Business Association

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  1. Proprietors
    • 1. Solo Owner
    • 2. Unlimited Direct Liability (personal & business assets)t
    • 3. Centralized management(totally controlled by owner and/or delegated).
    • 4. Owner collects all profits,
    • 5. Pass through/flow taxation
    • 6. Not easily transferable
    • 7. Informal
  2. Partnership
    Association of 2 or more persons, to carry on as co-owners of a business for profit.

    • 1. at least 2 partners ].
    • 2. Unlimited Direct Liability + Jointly and Severally liable.
    • 3. All Partners are Agents & can bind if ordinary course  + share management
    • 4. Share Profits equally or in proportion to contribution to partnership & Losses in proportion to profits.
    • 5. Pass/Through/Flow through taxation
    • 6. Non-Transferable (new partners only w/consent of all)
    • 7. Can be informal
  3. Corporations
    • 1. Shareholder owned, separate perpetual entity.
    • 2. Limited liability (corporate assets only)
    • 3. Management: Shareholder elect Directors ⇀ Directors hire Officers.
    •     () Directors = Manages Corp.
    •     () Officers = Manage Day to Day
    •     () Shareholder = elect/fire directors &
    •                            vote major issues.
    • 4. Profits (MAY) be paid in dividends (no automatic RT to dividends)
    • 5. Double Taxation = (1) Corporate Income & (2) if/when dividends are paid out.
    • 6. Easily transferable (stock market)
    • 7. VERY FORMAL = Must be filed w/state
  4. Limited Partnership
    • 1. at least 2
    •      (1) General Partner
    •      (2) Passive Partner
    • 2. Liability:
    •      (1) GP = Unlimited liability
    •      (2) PP = Limited to amount invested (IF) no active management role.
    • 3. General Partner Manages.
    • 4. Share profits Equally, as per contributed or as/per agreement.
    • 5. Pass through/flow through taxation
    • 6. Not easily transferable.
    • 7. Formal (must be filed w/the state & comply)
  5. Agents bind principals when acting within the scope of their authority
    • 1. Actual [express or implied]
    • 2. Apparent [manifestation by p to 3P]
    • 3. Inherent [by virtue of title, agency, job]
    • 4. Vicarious Liability [employee/not independent contractor.
    • 5. Ratification [after fact approval + relates back]
    • 6. Estoppel [analogous to apparent]
  6. Whether an association is also a partnership is determined by considering the extent of:
    • 1. Language of Agreement
    • 2. sharing of Management
    • 3. Sharing of Net profits and Losses, unless:
    •      (1) Debt; (2) Wages; (3) Rent; (4) Annuity to representative of dead/ex partner (5) Interest on loan; (5) consideration for sale of good will.
  7. Respondeat Superior
    Employers are vicariously liable for the acts of their agent/employees committed within the scope of the agency.
  8. Principals are not vicariously liable for acts committed by agent on a "frolic"
    The agent leaves the scope of his employment/agency for some personal reason, which is unconnected to the agency.
  9. Detour
    Principals continue to be liable for the acts of his agent when the agent merely strayed/detoured but a little from the scope of the agency.

    *taking a longer route to make a bank deposit to see a favorite sculpture = mere detour.
  10. Agency

    A fiduciary relationship resulting from....
    • (1) Manifestation of consent by principal,
    • (2) that Agent has Authority to bind principal, subject to his control,
    •          =Actual
    •          =Inherent
    •          =Apparent
    •          =Estoppel
    •          =Vicarious
    •          =Ratification
    • (3) to which Agent Consents.
  11. Duty of Loyalty
    • (1) Acts solely to benefit P,
    • (2) No conflict of Interests (no acting on behalf of adverse party)
    • (3) Surrender profits made during scope of agency:
    •            =non-compet(no appropriation of
    •      opportuity)
    •             *customary gratuities Exception
  12. Actual Authority
    Expressed manifestation, of principals' consent as evidenced in the parties' agreement, whether written or oral. 
  13. Actual Implied Authority

    "De Facto" Agency
    • Implied manifestation of principals' consent, and control as evidenced by the parties' course of conduct.
    •         =Typically seen where one party has significant control over day to day operations of the other.
  14. Inherent Authority
    Power of agent to act, which is derived solely from the nature of the agency relationship, which creates the reasonable perception that he has the authority to act.

            =Power/authority commonly associated w/a position or title.
  15. Apparent Authority
    (1) manifestations by the Principal to a third party,

              =uniformity among a brand may be enough for a franchise to operate as an agent of the corporation.

    (2) that an agent has authority to act binds that principal to those acts,

    (3) when third party reasonably believes the manifestation.
  16. Estoppel Doctrine

    Binds a principal to the acts of a non-agent when:...
    • (1) Any Principal's culpable acts or omission creates the appearance that an agent is authorized to act for him,
    •          =intentional/reckless failure to
    •            correct mistaken appearance.

    (2) Third party reasonably relies on the appearance that the agent is authorized, 

    (3) Third party changes his position due to that reasonable reliance.
  17. Undisclosed Principals
    (1) Bound to unauthorized acts of his agent,

    (2) when P has Notice of the conduct,

    (3) Fails to take reasonable steps to notify third parties,

    (4) Third party Justifiably Relies on agent's authority, and suffers a detrimental change in his position.
  18. Ratification
    (1) An unauthorized act that becomes binding on the Principal when he:

    (2) Approves or Affirms the act,

    •          =accepting benefits, express or
    •            implied, acquiesce..etc..

    (3) which relates back to the time the act was done (as if A always had the authority to act).
  19. Partnerships exist when:
    Under the totality of the circumstances, the intent of the parties indicates that a partnership exists.

