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Business Organizations
UMKC School of Law
Hoyt, Christopher R.

Business Organizations—Luppino
Class Notes FS 2005

8/22/05

2 major essay questions for final

Business organization plan—what type of business organization should this be based on this fact pattern
Litigator question—what are the potential causes of action against corporation and the defenses

Major categories (questions to ask, things you as lawyer should know) (top is most important category)

Ethics (ethical considerations) (overlaps w/ lawyer as business person)

Conflicts (could be conflict w/ current employer or between the owners)
Want to always check for conflicts first
Competence (can you adequately perform as attorney)

Lawyer as Business Person (overlaps w/ ethics)

Scope of engagement
What does lawyer need to do
How long/duration
Might have to hire expert in another legal area
Are you competent to handle this matter
What authority do you have on behalf of business
How will you get paid? (stock, interest, salary, cash)
What do you charge for services?

Agreements Among Owners

Who is liable?
Dissolution—what happens then
Duties/roles/compensation between owners
Fiduciary duties
Ultimate authority (who has it)—management decisions
Profits/losses—how are owners sharing them

Business/Marketing Plan

Location—local/regional/global
Financing (often breaks into 2 categories)

Debt
Equity

Employee’s of business or salaried (benefits)—authority
Marketing/advertising
Product production
Timeline for getting things done (where heading in future)
Feasibility (barriers to entry—can they really do this)
Budget
Physical plant (buy/rent/build)

Business Relationship to 3rd Parties

Who’s liable
Other interested parties in business (are there any)
Product production

Compliance w/ laws/Agreements

Type of company?
Do they need licenses
Do they need to form an entity at all?
Patents/copyrights (intellectual property)
Contracts (types)
OHSA, environmental laws (compliance w/ or subject to?)
UCC
Securities regulations

Record Keeping

To avoid potential conflicts w/ their current employer
Retention and destruction policy of business records

Do you need other professions? (need other lawyers who are experts in other areas)

Licenses/permits/regulatory issues
Patents v. copyrights (IP-intellectual property)
Insurance

Tax Planning

Circumstances of parties involved

Succession & Estate Planning issues

Personal relationships
Future (bring kids into business)
Estate planning w/in compliance w/ peoples current plans
Buy/sell agreements between owners

8/24/05

Two big questions

How do you create the entity?
How do you dissolve the entity?

Dissolution—when an entity goes away

Incorporated v. Unincorporated

Incorporated—formed a corporation under a corporate statute
Unincorporated—not incorporated, so it must be another type of entity (didn’t file under a corporate statute)

Ex: partnership, LLC, LLP, LLLP, etc.

General Partnership (GP)—there are more then 1 person responsible for liabilities (personally liable)

AKA: partnership
Unincorporated entity

Limited Liability Partnership (LLP)

Type/variation on general partnership
Does NOT have limited partners, they are general partners
Do have limited liability

Limited Liability Limited Partnership (LLLP)

Limited partners
Limited liability

Closely Held v. Publicly Held

Closely held—no market for buying an interest in the entity

Generally not as many owners
Many states have statutory close corporations

Statutorily close Corporations

Have to make special filings
Can be restricted in number of owners

Publicly held—traded in some way (stock market generally)
Reasons for not being a corporation

Many new options in recent years
Tax purposes

Corporations subject to double taxation

Corporation taxed as an entity
Owners/stockholders taxed on income from corporation

Federal income tax v. State law classification

What is the entity for state law purposes v. federal income tax purposes

employees (if an employee hurts someone, wont be vicariously liable)
No written agreement—just in business
If want to be some other entity have to make a special filing

General Partnership (GP)

Don’t have to have an agreement
Can be formed accidentally if do enough together under law

Bad b/c could be joint and severally liable

LLP—Limited Liability Partnership

General partnership
Have to make state filing—what it does depends on the state

LP—Limited Partnership

Entity created where have general partners running the business and limited partner (LP) who just contributed money
LP’s are only liable for what they have already put into the business

Sometimes held to promises made to contribute in future

If LP gets involved in the control of the business they can become liable—some safe harbors were created
Have to make a filing
Have to have at least 1 general partner (GP) and 1 limited partner (LP)
People began to go around this by making a corporation or LLC the general partner

Tiered entity—when individuals own an interest in an entity where that entity owns an interest in another entity

LLLP—Limited Liability Limited Partnership(358:170) Very important

Make a filing where GP’s aren’t liable for vicarious liability

How do you preserve liability protection?

Sometimes have to make a filing every year—depends on what law says

LLC—Limited Liability Company

Owners are called members, no GP or LP
Member managed v. manager managed

Member managed more like a GP—all have authority
Manager managed—only manager has authority (like the Limited Partnership (LP), General Partners (GP’s) manage, Limited Partners (LP’s) don’t)

Corporations