Business law test 2

LIMITED LIABILITY COMPANIES (LLCs)

-        LLC: hybrid business organization between a corporation and a partnership that is 1. Taxed like a partnership 2. Offers its owners the limited liability of shareholders and 3. Can be run like a corporation or partnership

FORMATION

-        How is an LLC formed? By filing a certificate of organization (articles of organization) with secretary of state, must have one member

o   What law statute governs LLCs?

-        What must be included in the articles of organization? Name of LLC, Address of LLC office, and Name and address of its registered agent

-        Who are the owners of an LLC? Members

o   What is their liability exposure? Only liable up to the amount of their investment, courts may pierce the veil under certain circumstances

-        What is the internal governing document for an LLC? Operating Agreement

MANAGEMENT

-        What are the two ways an LLC can be managed?

1.     Member managed: all members vote on decisions; majority vote controls to approve most decisions

2.     Manager-Managed: members designate a person or group to manage the LLC, which may include non members

o   Within which governing document does this have to be specified? In the operating agreement, unless the articles of organization specify otherwise

OPERATING AGREEMENT

-        What are the six provisions that an operating agreement typically contains?

1.     Management and how future managers will be chosen or removed

2.     How profit will  be divided

3.     How membership interest may be transferred

4.     Dissociation events

5.     Formal meetings

6.     Voting rights

-        What law is used when the operating agreement doesn’t include one of the six provisions?

The state LLC Statue will govern the outcome.

DISSOCIATION AND DISSOLUTION

-        What does a member lose when they dissociate from the LLC? Loses the right to participate in management and the right to act as a agent for the LLC

-        What happens or could potentially happen if a member dissociates in violation of the operating agreement? Considered legally wrongful and can be held liable for damages caused by the dissociation

CORPORATIONS

FORMATION

-        What is a corporation? Is a legal entity created and recognized by state law

o   What document must be filed for a corporation to be formed? Articles of Incorporation

§  What must be included in it? Name, number of share of stock that will be issued, registered agent/office info, name and address of each incorporator

o   Where is it filed? State office

-        What is the internal governing document for the corporation? Bylaws

-        Who are the owners of a corporation? Shareholders

o   What are their general responsibilities/duties? Responsible for choosing BOD, approve amendments to the articles of incorporation/bylaws, have at least one annual meeting, vote on resolutions to change or alter the company, no responsibility for the daily management

-        What is the board of directors overall duty? Responsible for overall management

o   By whom is the board elected? Shareholders

o   What are the 4 duties that the board of directors must follow?

1.     Duty of Care

2.     Duty to make informed decisions

3.     Duty to exercise reasonable supervision

4.     Duty of loyalty

-        What are the general duties of corporate officers? Run day to day operations

o   By whom are they elected? BOD

-        Generally, what is the purpose of the business judgment rule?

TAXATION

-        How is a corporation taxed?

Can be subject to double taxation

Company pays tax on its profits, if profits are passed on to shareholders as dividends, the shareholders must pay an income tax.

MERGERS AND TAKEOVERS

-        What is a merger? The legal combination of 2 or more corporations, after one of the corporations continues to exist.

o   How is this approved by a corporation? BOD of each corporation involved must approve the merger, majority of shareholders must vote to approve the plan

-        What is consolidation? Two or more corporations combine in such a way that each corporation ceases to exist and a new one merges

INSIDER TRADING: when persons buys or sells securities based on information that is not available to the public

-        What is the general purpose of Section 10b-5 of the SEC? to prevent insider trading

CONTRACTS

-        What is a contract? A promise that the law will enforce

o   What is an offeree? The person whom the promise is made

o   What is an offeror? The person MAKING the promise

-        When does the common law govern a contract? All contracts expect when its been modified or replaced by statutory law

-        When does the UCC govern a contract? Sale of goods

o   What is a good? All things moveable a the time (tangibles)

o   What is a sale? Contract in which title to goods passes from the seller to buyer for price

o   What is a merchant? Someone who regularly deals in goods of the kind sold or who otherwise by their professions holds themselves out as having special knowledge

-        How do you determine what law governs when the contract is for services and a good? You determine which aspects is dominant and apply the law governing that aspects to the whole contract

-        Requirements for a valid contract= Mutual assent, consideration, lack of defenses

o   Offer: person communicates to another a statement of willingness to enter into a bargain

§  What are the three things an offer must include? 1. ID of parties 2. Subject matter of contract 3. Quantity if in UCC

o   Acceptance

§  What is acceptance? Manifestation of assent to the terms of an offer made in manner invited by the offer

§  Who can accept? The person whom an offer is addressed

§  What are the terms of acceptance:

·       Common Law =  acceptance of each and every term is required

·       UCC = acceptance can add a term to the offer unless they materially alter the contract or the offer is limited to its term

o   Consideration – value given in return for a promise or performance

§  What is legal value? If it constitutes a benefit to the promisor or a detriment to the promise

§  What is a bargained for exchange? = agreement of both parties to give something of v value to each other

§  What is NOT consideration A gift, past or “moral” consideration

-        Bilateral contract: a promise for promise

-        Unilateral contract: a promise for performance, one party makes the promise then you promise them goods, accepted upon performance