        =Language; course of conduct; sharing day-to-day control; sharing of profits & losses = no one is dis positive.
  20. RUPA

    Partnership Agreement
    • (1) NO eliminate loyalty: But it may:
    •         (a) Define categories that don't violate the duty (but not if it's Manifestly Unreasonable)
    •         (b) allow ratification if after full disclosure all owners or specified percentage authorizes the violative act.

    (2) May not Unreasonably reduce duty of care;

    (3) May not eliminate good faith & fair D,  but it may define standards of conduct (but can't be manifestly unreasonable);

    (4) Not vary power to dissociate (except may require written notice)

    (5) Not vary court's power to expel... (culpable conduct, conduct making it impractical to keep partner)

    (6) Not alter Winding process

    (6) Not Restrict 3P rights..
  21. RUPA

    Formation of Partnership
    • Sharing of gross returns = not alone establish PTP.
    • Joint Tenancy = does not alone establish PTP

    • Sharing Profits = Presumed to be a PTP, Unless:
    •     =wages; debt; rent; Annuity or interest on loan (even if varies w/profit made); sale of good will.
  22. Subject to the Agreement, Partners are:
    (1) Agents of the PTP, and

    • (2) have equal authority to bind PTP,
    •      =Unless (1) he has NO actual authority &
    •                   (2) 3P has actual Notice. (unless real estate title is involved)

    • (3) In Acts in the ordinary course of business.
    •           =disagreements may be settled by majority (if there is a majority).
    •           =If evenly split = no one partner is restricted to act.

             =Matters outside ordinary course of business must be approved by all partners.
  23. Filed Statement of Authority
    (1) filed w/State

    (2) define authority/limts of each Partner

    (3) May not be binding though on 3Ps w/out actual authority (unless title search)
  24. Partner Liability
    (1) Jointly & Severally Liable, for Partnership & each other, w/right of Contribution

    • (2) If debt incurred before he joined:
    •      =Preexisting debts may be paid w/partnership property (incl.what he contributed to PT)
    •      = liable for all subsequent debts...
  25. Partnership Legal Actions
    (1) Partnership may be sued in its own name.

    • (2) Partners' estate is not subject to a judgement against the partnership, unless he's also named as a defendant.
    •        =RT of contribution.

    • (3) Charging Order Remedy:
    •        =attaches to a partners' economic ownership interest (lien) to a debt.
    •        = payments/withdrawals are diverted to creditor.
  26. RUPA

    Partner Rights
    • (1) Economic
    •        = $$Contributed - Liabilities + share of profits (-pro rata losses). 
    •        = may be transferred.
    •                  **whole or in part
    •                  **only specific personal partner property not partnership property. [partnership property requires unanimous consent of partners]
    •        =doesn't force dissociation/dissolution

    • (2) Management
    •       = not transferable.
    •       =equal (unless agreement restricted) in ordinary course of business.
    •       =Incoming Partner = only w/unanimous consent
  27. Distribution
    (1) No rt to return of specific property put toward partnership. [only rt to return of value]
  28. RUPA

    Partner Duties
    • (1) Loyalty = each must account & hold as trustee any:
    •         =property, profit, benefit, business opportunity (if within scope of partnership)
    •           *Corporate Business Opportunity Doctrine.

    (2) Non-Conflict of Interest

    (3) Non-Compete (prior to dissolution)

    (4) Conduct that merely benefits a partner is not itself a violation.

    • (5) Partners may also be creditors to the partnership.
    •       =receiving same protections as 3p creditors.
  29. Corporate Business Opportunity Doctrine
    (1) If an opportunity is within the scope of a partnership/business,

    (2) loyalty requires the partner disclose the opportunity,

    (3) and decide in good faith whether to take it for the partnership.

    **Exceptions = (1) outside the scope or (2)Full disclosure.
  30. Partnership at will
    • Partnership:
    • (1) without designated term, or

    (2) undertaking capable of completion.
  31. Ad hoc or Joint Venture
    • (1) Two existing business/entities
    • (2) Together for a specific venture or purpose,
    • (3) capable of completion of specific undertaking.
  32. Dissolution of Partnership
    • Where a partnership seizes to be:
    • (1) voluntarily or involuntarily;
    •             =death/bankruptcy
    •             =expulsion. [not breach of agreement alone]
    •             =express will of all partners;
    •             =wrongful dissociation;
    •             =impossibility of legality to continue;
    •             =judicial determination

    (2) remaining partners must decide within 90 days whether to reform or wind up and eventually terminate.

    (3) At will =
    may dissolve at any time. [rightfully or wrongfully]

    • (4) definite term/undertaking = upon completion [rightfully or wrongfully] 
  33. Winding Up of Partnership
    • Period after dissolution where:
    • (1) Partnership is in the process of terminating,
    • (2) but still conducting business necessary for termination:
    •     =bound acts committed during winding up if:
    •     (a) appropriate for winding up, and/or
    •     (b) 3P didn't have notice of the dissolution and act is one the partnership would have been bound to (before dissolution)
  34. Termination of the partnership
    • Occurs upon:
    • (1) complete liquidation of assets;
    • (2) payment of all debts;
    • (3) and after any remaining assets are distributed to partners,
  35. Dissociation of Partners
    • a partner may seizes to be associated /a partnership, rightfully or wrongfully at any time,  b/c:
    • =notice
    • =predetermined event
    • =expulsion (per agreement or unanimous vote)
    •       *all/substantial transfer of economic interest. (unless charging order that hasn't been foreclosed or for security purpose)
    •       *illegality (change of circumstance)
    •       *90 days after filing of dissolution; revoked charter etc....
    • =judicial determination
    •       *wrongful conduct adversely affected co.
    •       *willful/repeated breach
    •       * Unreasonably impractical to continue partnership (b/c of his conduct)
    • =Partner
    •       *IS a Creditor to partnership & bankruptcy proceeding;
    •       *assignment benefiting creditors;
    •       *Consenting entrustment of all his property to another.
    •       *Failure to vacate entrustment of all his property right to another (in 90 days)
    • =death/incapacity
    • =Entire distribution of trust
    • =Entire distribution of Estate
  36. IF a Partner is Dissociated:
    • 1. No Management Rt
    • 2. NO duty of Loyalty (unless agreement says otherwise)
    • 3. Duty of Care & Good faith pertain only to matters before dissociation, unless he participates in winding up.
    • 4. May get release from liability from remaining partners. [indemnification]
    • 5. Still liable to creditors of transactions occurring before dissociation.
  37. Limited Partnership
    Formed by filing with the state, comprising of at least one General Partner (may be entity) that has unlimited liability, and one or more Limited Partners who have limited liability, unless they participate in the management (but see safe harbour).
  38. Safe Harbors
    Limited Partners do not participate in the management of a Limited Partnership merely b.c they serve on the board, are sole shareholder to, or officer to the Corporate General Partner.

