Louisiana Business Entities - 2013

Partnerships Formation

may be created by oral or written agreement showing the intent to create, contributions of economic value by each partner, mutually sharing of profit or losses.

Partnership Filings

agreement does not have to be filed or recorded, but if done it must name partners, address of partnership, names and addresses of partners, identify commendam partners and their contributions.

Partnership voting

Unanimous vote for amending agreement, admitting new partners, and termination of partnership. Majority for all management decisions unless there is a managing partner.

Ownership of Immovable

partnership agreement must be in writing and filed with the Secretary of State.

Partners duties

Partner has a fiduciary duty to other partners and mandatory authority. May not alienate, lease, or encumber immovable property. However, they may purchase property in the ordinary course of business.

Termination of Partnership

Death, interdiction, bankruptcy, seizure of interest, expulsion, withdrawal, or any event provided in the partnership agreement.

Payment of creditors upon liquidation

1. secured creditors, 2. un-secured creditors, 3. partner unsecured creditor, 4. capital contributions of partners

Commendam Partnership

a partner with limited rights, powers, and liabilities. Generally identified in partnership agreement or subsequent contract. May contribute cash, property,or non-managerial services described in agreement. May not participate in management or advertising of the business, unless acting as a surety or voting.

Creation and effects of Limited Liability Partnership

file an application with Secretary of State naming the partnership, address, partners, and business engagements. Must be signed by a majority of partners and pay $100 fee each year. This insulates partner from tort committed by another partner, assets and virile share of partnership are not protected.

Corporation Formation

Must state 1. name, 2. purpose, 3. aggregate number of shares, 4. par value, 5. types of stock, and 6. address of incorporation. Initial report must be signed by incorporator and filed in mortgage record of parish with registered office.

Coming into existence

commences with the issuance of the certificate of incorporation with the Secretary of State, but will related back to the date of filing or notarized, if that was within 5 days of filing.

Annual Filings

send annual report to Secretary of States before anniversary of incorporation, signed by 2 directors; containing contact information, contact info, and stock info. Failure to file will result in revocation of articles by Secretary of State.

Corporate bylaws

regulate the internal affairs of the corporation, which are easier to amend than the articles. Contains rules for shareholder meetings, proxy voting, directors meetings, director's qualifications, creation of positions, stock transfer and restrictions, and requirements for reports.

Commencement of Business

commenced when all capital necessary has been paid to business.

Promoters

Have fiduciary duty of disclosure and fair dealing to the corporation; must disclose self-interest in dealings with promoter and corporation.

Pre-incorporation contracts

a person is liable for the contracts created before the existence of a corporation when he knows the corporation is not in existence yet. However, the corporation becomes liable after coming into existence or uses the thing for its benefit. Promoter may remain liable unless the creditor novates the agreement.

De Facto Corporation doctrine

Promoter is not liable for pre-incorporation contracts if he had a good faith belief of the corporations existence when he exercised corporate authority.

Corporation by Estoppel

Promoter not liable for pre-incorporation contracts when the promoter believed the corporation was in existence and the other party relied on the corporations name when contracting.

Piercing the Corporate Veil

The Corporate veil will not protect the shareholder when it would cause injustice or reward fraud. To prove this the Corporate business is not conducted in the proper manner, corporate assets have been commingled with personal assets, and undercapitalization of corporation.

Redemption or repurchase of shares

reacquiring stock issued to shareholder either by virtue of right enumerated on the stock certificate or negotiations with shareholders. Cannot redeem or repurchase stock that would cause insolvency. Generally can only redeem or repurchase from surplus funds.

Dissenter's Rights

a dissenting stock holder can demand repurchase of shares at appraised value, such that the shares are cancelled at that time. Directors that vote in favor of stock redemption or repurchase that uses illegal funds will be liable to the corporation and its creditors.

Ultra Vires Acts

a corporation is liable for acts that exceed its power as stated in the articles of incorporation. A suit for injunctive relief and damages against the company and the acting director or officer. Agency principles of liability apply.

Authority of Directors or Employees to act

Actual authority shields the director from liability since he was authorized to bind the corporation. Apparent authority occurs when a third party reasonably believes the person has authority to bind the corporation, then the corporation is bound, but may demand indemnification from agent. A corporation becomes bound when they ratify the unauthorized act or accept the benefits of the transaction.

Board of Directors

must have one named int he initial report and elected by the shareholders. Board of Directors is empowered to manage the daily business affairs of the corporation. They generally have one year terms, but can be up to five years.

