owner 2) a business
·         More than 1 person cannot have an ownership stake in a sole proprietorship
·         Can have employees
·         No govt filings needed (unless you plan to use a fictitious name for your business)
 
6 Factors in Relation to Sole Proprietorship
1) The owner has unlimited personal liability (Creditor can seize business or personal assets)
2) The owner has control of the entity
3) Must have an asset sale to transfer ownership interest
4) For the lifetime of the owner (can also end with incapacity, owner retiring, and bankruptcy)
5) Taxed at individual/personal level (Look at T-3 and T-1 Supp)
6) Raise capital through loans
 
General Partnership
·         Governed by statutes (Either Uniform Partnership Act (UPA) or Revised Uniform Partnership Act (RUPA))
o   Certain laws can’t be waived (mandatory) (ex. RUPA 103(b))
·         Definition: UPA 6(1) – An association of 2 or more persons to carry on as co-owners a business for profit (also RUPA 101(6))
·         Don’t need to intend to be a partnership
·         Fact that you stated in a written agreement that you are not partners is not controlling
·         Generally there is no need for a formal/written partnership agreement (RUPA 101(7))
 
6 Factors in Relation to a General Partnership
1) Each partner has joint and several liability (A partner can be sued for all the debt or each can be sued)
·         UPA 17 and RUPA 306(b) – how new partners are responsible for debts that occurred before they were partners
o   UPA 17: newly admitted partner is only liable for existing debts up to the price they bought in at
o   RUPA 306(b): A person admitted as a partner into an existing partnership is not personally liable for any partnership obligation incurred before the person’s admission as a partner
·         Personal creditors can only go after the individuals assets in the partnership
Martin v Peyton pg 74
·         P suing Martin (Firm’s creditor) and others for money owed
·         Peyton loaned K & K (Hall’s brokerage business) $2.5 mill in  liquid securities (can easily be turned into cash) for K & K to secure $2 mill in loans
·         In return, Peyton would receive 40% of K&K’s profits not exceeding 100 mill and the right to inspect the books, be advised about business decisions and an option to become partners
·         Issue: Are the D’s partners or are they not?
·         Holding: The agreements did not establish a partnership
·         Looked to definition of partnership
·         Looked at operations of the business and controls (Hall still had day-to-day control and Peyton never had control to initiate their own ideas)
·         UPA 7(4)
o   The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in a the business except if the payments were received:
§  As a debt by installments or otherwise
§  As wages of an employee or rent to a landlord
§  As an annuity to a widow or representative of a deceased partner
§  As interest on a loan, though the amount of payment vary w/ the profits of the business
§  As the consideration for the sale of a good-will of a business or other property by installments or otherwise.
·         Not partners, mere lenders
2) All partners have equal rights in control unless the partnership agreement provides otherwise (UPA 18(e)
Lupien v Malsbenden pg 78
·         P Lupien wanted to buy a Bradley automobile kit
·         Goes to Kragen who was doing business under the fake business name of York Motor Mart and agrees on contract to buy car.
·         P never gets his car and Kragan disappeared
·         P sues Malsbenden because he interacted with him during the business
·         P asserts that D is responsible because he was a partner
·         Malsbenden said he was a banker
·         Holding: D was a partner
·         How does the concept of control fit with co-ownership?
·         The right to participate in control is the essence of co-ownership
·         If you have the right and you choose not to exercise it you are still a partner
Summers v Dooley pg 84
·         General partnership with 2 partners Summers and Dooley ran a trash business
·         Summers hired a new employee without Dooley’s consent and Dooley refuses to pay half the employee’s salary
·         Summers should not be compensated by the partnership for the cost of the additional employee
·         Idaho law: “any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners”
Question pg 91
·         UPA
o   18(a)
§  Each partner shall be repaid his contributions, whether by way of capital or advances to the partnership property and share equally in the profits and surplus remaining after all liabilities, including those to partners, are satisfied; and must contribute towards the losses, whether of capital or otherwise, sustained by the partnership according t