    Safe harbors allow for the creation of a limited partnership without ever exposing any one partner to unlimited personal liability. 
  39. Partnership by Estoppel
    A general partnership can come into existence by operation of law, if the non-partners represent to the outside world that they are in a partnership together.
  40. Factors to consider when deciding what entity to form:
    • 1. Limited Liability
    • 2. Management
    • 3. Continuity of Existence
    • 4. Transferability
    • 5. Complexity of Formation.
  41. Corporate Form is Superior if:
    • 1 Owners want to limit their liability.
    • 2. If Free Transferability is important.
    • 3. If Centralized management is important (like if there are too many owners)
    • 4. If Continuity of existence is important (if death/withdrawal is).

    &but a limited partnership would also work.
  42. Partnership Form is Superior:
    • 1. If Simplicity and Inexpensiveness of creation & operation is important.
    • 2. Where the losses or large profits make single taxation (at the partner level) preferential.

    *but the tax benefits may be enjoyed by an S corporation too.
  43. Limited Liability Company
    • Benefits:
    • 1. Limited Liability--regardless of how involved he is in the daily operation of the business. 
    • 2. Pass-Through Taxation-- avoid double taxation by passing through their profits/losses to each member's income tax.
    • 3. Flexibility in allocation of losses/profits.
    • 4. Flexibility in Management.
    • Disadvantages:
    • 1. Complex to form (must have an operating agreement)
  44. Internal Affairs Doctrine
    Law of the jurisdiction of where the chief executive office sits, governs relations between the partners and the partnership.
  45. Partners as Agents of the partnership
    Each has authority to bind in acts that are in the ordinary course of business, unless agreement says otherwise, and the 3P had notice of the lack of authority,
  46. Partner Disagreements regarding Ordinary course of Business
    • 1. Must be settled by Majority Approval (unless agreement)
    • 2. If evenly split (no one partner is restricted) (unless agreement says otherwise)..
  47. Partner Disagreements + Outside ordinary course of business
    Require the consent of all partners.
  48. Filed Statement of Authority
    • 1. Must be filed w/the state;
    • 2. Identifies the Partners, their Authority, and limitations;
    • 3. May not bind 3Ps who don't have actual notice.
  49. Limited Liability Partnership
    A partnership where the partners (1) filed a statement of certification; (2) freely participate in the management; but (3) each is protected from liability stemming from torts/contracts of the other partners,(unless they're direct participants in the bad act).
  50. Limited Liability Company
    • 1. must file w/state;
    • 2. authority to manage rests w/ members (unless delegated);
    • 3. Pass through taxation;
    • 4. must have at least 1 member.
    • 5. No personal liability (only personally liable for the member's own negligence or one under his supervision).
  51. Legal Actions & Partners
    A judgment against a partnership is not a judgment unless a Partner, and can't collect from his personal property  unless it names him personally.
  52. Management Rights
    A new partner may only enter w/the unanimous consent of all the partners.
  53. What Partner Rights may be transferred?
    Only a partner's economic rights may be transferred, which gives a transferee a right to receive distributed profits which may have gone to that partner, and the net amount of profits of the partnership upon dissolution.
  54. Charging Order?
    • Creditor Remedy;
    • Attaches equitable owner's economic right to an unpaid debt;
    • subsequent distributions go to the creditor, not the equitable owner.
  55. Distribution in Kind? (RUPA)
    No Right to return of property put toward a partnership.

    Only Right to return on the value of such property. (buyout)
  56. At will Partnership
    • 1. No designated term or Undertaking;
    • 2. May disassociate at any time;
    • 3. Must be in good faith;
  57. Partnership for A Term or Undertaking
    • 1. Dissociation is rightful only after completed term, or undertaking;
    • 2. Dissolves 90 days upon completion;
  58. Partnership is bound to acts committed during the winding up process if:
    1. appropriate for winding up; or

