Law 532 Carol Miller Exam 3

LLC (Limited Liability Company):

-Allow small business to tailor business structure to their specific needs.

-Preserve the limited liability feature for non-member investors.

-Does not allow for flexibility in management structure.

-Allows for pass-through taxation.

LLP (Limited Liability Partnership):

-Special type of GENERAL PARTNERSHIP

-Special annual registration is required to keep shield

-All partners have limited liability EXCEPT:

-Liable for one's own negligence and malpractice

-Vicariously liable for negligence of employees that partner supervises

-Liable for anu contracts or debts that the partner "guarantees"

-Estoppel liability can apply if business does not disclose itself as an LLP.

LLLP (Limited Liability Limited Partnership):

-A type of LIMITED PARTNERSHIP

-Still has general partners who run business and limited partners

-Profits and losses are split by capital ratio

-Liability shield is the same as an LLP

LP (Limited Partnership):

-At least one general partner and limited partner

-Profit sharing is by capital ratio

-General partners have unlimited personal liability, fiduciary duties

-Limited partner's liability is limited to capital, they have very little voice in management.

Joint and Several Liability:

Total liability can be collected by either one or both parties that committed the tort.

Marshalling of Assets:

Must try to collect from the business first before pursuing partners assets.

-Minimizes Joint and Several Liability

What is the primary reason a business would become an LLP or LLLP?

For partners to limit liability beyond their capital, still have liability on their initial investment.

What is the number one requirement to maintain the liability shield?

Have to file for the shield annually.

Despite liability shields, under what circumstances can an individual be held personally liable for debts of the business?

If the partner does not disclose that it is an LLP or LLLP.

What is the difference between a co-signer and a guarantor of a debt?

A guarantor is secondary liable, the creditor has to go after primary party first.

-A co-signer is a party to the transaction and is liable first.

What is the scope of the liability shield in:

Member of an LLC: Broader than an LLP, you are not automatically liable as a supervisor.

General Partner in an LLP: Can have supervisor liability.

Limited partner in an LP: Limited partners liability is limited to capital.

Shareholder in a corporation: Limited to capital unless shareholder is treating the corporation as an extension of itself--> Piercing of the Corp Veil

Which types of businesses Split profits equally?

General partnership and LLC.

Which types of businesses split profits by capital ratio?

Limited partnership, dividends in a corporation.

What is "Dissociation" and what event triggers it?

Dissociation is a change in the relationship caused by the partner or member seizing to be associated with the company or business.

-Ex: Person dies, resigns, files bankruptcy.

-Rest of members vote on whether to continue business and make some sort of agreement to say how many need to vote.

When can a general partner receive special compensation?

If one of the partners is in charge of the "winding up" process.

What is "pass-through taxation" and what type of businesses can use it?

Pass-through taxation: The tax obligation is passed through to the partners, so the entity does not pay taxes.

-LLC, General partnerships, and S-Corps.

Restrictions of becoming an S-Corp:

-Domestic U.S. Corp only

-Limit on types of shareholders

-Maximum of 100 shareholders

-One class of stock only

-Limits on type of investments

What corporate structure prevents other business entities from owning it's shares?

S-Corp

Key limitation on a Close corporation:

Has to have fewer than 50 shareholders.

Reason to adopt a close corporation:

Allows for a more flexible management structure.

-Board of directors can be abolished

Professional Corporation:

Restricts shareholders to only licensed professionals in that line of work.

-Lawyers, engineers, doctors, dentists, nurses.

Which forms of business organizations could an engineering firm be in MO?

Professional business, general partnership, LLC.

Why is an LLC the most popular start up business?

Because it has the least amount of restrictions and lets you put together limited liability and pass-through taxation.

Who has fiduciary duties in an LLC?

Managers, non-manager members do not.

Quorom:

Number of people that must be present in order to vote.

-If quorum is lacking than all votes taken at the meeting are invalid.

Record Date:

Specific date that allows the people who owns shares at that specific time to vote.

Proxy:

An agency agreement that allows someone else to vote for you.

-Shareholders can vote by proxy

Purpose of cumulative voting:

To allow minority stockholders the possibility of a vote on the board of directors.

Authorized shares:

Require shareholder consent to change, board of directors can sometimes issue without shareholder consent

Outstanding Stock:

Any stock that has been issued minus the treasury stock.

Pre-emptive rights:

Allow shareholders to buy enough new issued stock to maintain their percentage of ownership in the corporation.

Bond Indenture:

Document that specifies terms and conditions of the bond.

-If its "callable" the issuer can retire the debt early.

Domestic corporation:

The state in which the entity is incorporated.

Foreign corporation:

Every other state that's not the state you're incorporated in.

How are preferred shareholders similar to limited partners?

-Liability is limited to capital

-Both have a limited voice in management & voting

-Liquidation preference

What kinds of businesses have members instead of shareholders?

Not-for-profits, partnerships, LLC's.

What kind of businesses can form Cooperative Associations in MO?

Mainly AG co-op and occasionally Housing co-op.

Piercing the Corporate Veil:

if you don't treat your business as a separate entity then creditors can pierce the corporate veil or if you have several different corporations and don't treat them separately.

-Can be forced on technicalities like not holding the annual shareholder meeting.

-Applies to noncorporations and LLC's as well.

Business Judgement Rule:

Designed to give officers flexibility in making business decisions which are assumed to be done in good faith and the best interest of the corporation.

-If not done in the best interest of the corporation directors or officers could be liable.

Differences between for-profit and not-for-profit:

-Not-for-profit does not have to pay income tax.

-Not-for-profit has members not shareholders.

-Quorum for not-for-profit is only 10% for annual shareholders meeting.

Benefit Corporation:

-Is a statutory entity, only an option in 30 states.

-If you want a business that includes environmental and social attributes, and you want to force shareholders to follow those attributes.

B Corp Certification:

Says we are a business that is environmentally aware, treats employees well, and is involved in the community.

SEC proposal on climate related disclosures:

Controversial because it asks for climate change requirements that have not been asked of before and are very difficult to track.

What type of merger can be approved without shareholder consent?

Short-term merger.

FTC approval of a merger:

Will the merger "substantially lessen competition" in the relevant market.

-Historically courts are more concerned with letting small businesses compete in the market.

Chicago school "consumer welfare standard":

More concerned with having U.S. businesses be competitors in the international market.

Key tips of starting a new business:

1) Name registration:

-Fictitious name filing

-Tradename and trademark filing

-Website name issues: Lanham act filing allows you have the trademark to that website name as .com

2) Filing with the secretary of state's office to create entity.

3) Licenses:

-Local business license

-Special permits

-Licensing unique to some businesses

4) Security regulation filing state or federal.

5) Taxes

6) Insurance

7) Zoning, building codes, OSHA work safety, workers compensation

8) Other regulatory requirements.

Dodd Frank Act:

Made to forbid creditor banks from making residential mortgages without good faith determination of buyer's ability to repay loan.

Sarbanes-Oxley Act:

Tries to protect investors by making corporate disclosures more reliable and accurate & improving checks and balances.

-Only applies to publicly traded corporations but still affects the privately held suppliers of those corporations.

SEC Rule 10b-5:

Anti-fraud rule that says it's illegal to apply any device that defrauds, to make any untrue statement of material fact, or engage in any act, practice, or course of business which operates as fraud.