Business Associations

These flashcards cover fundamental concepts related to business associations, including business forms, taxation, agency law, corporate governance, and fiduciary duties.

What are the six key business forms mentioned in the lecture notes?

Sole Proprietorship, Partnership, LLP (Limited Liability Partnership), LP (Limited Partnership), LLC (Limited Liability Company), Corporation.

What is the liability exposure for a sole proprietorship?

Unlimited liability for the sole proprietor.

How are business profits taxed in a sole proprietorship?

The owner reports their business profits on their personal federal income tax return.

What defines a partnership according to the UPA statute?

A for-profit business with 2 or more owners who have not filed paperwork to operate in another legal form.

Describe the tax treatment of a partnership.

Partnership itself does not pay taxes; profits and losses pass through to the partners.

What is an LLP?

A for-profit business with two or more owners that has filed a 'statement of qualification' with a state’s secretary of state office.

Under what statute are LLPs governed?

The general partnership statute of the state in which it is organized.

What is unique about the management structure of an LLC?

An LLC can be member-managed or manager-managed, but typically is member-managed.

What is the main characteristic of a corporation regarding liability exposure?

Shareholders have limited liability.

What is the primary purpose of agency law?

Agency law deals with relationships where one person, called the agent, acts on behalf of another person, called the principal.

What is 'actual authority' in agency law?

The authority granted by a principal to an agent, enabling the agent to act on the principal’s behalf.

What is the meaning of 'apparent authority'?

When an agent appears to have authority, leading third parties to reasonably believe the agent has the authority to act.

What is the 'duty of loyalty' in agency law?

An agent must act in the principal's best interests and avoid conflicts of interest.

Describe 'limited partners' in an LP.

Limited partners are not personally liable for the debts and obligations of the LP solely by reason of being a limited partner.

Define 'pierce the corporate veil'.

Legally disregarding the separate entity of a corporation to hold shareholders personally liable for corporate debts.

What is a C corporation?

A corporation that is taxed separately from its owners under IRS tax code Subchapter C.

What are the default taxation options for LLCs?

Single-member LLCs are taxed as sole proprietorships, and multi-member LLCs are taxed as partnerships unless elected otherwise.

What fundamental purpose do bylaws fulfill in a corporation?

Bylaws establish the rules for governance of a corporation.

What is the business judgment rule?

A presumption that directors acted on an informed basis, in good faith, and in the best interests of the company.

What fiduciary duties do directors owe to the corporation?

Directors owe duties of care and loyalty to the corporation.

What is a conflict of interest transaction?

A transaction between a corporation and one of its directors with a material financial interest.

What is the difference between a direct suit and a derivative suit?

A direct suit addresses harm to an individual shareholder; a derivative suit addresses harm to the corporation.

What is the purpose of 'preemptive rights'?

To give existing shareholders the right to purchase additional shares before they are offered to new investors.

What is insider trading?

The buying or selling of securities based on material non-public information, in violation of a fiduciary duty.

What is a tender offer?

An offer to purchase some or all of shareholders' shares at a specified price, typically at a premium over market value.

Define 'poison pill' strategy.

A defensive tactic used by target company boards to make it difficult for a hostile bidder to acquire shares.

What is an S corporation?

A corporation that passes income, losses, deductions, and credits directly to shareholders for federal tax purposes.

What are the six key business forms mentioned in the lecture notes?

Sole Proprietorship, Partnership, LLP (Limited Liability Partnership), LP (Limited Partnership), LLC (Limited Liability Company), Corporation.

What is the liability exposure for a sole proprietorship?

Unlimited liability for the sole proprietor.

How are business profits taxed in a sole proprietorship?

The owner reports their business profits on their personal federal income tax return.

What defines a partnership according to the UPA statute?

A for-profit business with 2 or more owners who have not filed paperwork to operate in another legal form.

Describe the tax treatment of a partnership.

Partnership itself does not pay taxes; profits and losses pass through to the partners.

What is an LLP?

A for-profit business with two or more owners that has filed a 'statement of qualification' with a state

’s secretary of state office.

Under what statute are LLPs governed?

The general partnership statute of the state in which it is organized.

What is unique about the management structure of an LLC?

An LLC can be member-managed or manager-managed, but typically is member-managed.

What is the main characteristic of a corporation regarding liability exposure?

Shareholders have limited liability.

What is the primary purpose of agency law?

Agency law deals with relationships where one person, called the agent, acts on behalf of another person, called the principal.

What is 'actual authority' in agency law?

The authority granted by a principal to an agent, enabling the agent to act on the principal

’s behalf.

What is the meaning of 'apparent authority'?

When an agent appears to have authority, leading third parties to reasonably believe the agent has the authority to act.

What is the 'duty of loyalty' in agency law?

An agent must act in the principal's best interests and avoid conflicts of interest.

Describe 'limited partners' in an LP.

Limited partners are not personally liable for the debts and obligations of the LP solely by reason of being a limited partner.

Define 'pierce the corporate veil'.

Legally disregarding the separate entity of a corporation to hold shareholders personally liable for corporate debts.

What is a C corporation?

A corporation that is taxed separately from its owners under IRS tax code Subchapter C.

What are the default taxation options for LLCs?

Single-member LLCs are taxed as sole proprietorships, and multi-member LLCs are taxed as partnerships unless elected otherwise.

What fundamental purpose do bylaws fulfill in a corporation?

Bylaws establish the rules for governance of a corporation.

What is the business judgment rule?

A presumption that directors acted on an informed basis, in good faith, and in the best interests of the company.

What fiduciary duties do directors owe to the corporation?

Directors owe duties of care and loyalty to the corporation.

What is a conflict of interest transaction?

A transaction between a corporation and one of its directors with a material financial interest.

What is the difference between a direct suit and a derivative suit?

A direct suit addresses harm to an individual shareholder; a derivative suit addresses harm to the corporation.

What is the purpose of 'preemptive rights'?

To give existing shareholders the right to purchase additional shares before they are offered to new investors.

What is insider trading?

The buying or selling of securities based on material non-public information, in violation of a fiduciary duty.

What is a tender offer?

An offer to purchase some or all of shareholders' shares at a specified price, typically at a premium over market value.

Define 'poison pill' strategy.

A defensive tactic used by target company boards to make it difficult for a hostile bidder to acquire shares.

What is an S corporation?

A corporation that passes income, losses, deductions, and credits directly to shareholders for federal tax purposes.

Describe 'general partners' in an LP.

General partners are personally liable for the debts and obligations of the LP and typically manage the business.

What documentation is required to form an LLC?

An LLC is formed by filing 'articles of organization' with the state.

What is the primary foundational document for a corporation?

The 'articles of incorporation' (also known as a corporate charter) which is filed with the state.