    • 2. 3P had no actual notice of dissolution AND
    • Act is one which the partnership would've been bound to.
  59. Consequences of Dissociation:
    • 1. Loss of RT to control/manage
    • 2. Loss of Duty not to Compete (unless K says otherwise + reasonable in scope & duration);
    • 3. Duties of Care & Loyalty (only to stuff occurring before dissolution or winding up if the PT participates in the process)
  60. Dissociated Partner's
    • Dissociated partners continue to be jointly/severally liable w/partnership if:
    • (1) NO 3P notice (actual/constructive) of dissociation; and (2) 3P reasonable belief D/P was still a partner;
    • (3) within 1 year of dissociation.
  61. Ex-Partnership of Dissociated Partner:
    • Ex-Partnership remains liable for the acts of a dissociated partner if:
    • (1) Within Scope of authority the partner had;
    • (2) No 3P notice of dissociation;
    • (3) 3P Reasonable Belief that D/P was still a partner;
    • (4) within 1 year of dissociation.
  62. Buy Out Price of Dissociated Partner
    Value of partnership interest - Liabilities - Damages + Interests (from dissociation to date of payment)
  63. Limited Partnership
    • 1. Filing Certificate;
    • 2. Managed by at least 1 General Partner w/Unlimited liability +Authority to bind;
    • 3. one or more Limited Partners (no personal liability if no Management rights) (unless they participate in the management);
    • 4. Safe Harbor Statute (limited Partner may manage direct General Corporate partner).
  64. Limited Liability Partnership
    • 1. Flied statement of certificate;
    • 2. Freely Managed by all Partners;
    • 3. Limited Liability of a corporation.[not liable for personal torts, contracts of a partner solely by reason of their connection to the partnership]
    • 4. Majority vote of partners + filing =registered LLP.
  65. Pro Rata Payment of debt:
    • 1. Add up all debt (D)
    • 2. Divide each individual creditor balance by (D) to get the percentage (%) that creditor represents.
    • 3. Multiply the (%) by the amount of cash one actually has = amount due to that creditor.
  66. Jingle Rule
    • Gave partnership creditors priority in all partnership assets, + Gave personal creditors priority in each partner's personal assets.
    • (defunct)
  67. Bankruptcy Act 1973
    Gave Partnership creditors priority over all partnership assets + lets Partnership creditors share in the individual assets pro rata w/each each individual's private creditor.
  68. Promoters
    • 1. Cause corporation to be formed;
    • 2. Personally liable for all Ks he enters into on behalf of corp.(indemnification if good faith & some benefit to the corp).
  69. Promoter Liability may be cured by:
    • 1. Parties Intent (3p & Promoter)
    • * letting Promoter sing only in corporation's name + knowledge that corp doesn't exist yet.
    • * Assignable Option Agreement (express provision releasing him once the corp adopts).
    • 2. Novation (resolution/implied by Corp + 3P)
  70. Corporation's liability to Promoter Contracts
    • Promoter does not have authority to bind corporation unless:
    • 1. Ratification (only to ks made post corporate existence) + don't relate back.
    • 2. Adoption (k made before or post corporate existence)
  71. Ratification
    • (1) A principal's acceptance (implied/express),
    • (2) of an agent's unauthorized act,
    • (3) committed after the agency relationship existed (meaning the principal must exist when the act is done);
    • (4) Relate back to the date committed.
  72. Adoption
    • (1) Assent to a K; (express/implied)
    • (2) K made on Principal's behalf,
    • (3) before agency relationship existed, {principal did not exist yet};
    • (4) Binding upon adoption + Do Not relate back.
    • (5) do not necessarily release promoter from liability.
  73. De Jure Corporation
    • A de jure corporation is one which:
    • (1) organized in compliance w/the state's statute;
    • (2) Granted Limited Liability upon filing;
    • (3) Certified statement of fact on incorporation is conclusive evidence of de jure status.
  74. De Facto doctrine
    • Protects shareholders, directors and officers from unlimited liability, due to a corporation's failure to properly file if:
    • (1) a good faith, colorable attempt to file,
    • (2) parties acted in good faith as if they were a corporation,
    • (3) and the entity/principals had no notice of the entity's lack of corporate status.
    • * liability may be imposed on those that act w/notice of the fact the corp doesn't exist.
  75. Estoppel to Deny
    • Protects a defective corporation from having its corporate existence denied by a third party when:
    • (1) corporation had no notice of its defective status; and
    • (2) where 3P acted as if they were dealing w/a corporation.
  76. Common Stock
    • (1) must issue at least 1 class of common stock.
    • (2) must have at least 1 voting class stock;
    • (3) Receive dividends only if declared by Board;
    • (4) Right to pro-rata claim of Net profits after liquidation.
    • (5) different classes can have different rights.
  77. Convertible Right Stock
    Holders may buy stock w/a right to convert from one class to another for a set price.
  78. Right to Redeem
    Corporation may buy-back the stock at any time for a stated price.
  79. Preferred Stocks
    • (1) May be issued (in articles or give Board power to create them);
    • (2) No right to vote (or limited rights to vote)--unless attempt to alter their rights;
    • (3) Preemptive Right to a predetermined amount or percentage of Dividends, only if declared by the board; [b4 commons r paid]
    • (4) Articles can make declared dividends mandatory past a stated profit amount;
    • (5) Cumulative ($$rolls over until dividends are declared); or non-cumulative.
  80. Blank Check Stock
    (1) only if expressly stated in articles;

    (2) Board may determine rights of a stock upon issuance.
  81. Amending Stockholder Rights
    • Articles Amendments:
    • (1) Must be initiated by Directors, +
    • (2) Shareholder Approved by Absolute Majority.

    • By Laws Amendments:
    • (1) May be initiated by Shareholders.
  82. Voting and Stock
    • Delaware
    • * Allows Creditors to vote.

    • Florida:
    • * Every share has at least 1 vote, unless share is owned by subsidiary (no circular voting).
  83. Assets
    • (1) Tangible Assets--have physical form.
    • (2) Intangible Assets--non-physical, non-current right that gives firm a value in the marketplace (goodwill/patents)

    • (3) Short Term--May be converted into cash within the year.
    • (4) Long Term--Assets not expected to be converted into cash within the year.
  84. Balance Sheet
    Image Upload 1
  85. liability
    • (1) Probable future sacrifice;
    • (2) to transfer assets or services;
    • (3) as a result of a current/past transaction or event.

    • Current/Short term--payables expected to become due within a normal operating cycle of one year.
    • Long Term--Bank loans due within a 5 or 10 year note.
  86. Equity
    The residual interest in assets that remains after deducting liability
  87. Efficient Capital Market Hypothesis

    • All relevant information;
    • of a company;
    • should be reflected in its stock price.
  88. Corporate Lines of Equity
    Stated Capital (common stock) = minimum from the stock sale set aside to protect creditors.

    Capital Paid-In Capital = amount of capital raised form selling stock above its par value.

