Business Associations Review

Flashcards based on Business Associations lecture notes.

Are general partnerships comprised of one or more general partners and one or more limited partners?

False.

• This describes a limited partnership. General partnerships only have general partners.

Is prima facie evidence of a partnership exists if two or more people agree to share profits?

True.

• Courts can infer that a partnership exists - even if the parties say that they are not partners – because they agreed to share profits.

Can anyone who helps a partnership obtain a loan by holding himself out as a partner, although he is not a partner, may be liable on the loan?

True.

• The person will be considered a partner under the doctrine of partnership by estoppel because the person acted like a partner and a lender relied on this status.

General partners are liable for what?

For all of the partnership’s debts personally (jointly and severally).

partnerships do not have to file any tax returns?

False.

• They have to file informational tax returns.

each partner bind a partnership to contracts with third parties?

True.

• Each partner is considered to be an agent of the partnership.

If a partner dies, does the partnership property that belonged to the deceased partner go to the partner’s estate?

False.

• Only the value of the partner’s interest goes to the estate.

When one partner dies, is the partnership automatically is dissolved by law?

True.

• Dissolution occurs by operation of law at the death of a partner. Note that dissolution and termination are different.

limited partners manage the business and retain limited liability protection?

False.

• Limited partners lose limited liability protection if they engage in management.

If limited partnership interests are easily transferable, may the organization be treated as a corporation by the IRS?

True.

• See the Tax Consequences section and the Transferability of Interests section.

If Intel was incorporated in Delaware, is it a domestic corporation when it does business in Arizona?

False.

• It is a foreign corporation.

Are transfers of stock usually restricted in S corporations?

True.

• This serves several practical purposes. First, it is more likely that the IRS will treat you as a partnership for tax purposes because you look less like a C corporation. Plus, you may not want strangers to have a say in running your business. Finally, there can be no more than 100 shareholders in S corporations, so if shares are freely transferrable to multiple parties, you may go over that limit and lose your S status.

Are S corporations subject to double taxation?

False.

• You need to file a “S Election” form with the IRS and the shareholders will be able to avoid double taxation. These types of organizations are referred to in your text as “flow-through” or “pass-through” entities.

Do corporations end upon the death or withdrawal of a member?

False.

• Corporations exist for an unlimited duration, unlike partnerships, which dissolve upon the death or withdrawal of a partner.

registered agents, also known as statutory agents, manage the business when the members are unavailable?

False.
- They are only authorized to accept service of process for the organization.

common stockholders

Have voting rights.

Corporate veil may be pierced when

• the corporation is inadequately capitalized.

• the owners and managers have not treated the corporation as a separate entity from
  themselves.

• there are transfers of property and funds without authorization

Shareholders elect

The Board of Directors.

Are officers and directors fiduciaries of the corporation, so they must act in the best interests of the corporation and they may not profit at the corporation’s expense?

True.

What does the business judgment rule state?

Directors and officers are protected from liability if they carefully study and discuss their decisions.

Independent board members

• are required for a majority of the directors.

• include board members that are not a relative of anyone who works for the company.

• Means that the director has not been a manager, office or employee for the previous 3
  years.

• Means that the Board member is not a principal or owner of a company that does
  business with the board or company.

shareholder groups obtain control over the vote of the board and other matters by soliciting proxies?

True.

• Shareholders may transfer their votes to someone else, such as shareholder groups.

shareholders who do not agree to a merger or consolidation get the value of their shares in many states if they follow certain procedural rules?

True.

• As long as they file an objection to the merger or consolidation before the vote.

shareholders unable to inspect a corporation’s accounting records or meeting minutes?

False.

• They have the inspection right as long as there is a proper purpose.

corporations only be dissolved voluntarily?

False.

• They may be dissolved by a state agency or by court order.

Are shares of stock always freely transferable?

False.

• Some shares have transfer restrictions, which will be valid if they are reasonable, necessary, and disclosed conspicuously.

transfer restrictions on shares of stock valid

If they are necessary, reasonable and disclosed on the shares.

limited liability companies pay income taxes but distributions to members are not taxed?

False.

• LLCs are not taxed but the members are.

Are limited liability companies formed by filing articles of organization with the appropriate state agency?

True.

limited liability company can be managed by?

• members

• outside parties

• one of the members

These forms of organization are formed by filing documentation with the appropriate state agency?

Limited partnership and corporation.