Comprehensive Study Guide: Business Organizations Chapters 16-18

Limited Liability Companies (LLCs)

Hybrid business structure combining corporation and partnership advantages.

Articles of Incorporation

Documents that establish a corporation, including its name, purpose, and structure.

Articles of Organization

Documents required to establish an LLC, must include 'LLC' or 'limited liability company' in the name.

Operating Agreement

Sets forth operational details of an LLC, may include manager qualifications and authority limits.

Members

Equity owners of an LLC, must be a member to be a manager.

Managers

Act as agents/representatives of the LLC and have fiduciary obligations to the LLC and its members.

Partnerships

Association of two or more persons carrying on business for profit.

Ordinary Partnerships

Defined as an association of two or more persons carrying on business for profit.

Limited Partnerships

Partnerships with one or more general partners and one or more limited partners.

Limited Liability Partnerships (LLPs)

Partnerships that limit personal liability of partners.

Dissociation of Partner

Occurs when a partner withdraws from a partnership, requiring remaining partners to purchase their interest.

Termination/Dissolution of Partnership

Can occur by unanimous consent, court judgment, or bankruptcy.

Sole Proprietorships

Business owned by one individual, with no legal entity separate from the owner.

Franchises

Business model governed by contract law, requiring a written agreement between franchisor and franchisee.

Distributorship Franchise

Franchise model allowing exclusive rights to operate in a specified geographical area.

Chain-Style Franchise

Franchise model with tight control over every aspect of business operations.

Manufacturing Franchise

Franchise model allowing the right to make a product without access to trade secrets.

Corporate Characteristics

Corporations are legal entities separate from their owners, capable of suing, borrowing, and owning property.

Double Taxation

Taxation where a corporation pays tax on profits and shareholders pay tax on dividends.

Board of Directors

Group responsible for managing the corporation's big picture and meeting regularly.

Corporate Formation

Process of establishing a corporation, including filing Articles of Incorporation.

By-Laws

Internal rules governing the management of a corporation, not required but advisable.

Promoters

Individuals who organize and promote corporations and have fiduciary duties.

Business Judgment Rule

Defense against liability for directors/officers who acted in good faith and in the corporation's best interest.

Shareholders

Owners of a corporation with rights including inspecting corporate records and voting on major decisions.

Dissolution of Corporation

Can occur voluntarily by shareholder vote or involuntarily by court action.

Piercing the Corporate Veil Doctrine

Legal concept allowing courts to hold shareholders personally liable for corporate debts under certain conditions.

Limited Liability

Protection that prevents shareholders from being personally liable for corporate debts.

Fiduciary Duty

Legal obligation of directors and officers to act in the best interest of the corporation and its shareholders.

Treasury Stock

Shares that are authorized but not yet issued by the corporation.

Quorum

Minimum number of members required to be present to conduct business at a meeting.

Proxy Voting

Voting method allowing shareholders to authorize another person to vote on their behalf.

Liability of Directors and Officers

Directors and officers can be held liable for crimes or torts committed in their capacity.

Shareholder Derivative Action

Lawsuit brought by shareholders on behalf of the corporation for breaches of fiduciary duties.

Indemnification

Protection provided by the LLC to its managers against judgments or settlements.

Registered Agent

Individual or business designated to receive legal documents on behalf of the corporation.

Articles of Incorporation Requirements

Must include name, purpose, duration, share information, and incorporator information.

Corporate Officers

Individuals hired by the Board to manage daily operations of the corporation.

General Partners

Partners in a limited partnership who have unlimited personal liability.

Limited Partners

Partners in a limited partnership with limited rights and liabilities, liable only up to their investment.