    Earned Surplus = net income that is not distributed but retained as equity by the corporation. [retained earnings]

    Trasury stock = the negative amount in equity that the firm spent to buy back its stock.
  89. Working Capital
    Image Upload 2
  90. EBIDTA
    Earnings Before Interests, Tax, Depreciation and Amortization.

    *depreciation--cost recovery, depreciation of tangible assets;

    *Amortization--Cost recovery of intangible.
  91. Income Statement
    Profit & Loss statement that records the firm's input and output.

    Revenue - Expenses = Net Income.
  92. Statement of Cash Flow
    • Keeps track of all the cash that circulates throughout a firm during the fiscal year, from:
    • (1) Operations;
    • (2) Investing 
    • (3) Financing
  93. Operations Cash FLow
    • Net Income + Depreciation & amortization.
    • +/- Changes in receivables
    • +/- Changes in Payables               

    Cash flow from Operations
  94. Investing Cash Flow
    • + sales of investing; or
    • - Payment of investing.
  95. Financing Cash FLow
    • + Issued Stocks,
    • - repayment of Bonds,
    • -Stock buyback,
    • -Payment of Dividends           
    •   Cash Flow from financing
  96. Alter Ego Doctrine
    Allows creditors to pierce the limited liability veil protecting an equitable owner to reach his personal assets if:

    • (1) unity of Identity (lack of formalities; undercapitalization and intermingled accounts);
    • (2) Adhering to corporate fiction would sanction an injustice.
  97. Enterprise Liability
    • Typically used by creditors of a subsidiary to reach the assets of a sister corporation when:
    • (1) they transgress the corporation-corporation boundary;
    • (2) by operating as a single enterprise, intermingling accounts or records, or mingling assets toward a common purpose. (interlocking boards)
  98. Reverse Piercing
    • (1) Claim against S;
    • (2) Enforceable against C;
    • (3) Applying Alter-Ego Doctrine.
    •       * Unity of Interest + injustice (mere non-payment is not injustice).
    • (4) Consequences : Puts a private creditor on equal footing w/corporations' creditors.
  99. Deep Rock Doctrine
    • (1) If it's equitable to do so (inadequate capitalization; failure to follow corporate form; fraud or any wrongdoing);
    • (2) a bankruptcy court may satisfy an insiders' outstanding loan (S;D,of O) but only after outside creditors are paid.
  100. ultra vires
    actions taken outside of the "corporate purpose" is voidable as ultra vires.

    *largely irrelevant today since most states allow broad, permissive purpose clauses, but this may become important if articles have a limit.
  101. Charitable Acts as Waste
    • A charitable act is wasteful if:
    • (1) anonymous (no goodwill benefit for inc);
    • (2) $ is significant compared to earnings;
    • (3) or Pet charity (no wide appeal).
  102. The Articles of Incorporation must state
    • (*) Corps' Name; [+ some indication of corporate form]
    • (*) Principal Office & Registered Agent;
    • (*) Classes & number of Authorized shares';
    • (*) any special S rights (if any). [preemptive rts; preferred stock; etc..]
  103. The Articles of Incorporation May state:
    • (*) Incorporators;
    • (*) Purpose clause;
    •      DEL--clause is required.
    •      FL--Not required.
    • (*) Staggered Board;
    • (*) any limits on the D, S, or Os.
    • (*) Par Value (minimum cost per share)
    • (*) any other...
  104. Organizational Meeting
    If D are named in Articles  = majority may call organizational meeting.

    If Ds are not named in the Articles = incorporator may call meeting to elect Ds to finis organizing the corp.
  105. BY Laws
    • (1) provisions for managing the business;
    • (2) Adopted by Incorporators, or D unless reserved for S.
    • (3) Amendment:
    •      *Delaware--D can't amend bylaws unless articles expressly gives them the power to.
    •      * FL--D's can amend bylaws UNLESS Articles expressly say they can't.
  106. Directors
    • 1) At least 1; @least 18years; Natural Person;
    • 2) Exercise all power & manage the business: (linchpin)
    •  ---DEL--D's power is subject to articles, bylaws & s votes.
    • --FL--D's power is subject only to what is expressed in articles.
    • 3) Elected by S for 1 year (may be staggered).
  107. Removal of D by Shareholder
    • (1) may remove with or without cause;
    • (2) At shareholder meeting;
    • (3) If notice of meeting states removal of D is its purpose;
    • (4) If D was elected by voting group = only that group may vote to remove.
    • (5) if Cumulative voting = D can't be removed if sufficient number of votes to elect, vote to keep him.
  108. Meetings
    • 1) Regular Meetings or Special.
    •   *Called by Chair of Bod or President.
    • 2) Conducted in any manner that allows all Ds to hear and speak to each other.
    • 3)  A majority of D may adjourn to another time or place but notice must be given to absent Ds.
  109. Notice of Meetings
    Regular Meetings → No notice necessary since the time & place should be in the Articles.

    • Special Meetings Require:
    • 1. Notice (@least 2 days unless articles)
    • 2. Inc.: Time, Date and Place (not purpose).
  110. Board Actions w/out Meetings:
    • Unless the articles say otherwise, the Board may take action w/out a meeting if:
    • 1. unanimous,
    • 2. written consent,
    • 3. describes the action,
    • 4. is signed by all the members of the Board.

    *effective upon last signature.
  111. Directors' Waiver of Notice
    • Waiver may be given before or after meeting, and is automatic if:
    • 1. D attends, participates, votes without objecting at the beginning that the meeting is unlawfully convened.
  112. Director Voting
    • 1) An affirmative vote,
    • by a quorum of directors present (as perscribed by the articles),
    • is an act of the Board.

