BEC1 - Business Structure

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3 basic types of business organizations: 1. sole proprietorship
2. partnership
3. corporation
Describe a sole proprietorship.: An individual does business w/o a partner.
Describe a partnership.: Two or more persons carry on a business for profit.
How is a partnership formed?: By formal agreement, informal agreement, or no agreement at all.
Is a partnership a separate legal entity from its owners?: No.
Describe a general partnership.: All partners have unlimited liability for partnership liabilities (both contract and tort).
Describe a limited partnership.: Some specific partners enjoy limited liability for partnership debts.
How is a limited partnership formed?: Only by following statutory requirements.
How is a corporation formed?: Only by following statutory requirements.
Is a corporation a separate legal entity from its owners?: Yes.
Describe a Real Estate Investment Trust (REIT).: A hybrid type of business organization with investors.
Describe a Limited Liability Company (LLC).: Like a limited partnership except that all 'members' have the right to participate in management and limited liability.
How can a partnership be formed by explicit agreement?: Through a formal document or an informal understanding.
How can a partnership be implied by operation of law?: When the statutory definition (two or more persons carry on, as co-owners, a business for profit) applies.
How can a partnership be formed by estoppel?: When one person holds another out to be a partner and the latter fails to deny it.
What authority does the partner have to bind the partnership to a contract?: Actual (express) and apparent (ostensible) authority.
What responsibilities does the partner have to other partners?: Fiduciary duties, duty to act in good faith, etc.
How is notice given in a partnership?: Notice to one partner is notice to all partners.
What is the liability of partners for torts?: Partners are jointly and severally liable.
Define joint liability.: All partners must be sued together.
Define several liability.: A party may sue any partner for the full amount of the claim.
If a partner commits a tort in the ordinary course of partnership business, who is liable?: All partners.
What is the liability of partners for contracts?: Partners are jointly liable.
Can the right to profits and surplus be assigned to a nonpartner?: Yes, but the assignee is not a partner unless admitted by unanimous vote of all partners.
Are partnership profits subject to attachment by creditors of the partner?: Yes.
How are the rights to profits and surplus dealt with at a partner's death?: Can be passed to heirs.
How is partnership property dealt with at a partner's death?: Passes to the other partners.
Are partners entitled to salaries or a share of the profits?: There is no inherent right to a salary, only to a share of the profits.
How are profits allocated amongst the partners?: An agreement can specify how profits and losses are allocated.
What are the rights of management in a partnership?: All partners have the right to participate in managment, and no change can be made to this right without the unanimous consent of all partners.
What are the rights of a partner related to specific partnership property?: Each partner has the right to use for partnership business.
How can a new partner be admitted into a partnership?: By unanimous consent of all partners.
What is the liability of an incoming partner for debts of the partnership?: Partner is liable only for future debts, but money or property put in by the partner can be used to satisfy existing debts.
How can a partnership dissolve by agreement?: By agreement of the partners or withdrawal of any of the partners.
How can a partnership dissolve automatically and without notice?: Death of a partner, bankruptcy of a partner, or termination as specified under the partnership agreement.
What is the authority of partners after dissolution?: Partners have no authority to bind partnership except as necessary to wind up business.
Can the partnership business continue after dissolution?: Only as a new partnership.
How are the assets of a partnership distributed if the business dissolves and is not continued?: General creditors are paid first, debts owed to individual partners are paid next, and the remainder is distributed to partners based on their capital balances (negative balances must be paid into the partnership).
What are the statutory requirments of a limited partnership?: A certificate of limited partnership must be filed.
What are the rights of a limited partner?: An investor only - cannot participate in management, has no authority to bind the business, and cannot use last name in the name of the partnership.
How can a limited partnership be dissolved?: By a judicial order or the withdrawal, death, insolvency, or insanity of a general partner.
Does the withdrawal, death, insolvency, or insanity of a limited partner lead to the dissolution of a limited partnership?: No.
What happens when a limited partner transfers interest to another party?: The partnership is not terminated - it is treated as the assignment of the right to profits unless the transferee is admitted as a limited partner by vote.
Describe a corporation.: An artifical entity that comes into existence upon the proper filing of articles of incorporation and issuance by the state of a certificate of incorporation.
What is a shareholder of a corporation?: The owners who elect directors to oversee the corporation.
What are the duties of a corporation's directors?: Directors direct the main course of the corporation, declare dividends, and elect officers to run day-to-day business operations.
