Biz Orgs Final Exam Outline – Fall 2017 – Fershee
Basics of Business Organizations – Corporations, LLCs, Partnerships
LLC – Limited Liability Company
LLCs have members, Corporations have shareholders
When liability exists for an LLC, the company itself is liable and not the employees
Must file with the state
Partnerships – no limited liability
Corporations pay tax, LLCs don’t
Pass through taxation
>100 individual shareholders
Must be resident
1 class of stock
“Own” the company
Participate in the profits
Limited actual involvement
Board of Directors
Individual directors are NOT agents of the corporation
Board is collectively corporate principal
Elected by shareholders
Fiduciary of the corporation
Have a duty of care and duty of loyalty
Select, evaluate, replace senior management.
Oversee: Strategies, management of corporate resources.
Review, approve major plans and actions.
Other functions prescribed by law.
Appointed by board
Act as reasonable person would in similar situation
Not to compete, no self dealing
Entire fairness standard – cannot exploit for self interests
Partners owe to other partners
Cannot contract out everyone
Also: Business Judgment Rule
The business judgment rule is a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company. Fraud, Illegality, and self dealing escape this and the person is liable for them
Who can call?
Compare MBCA § 7.02(a)(2) with DGCL § 211(d)
Action without meeting (a.k.a. written consents):
Must be unanimous.
Compare DGCL § 228(a)—action by consents okay if same # of shares consent as would be needed at a meeting.
In order for shareholders to take action, there must be a quorum at the meeting. What is the default rule for a quorum? See MBCA § 7.25(a).
A majority of the shares entitled to vote
When you deal with internal affairs, state law applies
Problems with things like stock fraud, etc, goes federal law with SEC
“It’s helpful to think of the corporation as a legal fiction characterized by 6 attributes:”
Formal creation as prescribed by state law
Separation of ownership and control
Freely alienable ownership interests
3 types of public corporations
Has dominant shareholder (or group acting together) who owns more than half of the voting shares. Majority controlled corps exhibit a partial separation of ownership and control: minority shareholders share in ownership, but not control.
r the partnership’s business”
Page v. Page again
No implied term here…why not?
Parties’ hope to repay startup loan from profits not enough
Partnership at will.
Partnership agreements can be oral unless Statute of Frauds requires a written agreement. Practically, agreements should be in writing.
No formalities required…
However a partnership is formed by
agreement of the partners and must and
comply with requirements of contract law
Partners must have legal capacity.
Corporations – UPA permits corporations to be a partner.
Have “two or more persons” associated together “to carry on as co-owners a business for profit”?
When in doubt, refer to rules of UPA (1914) § 7 or UPA (1997) § 202
Partnership as Legal Entity – an organization having a legal existence separate from that of its members; the RUPA considers a partnership a legal entity for nearly all purposes
Separate legal entity:
To sue and be sued
To have judgments collected against its assets, and individual partners’ assets
To own partnership property.
To convey partnership property.
To keep its own books.
File its own federal/state tax returns.