    2) a D who is present assents to the act unless she objects, votes against, or abstains from the action.
  113. Director Committees
    • Designated by the Board +  a quorum affirmative votes = action by committee + Exercise the powers of the Board, Except:
    • 1. Can't approve, recommend S action,
    • 2. Can't fill vacancies,
    • 3. Adopt, Repeal,or amend Bylaws,
    • 4. Authorize or approve reacquisition of shares,
    • 5. issue or sale shares,
    • 6. Can't determine rights, limits or preferences of voting groups.
  114. Florida 0830
    D is not liable for any action or failure to take action if:

    • * Goof faith;
    • * Reasonable Under the Circumstances,
    • * Reasonable Belief of acting in best interest of corp.
    • * Entitled to reasonably rely on experts, employees, etc..
    • * And may consider any other relevant factors.
  115. Florida Director Monetary Liability
    • A D is not personally liable unless, P can show:
    • 1) Breach of Duty of care (0830), + (and)
    • 2) Bad Faith [knowing legal violation; improper personal benefit; unlawful distribution; conscious disregard of corporations' interest]

    *improper personal benefit may be cleansed by disinterested directors or shareholders)
  116. Director Contracts w/Conflicts of Interests
    (1) Voidable; but may be cleansed by:

    a) Majority of Disinterested Ds +after Material disclosures of conflict. [interested d's vote may be taken but not counted toward cleansing the transaction]

    b) Shareholder approval + Full material disclosure.

    c) Intrinsic Fairness Defense ( fair and reasonable at the time it was authorized)
  117. Fundamental Changes
    Must be initiated by the Board + Approved by the Shareholders:

    • 1. Mergers [unless triangular merger]
    • 2. Dissolutions
    • 3. Selling all or Substantially all the assets [other than regualr course of business]
    • 4. Articles Amendments.
  118. Issuance of Shares
    • Shares must be:
    • 1. Authorized by the Board,
    • 2. For adequate consideration.
  119. Dividends
    • Declared by the Board:
    • 1. Pro Rata distribution (unless articles)
    • 2. Distributed on Record Date. (date determined by the board)
  120. Share Options
    • 1. Board determines (rights, limits, manner and form of issuance)
    • 2. entitle holders to purchase shares of any one class of stock.
    • 3. May include limits, restrict % that may be owned by any one person..etc..
  121. Share Certificates
    • Are not required but must state:
    • 1. name of corp & state of Incorporation;
    • 2. number of holder;
    • 3. number & class of shares represented;
    • 4. Common or Preferred;
    • 5. singed by the designated officer (bylas or by bOD)
    • 6. Bear the Corporate seal.

    If no Certificate → must give holder a written statement w/above info after a reasonable time.
  122. BJR
    • the business judgment rule is a rebuttable presumption that corporate
    • business decisions are made by disinterested and independent directors,
    • acting on an informed basis, and in the good faith belief that the
    • decisions are in the best interests of the corporation and its
    • shareholders.
  123. To Successfully rebut the BJR Presumption by:
    • (1) there was no business decision;
    • (2) the directors acted in bad
    • faith, without the honest belief that their action was in the best interests of the corporation and its shareholders;
    • (3) the directors acted without due care;
    • (4) the directors were not disinterested and
    • independent, or
    • (5) the directors abused their discretion.
  124. Rebuttable Presumption
    • A rebuttable presumption is a presumption that will lead to a
    • final factual conclusion by the court (and perhaps have the effect of
    • determining the outcome of the litigation) unless it can be overcome by a
    • showing of contrary evidence by the opposing party.
  125. Director's Duty of Care:
    described as the duty to act in good faith, carefully and on the basis of adequate information as they manage the corporation.
  126. BJR protects Business Decisions...
    (1) the conscious exercise of judgment in making a decision and (2) the requirement that the decision involve the corporation's lawful business
  127. bjr & bad faith
    • If a director's actions are motivated by any purpose other than the
    • advancement of the corporation's best interests, a court may conclude
    • that she is acting in bad faith.
  128. Share Restrictions
    • 1) Valid only if SH has Notice & Acceptance
    • * Must be Conspicuous
    • 2) May give the corp the rt of first refusal; force corp. to buy back; Require consent (if not manifestly unreasonable; prohibit transfer to certain persons (not manifestly unreasonable).
  129. Preemptive Rights
    • 1. Must be on the Articles;
    • 2. gives SH:
    • _fair & reasonable opportunity to acquire issued shares,
    • _in proportion to the % of shares the SH already holds,
    • _terms & conditions set by the Board,
    • 3. If preemptive right is not exercised: 
    • _Shares may be issued o any person,
    • _for 1 year,
    • _consideration must not be less than what the SH was asked for. (set by the board).
  130. SH have no preemptive rights when:
    • Shares are issued as:
    • 1. Compensation; Option Rights; Authorized w/thin 6 months of incorporation; pursuant to a plan of reorganization; Issued for non-monetary compensation.
    • 2. Preferred SH → No Preemptive Rts.
    • 3. Common Stock → No Preemptive Preferred stock RTs, unless convertible rights are given.
  131. Distribution of Dividends
    • 1. Determined by the Board.
    • 2. Only if COrp can pay its debts as they become due or only if total assets equal more than its liabilities & amount needed to payout preferred SH upon dissolution. 
    • 3. Due within 120 days.
    • 4. SH have same RTs as unsecured creditors.
  132. Officers
    1. Perform duties consistent w/ bylaws and Director instruction.

    2. May be removed at any time by D

    3. Are agents of the corporation & can bind it only when they have Actual, Apparent or Inherent authority.
  133. Directors may act w/out a meeting when:
    • 1) unanimous written consent;
    • 2) effective upon signing of last D (so no relation back = can't be used to ratify a past action ) [try estoppel]
  134. Board Action
    Typically must occur only after a duly convened meeting..(unless written unanimous consent).  [phone is okay if they can all hear and speak to each other]
  135. Director Inaction (estoppel)
    • D may bind a corp to unauthorized act if:
    • 1. knows about the action;
    • 2. fails to remedy;
    • 3. third party suffers a detriment.
  136. D Meetings
    1. Regular Meeting--regular intervals, dates/times/places noted in the bylaws (no notice needed).