What are the duties of a corporation's officers?: The day-to-day business operations.
Are directors and officers agents of a corporation?: Yes.
Is a corporation a separate legal entity?: Yes.
What is the liability of shareholders in a corporation?: Liability is limited - shareholders can only lose what they invest.
How are corporations taxed?: Corporations are taxed separately from its owners as it is a separate legal entity.
Describe the life of a corporation.: A corporation has continuous life and continues even after the death of shareholders.
Can ownership in a corporation be transferred?: Yes, stock is freely transferable unless restricted at issuance.
What information is included in the articles of incorporation?: Name of the corporation, name of the registered agent, names of the incorporators, and number of the authorized shares.
What is a registered agent?: The person appointed by the corporation to officially receive notice.
What is the certificate of incorporation?: A document issued by the state upon proper filing of articles of incorporation and payment of all fees.
What is the organization meeting of a corporation?: The initial meeting to elect officers and directors.
What are the by-laws of a corporation?: By-laws are adopted by directors and officers to set the structure of the corporation, to establish time and place of meeting, etc.
What is a de jure corporation?: A corporation that has been correctly formed.
What is a de facto corporation?: A corporation that exists when the incorporators succeed in satisfying most requirements for incorporating but inadvertently fail to satisfy all (corporation is still recognized).
What are promoters?: Individuals who undertake to form a corporation and arrange its initial capitalization by promoting the sale of stock through subscriptions.
What is the promoter's duty to the corporation?: Promoters have a fiduciary relationship with the corporation (must act in the best iterest of the new corporation and not in their own).
Is a promoter an agent of the corporation?: No, as the corporation is not yet in existence.
Are pre-incorporation agreements binding on the corporation?: Not until the corporation adopts.
How do corporations raise capital?: By issuing stock.
What is authorized stock?: The amount of stock that the articles of incorporation permits to be issued.
What is issued stock?: The amount of stock delivered to shareholders.
What is outstanding stock?: The amount of stock currently being held by the shareholders (issued but not repurchased as treasury stock).
What are the two classes of stock?: Common stock and preferred stock.
Describe common stock.: Has the most voting right bu the least rights to dividends and assets on liquidation - required.
Describe preferred stock.: Has less (or no) voting rights but greater rights to dividends and assets on liquidation - not required.
What forms of consideration for stock are valid?: Cash, property, or services already rendered.
What forms of consideration for stock are not valid?: Promise to perform services, promise to pay, or promissory note.
Is it necessary to pay par value for stock?: If par value is stated, buyer must pay at least that amount.
What is the business judgment rule?: Officers and directors may be liable to shareholders for negligence, but not if they were acting in good faith in the exercise of business judgment.
What rights does the corporation have when an officer or director is negligent?: Corporation can indemnify officers and directors for damages in suits including attorney's fees (if approved by the court).
What happens in a corporation in the case of a merger, consolidation, or sale of all assets?: Directors must meet and pass a resolution, shareholders must vote on whether to adopt the resolution.
What are dissenters' appraisal rights?: In a merger, consolidation, or sale of all assets, dissenters cannot stop the transaction but can insist on being paid market value for their stock.
What rights to shareholders have in relation to corporate books?: Shareholders can inspect books if their purpose is reasonably related to interest as a shareholder.
Can shareholders inspect books with the purpose of gaining control or competing with the corporation?: Yes to gain control but not to compete.
Can a corporation deny a shareholder the right to inspect books?: If a shareholder has misused information within the previous two years.
What is the validity of contracts between a corporation and its officers based on?: Fairness and disclosure.
How does the a corporation account for declared dividends?: They are debts of the corporation.
When are dividends illegal?: If the corporation is rendered insolvent or total assets are not enough to cover liabilties plus dissolution obligation to preferred shareholders.
Are directors liable for illegal dividends?: Yes, directors have strict liability without regard to good faith or negligence.
Can a corporate continue after dissolution?: No, dissolution terminates a corporation's existence.
When is dissolution complete for a corporation?: After the winding up of affairs and the distribution of assets.
When is a dissolution voluntary?: When it occurs by merger, consolidation, or the filing of articles of dissolution.
When is a dissolution involuntary?: When it is caused by either the failure to pay the annual assessments to the state or if fraud occurred in the original articles of incorporation.
What is the judicial dissolution of a corporation?: When directors are hopelessly deadlocked, shareholders can petition the court for dissolution.

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Number of cards 90