Director Termination

Termination occurs directors bankruptcy, incompetent, interdicted, or incapacitated for six months or longer. May remove with or without cause by majority vote at any special meeting called for the purpose. Position is filled with the majority of the votes for the remainder of the term.

Meetings and Quorum

Quorum grants a board or shareholders the power to act when during meeting with adequate notice. A party cannot vote proxy unless authorize by articles and proxy exercises another director or shareholder. Quorum must be present at the beginning of meeting, but only need the majority of directors present to take action in meeting. Abstentions counts as a no vote.

Duties of Directors

They owe fiduciary duties of loyalty and reasonable care to the company.

Duty of Care

a director is not liable if there is not conflict of interest and reasonably inform himself about the matter and act in the best interest of the corporation and shareholders. However, the Business Judgment Rule will not protect a Director who is grossly negligent.

Raincoat Provision

Articles can limit or eliminate the liability of a director for breaching the duty of care; however, this cannot be done for duty of loyalty or transaction in bad faith.

Conflict of interest transaction

a director that presents a conflict of interest in a meeting then the resulting transaction is presumed to be tainted unless he can show full disclosure, shareholder approval, or a fair transaction to the corporation at the time it was authorized.

Self-dealing transactions

Cannot take business opportunities that properly belong to the corporation without allowing the board to decided whether or not to pursue the opportunity. A violation will result in damages and transferral of any property rights acquired by self dealing director to the corporation.

Limitation of Directors

Cannot amend articles, dissolve corporations, sell a substantial portion of assets, or merge the company that is not 90% owned by the company.

Rights of Shareholder

rights of inspection, dissenting shareholder's rights, and preemptive rights.

Right of inspection

Shareholder has the right to inspect corporate books and records if you've owned at least a 5% interest for 6 months or 25% if you are a competitor shareholder. Shareholders can aggregate their shares to reach this amount. Rights may not be limited by articles or by laws.

dissenter's rights

shareholder has the right to demand that the corporation purchase their shares at fair market value if shareholder objects to and voted against merger, consolidation, or alienation, encumbrance, or lease of all corporate assets.

Preemptive rights

Right to repurchase an equivalent percentage of newly issued stock so that shareholder's voting rights are not diluted; only if expressly granted in the articles.

Special meetings

May be called together with 10-60 days notice by the board, the president, or shareholders holding 20% of voting power.

Voting actions

two-thirds vote is required for amending articles, authorizing mergers, sale of all or substantial part of corporate assets. Majority vote needed for dissolution.

Voting trusts

donation of shares to a trustee who votes the shares and distributes the dividends in accordance with the trust document. The term may not exceed 15 years which may be extended by only 10 years once.

Pooling agreement

Written agreement by shareholder to cast all votes as a block. This is not permitted by directors.

Stock transfer restrictions

Generally, rules favor transferability, but may be restricted in closely held corporations by articles or bylaws to avoid shares sold to new people. All restrictions must be noted conspicuously on the stock certificate or else it is not enforceable against good faith transferee without knowledge of restriction.

Derivative Suits

a suit in equity brought by a shareholder on behalf of the corporation against a party whom the corporation has legitimate cause of action that alleges that the corporation is unwilling to bring suit itself. Must name the corporation as a plaintiff.

Requirements for Derivative suit

shareholder at time of wrong and make demand on board to bring suit. Demand on Board would be futile if majority of them would be defendants in suit. A remedy would provide damages on behalf of the corporation. The prevailing shareholder can recover attorney's fees.

Limited Liability Corporation

a business entity where the members and mangers have no personal liability for the debts of the LLC and have no operational formalities.

Formation requirements

formed by a person capable of contracting with a distinct company name registered and qualified to do business in the state of Louisiana.

Articles of Organization

must be in english and signed by one person, name of corporation, purpose, limitation of authority of member or manager, term of existence, and any provisions inconsistent with the law.

Members

no restrictions on membership; permitted to have different classes with different rights; can be member managed or can appoint manager; no personal liability for members who engage in acts of management.

Managers

a person or persons designated by the members to manage the business of the LLC; must be specified in the articles; removed by majority vote of members.

Authority of Members and Managers

Members act as mandataries of the LLC for all matters in ordinary course of business except for alienation, lease, or encumbrance of LLC immovables. If Manager-managed then members do not have mandatary authority at all.