    • 2. Special Meetings require:
    • _Notice (time & place)(not purpose)
    • _May be waived in writing or by conduct (failing to object or participating while in the meeting)

    • 3. Quorum (50 + 1) must be present @ time of vote.
    • _majority of fixed Ds (unless articles or bylaws change the #);
    • _NO Proxy Voting;
    • _Abstention = "Ney" vote.
  137. SH meeting
    • 1. TO elect Ds:
    • __Notice (time & place) given to all
    • __Quorum of Authorized SH that may vote (in person or proxy)
    • __Straight or Cummulative

    2. May fill vacancies on the Board (depends on the articles & the state) [the board may do so on its own too]

    • 3. Remove Ds:
    • _Must give D Notice + Full Opportunity to meet accusations. (cause or no cause)
    • _Only SH authorized to vote for that D may remove him.
    • _If cummulative → can't remove if sufficient votes to elect, vote against his removal.
  138. Director Duty of Care
    • 1) Good Faith;
    • 2) Manner he Reasonably believes;
    • 3) Under totality of circumstances,
    • 4) Best interest of the Corp.
    • 5) Subject to Exculpation clause in articles (or automatic if articles is silent but statute) + BJR + Intrinsic Fairness .
    • 6) Bad faith can beat out BJR & exculpation Clause.
  139. Ways to show Director Bad Faith:
    • 1. Doesn't attend meetings;
    • 2. Fails to be reasonably informed (includes negligent reliability on others)
    • 3. Fails to put and actively monitor reasonable controls to detect wrongdoing (modernly).
    • 4. Waste
  140. Exculpation Clause
    Articles may reduce or eliminate D's duty of care, but not duty of loyalty or duty to act in good faith, nor for intentional misconduct or knowing violations of law.
  141. Exculpation in Delaware & Florida
    FL = automatically eliminates D's duty of care, subject to its inclusion in the articles.

    DE=automatically liable for duty of care subject to its exclusion in the articles.

    * both retain good faith (can't be removed), loyalty, knowing violations of law.
  142. Business Judgement Rule
    • D/Os are not personally liable when they make
    • (1) informed decisions,
    • (2) not involving conflict of interests,
    • (3) that have some rational basis,
    • (4) and made in good faith.
  143. Expert Reliance
    D/Os are entitled to rely on experts and protected by BJR if:

    • 1. Reasonable hiring (of the expert);
    • 2. Actually relied on the expert;
    • 3. Reliance on the expert was reasonable.
  144. Intrinsic Fairness Director Defense
    • *Even if D/O violated duty of care,
    • and not entitled to BJR (failure to be informed etc) ,
    • D/O may still not be liable if transaction was intrinsically fair to the Corporation (no loss no damages)  (procedurally & substantive).

    *D should always argue intrinsically fair to bolster up his defense.
  145. Bad Faith knocks out BJR & Exculpation Clauses
    Intentionally Disregard of one's duty to be informed;

    Intentional, Systematic failure to oversee employees,

    Subjective intent to injure.
  146. Duty of Loyalty
    • D/Os have a duty to loyalty to the corporation,
    • which is implicated if (1) conflict of interest exists which creates an improper (2) financial benefit to the D/O.
  147. Duty of Loyalty Issues
    • 1. Self Dealing Transactions/ Remedy = Voidable K.
    • * Defenses:
    • __Full Disclosure + Quorum Disinterested Director Approval;
    • __Full Diclosure + Quorum Shares Ratification (Conflicted Shares can't be counted toward it).
    • __Intrinsically Fair

    • 2. Corporate Opportunity/Remedy = $$ held in trust for the corporation.
    • * Defenses:
    • __Full Disclosure + Proper Rejection;
    • __Personal Attributes Source
    • __Incapacity (weak)
    • __Not an Opportunity

    • 3. Competition/ Remedy = Held in Trust.
    • __no use of corporate assets/resources to compete.
    • __non-compete Ks must be reasonable in scope & subject matter.

    • 4. Compensation
    • *rarely struck down by courts.
    • *Consideration is required.
  148. Cleansing a Self-Dealing Transaction
    • 1. Majority Quorum of Disinterested D.
    • * Full Disclosure (material facts & nature of conflict)
    • *must be disinterested

    • *Delaware--Allows board to invoke business judgment rule.
    • Florida--the presence or vote or interested D is not counted towards the cleansing, but it doesn't invalidate the vote either.

    • 2. absolute majority of S entitled to vote. 
    • * Full Disclosure

    • 3. Intrinsically Fair Transaction.
    • * fairness alone can uphold the transaction.
    • *considering all known circumstances @ time of transaction.
  149. Corporate Opportunity Doctrine
    • A fiduciary,
    • may not take for personal gain,
    • an opportunity, or anything the corporation has an interest, expectancy or necessity,
    • Unless, he first offers it to whom the fiduciary duty is owed, who properly rejects it.

    Remedy--$$ are held in trust for the injured principal.
  150. FBCA--Constituency Statute

    In discharging his or her duties, a Director may consider such factors as he/she deems relevant,, etc...
  151. 0728--
    Unless the Articles say otherwise, D need a plurality of S votes to get on the board.

    (50 + 1)
  152. Straight Voting
    Shares may be voted for as many Ds as there are candidates.

    • I have 50 shares.
    • 3 Ds are up for election.
    • I may give 50 votes to each of the three Ds.
  153. Cumulative Voting

    If the Articles provide, S may accumulate all his votes toward a single D or split them up among several Ds.

    • I have 50 Shares.
    • 3 Ds are up for election.
    • I may give 150 to a single D or split the 150 however I see fit.

    FL--Articles must expressly give S right to accumulate his votes. (straight voting is the norm).

    Unless, Articles or Bylaws, Ds are voted by a mere Plurality.
  154. Butlers' Formula to determine # of S I need to elect 1 Director in Cummulative
    • outstanding Shares           + 1 = (shares I need)
    • Directors up for election+ 1

    *modify outstanding shares to reflect the actual number of shares that show up to vote.
  155. How many votes in Cumulative scheme are sufficient to elect: (in this case 3 Ds)
    • 3 x Outstanding Shares + 1 = number I need.
    • # up for election +1
  156. # of Ds I can elect+ in cumulative scheme +w/a given number of shares
    • (my Shares -1) (# up for election +1) = X
    • Authorized Shares (total)
  157. 0808 Removal of Cumulative Voting D
    A d elected by cumulative voting, cannot be removed if a number sufficient to elect him votes against his removal. (unless of course there's cause")
  158. How does a corp. get a staggered board?
    • 1. Articles (or amendment)
    • 2. Bylaws (or amendment)
    • --FL--D can amend bylaws, unless Articles say they can't.
    • --DE--D can't amend bylaws unless Articles say they can.
  159. Removing a Director:
    • 1. Only S can remove a D.
    • 2. If specific class voted for D, only that class can remove D.
    • 3. IF Delaware + Staggered Board + Cumulative Voting = D can only be removed for cause, or by election.
  160. Weighted Voting
    class w/ multiple votes per each share
  161. Class Voting "aka Classified Stock"
    Classes may have different relative rights, limits and voting,
  162. Contingent Voting
    Voting rights that kick in upon the occurrence or non-occurrence of an event.
  163. Treasury Stock
    Shares re-acquired by the corporation, which are then authorized but unissued.
  164. Corporation can't own itself...cant use a subsidiary to perpetuate its management.
    no circular voting.

    At least 1 class of stock must have unlimited voting;

    At least 1class must be entitled to receive net assets upon liquidation.
  165. Shareholder Meetings
    Regular Meeting--Notice (in Bylaws)

    • Special Meeting--
    • *may be called by: Chairman, President or other authorized person (articles an/or bylaws)
    • * Notice:
    • --At least 10 days
    • --time, date, place & purpose.
    • --all S of record;

    • Quorum of S Meeting:
    • * 50+1 is a quorum;
    • * Affirmative vote my majority of quorum = S action.
    • * S leaving the meeting doesn't destroy a quorum (contrast w/D quorums that are destroyed if one leaves & someone calls a quorum "richards' rule)
  166. S Action w/out a Meeting
    • FL--S action is valid, even if no meeting if:
    • (1) signed;
    • (2) written consent;
    • (3) Unanimous.

    Only really useful in small close corps.
  167. S's Absolute right to Inspect
    • S is entitled to Inspect:
    • *Regular Business Hours;
    • *Co. Principal Office;
    • *5 Business Day Notice:

    • __Articles (& amendments)
    • __Bylaws (& amendments)
    • __Resolutions (creating share years)
    • __Written Communication sent to S (3 years)
    • __Names & Addys (D & O)
    • __Most recent annual report.
  168. S's Qualified Right to Inspect
    • S MAY inspect:
    • * Business Hours;
    • * Reasonable Locale;
    • * 5 business days notice;
    • * Good Faith & Proper Purpose (particularly described)
    • * direct connection b/w purpose & records:

    • __D minutes/actions/meeting Records;
    • __Accounting Records;
    • __List of S and on...
  169. 1602--D May Deny Inspection of Records:
    • 1. Improper purpose;
    •         * D bears burden of showing improper purpose of wanting S list (DE)
    • 2. S has sold/attempted to sell S list withing 2 years;

    3. S has improperly used any other previously acquired info.

    * some states require the S be a holder of a certain number of shares/or for certain length of time, b4 right of inspection vests.
  170. Proxy
    • A revocable (usually);
    • appointment of someone (usually management);
    • to cast the S vote for him/her;
    • usually after management solicited the proxy.
  171. Irrevocable Proxy
    • A proxy is Irrevocable if:
    • (1) coupled w/an interest;
    • (2) states that it is irrevocable;
    • (3) and lasts only as long as the interest does.
  172. The SEC 1934 S14.

    regulates the Proxy Form & Prohibits Fraudulent Omissions/Mistatements.
    • Proxy must:
    • __usually a card (check the box);
    • __last dated proxy forms control;
    • __specifically state options/nominees;
    • __recipient must vote as S indicates.

    • Solicitation Material Must not contain:
    • __False statement;
    • __Omissions (under the circumstances) lead to misleading statements.

    • Solicitation Materials (any even advertisements)
    • __must be mailed to SEC prior to it being sent to S.
    •   (unless routine matter; uncontested election etc....)
    • __Proxy Statement (disclosing conflicts; details of compensation plan; top 5 paid O & details of any proposed change);

    • __if D election contest = must disclose to SEC:
    • (1) Participants (anyone donating over 500)
    • (2) Business background; interest; etc...
    • (3) 5 Days before solicitation begins. (this also alerts the incumbent bod).
  173. Proxy Contest
    • When proxy contest involves 2 opposing factions of the Bod:
    • (1) both are entitled to S list;
    • (2) Neither may use corp.facilities/personnel;
    • (3) Faction representing current policy may have its reasonable cost of SEC compliance paid for by the Corp.
  174. Cost of Proxy Fight
    • __Existing Incumbent:
    • (1) Co. pays reasonable cost of compliance w/SEC & reasonable cost of educating S as to their policy view.
    • * will typically force incumbent files suit before handing over S list.

    • __Insurgents:
    • Successful Insurgents + Co. pays for Cost if (1) policy contest & (2) S approval.
  175. Initial Meeting Notice
    • May be held by incorporation or initial bod.
    • 3 Days notice.
  176. SEC 10b-5
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