Term
| consider the following four factors when deciding what form of business to organize |
|
Definition
(1) ease and expense of creation,
(2) liability of the owner(s) for obligations of the entity,
(3) tax considerations, and
(4) the need and ability to raise capital. |
|
|
Term
| Courts often look to the following to determine whether a partnership exists: |
|
Definition
(1) sharing of profits and losses,
(2) joint ownership of the business, and
(3) equal right in the management of the business. |
|
|
Term
| The sharing of profits and losses from a business creates the assumption that a partnership exists. Unless the profits were received as |
|
Definition
1. a debt by installments
2. wages of an employee
3. rent to a landlord
4. an annuity to a surviving spouse
5. a sale of goodwill of a business or property |
|
|
Term
MANAGEMENT & VOTING RIGHTS
Basically it all is based on the partnership agreement (all rights).
Under the UPA, |
|
Definition
(1) all partners have equal management rights;
(2) each partner has an equal vote, regardless of the relative size of his or her capital contribution; and
(3) partnership decisions require a majority vote of the partnership, unless otherwise agreed, except in the following cases, which require unanimous consent: |
|
|
Term
| partnership decisions require a majority vote of the partnership, unless otherwise agreed, except in the following cases, which require unanimous consent: |
|
Definition
(a) altering the essential nature of the partnership’s business or entering a wholly new business;
(b) admitting new partners or altering the capital structure of the partnership;
(c) assigning partnership property into a trust for the benefit of creditors, disposing of goodwill, or undertaking any act that would make conduct of the partnership’s business impossible;
(d) confessing judgment (ac by a debtor permitting a judgment to be entered against him by a creditor, for an agreed sum, without institution of legal proceedings) against the partnership; or
(e) amending the partnership agreement. |
|
|
Term
| The UPA authorizes a partner to demand a formal accounting of the partnership’s assets to enforce: |
|
Definition
(1) the partner’s rights under the partnership agreement,
(2) the partner’s rights under the UPA, or
(3) the partner’s rights and interests arising independently of the partnership relationship. |
|
|
Term
| A partner has the following property rights |
|
Definition
(1) an interest in the partnership, entitling the partner to share in the partnership’s profits and to receive a return of capital upon the termination of the partnership, in proportion to the partner’s investment;
(2) a right in specific partnership property; and
(3) a right to participate in partnership management. |
|
|
Term
| When a partner ceases to be associated with the carrying on of the partnership interest, she |
|
Definition
1) is normally entitled to have the partnership purchase her interest, and
(2) forfeits her authority to act for the partnership and to participate in partnership management. |
|
|
Term
| A partner’s dissociation may be wrongful – and, thus, expose the dissociating partner to liability to the partnership and individual partners damaged by her dissociation – if, inter alia: |
|
Definition
(1) the dissociation constitutes a breach of the partnership agreement aka is wrongful;
(2) the dissociation is premature (before set time); or
(3) the partner is expelled by a court or arbitrator or declares bankruptcy. |
|
|
Term
| The formal disbanding of a partnership, which can be brought about by |
|
Definition
(1) the terms of the partnership agreement,
(2) voluntary or involuntary withdrawal,
(3) the addition of one or more new partners,
(4) death of a partner,
(5) bankruptcy of a partner or of the partnership, or
(6) judicial decree. (impractical for the firm to continue, dissension between partners is so persistent that it undermines the ability to do business) |
|
|
Term
| You always have the power to dissociate but not always the right. you can if |
|
Definition
1. Give the express will to withdraw
2. Occurrence of an event agreed upon
3. Unanimous vote of other partners in certain circumstances or when it becomes unlawful to continue to do business with that partner
4. Court order or arbitration
5. By the partners declaring bankruptcy, becoming physically or mentally incapacitated, or dead |
|
|
Term
| : The formal disbanding of a partnership, which can be brought about by |
|
Definition
(1) the terms of the partnership agreement,
(2) voluntary or involuntary withdrawal,
(3) the addition of one or more new partners,
(4) death of a partner,
(5) bankruptcy of a partner or of the partnership, or
(6) judicial decree. (impractical for the firm to continue, dissension between partners is so persistent that it undermines the ability to do business) |
|
|
Term
| The express powers of a corporation are found in the following sources, and any conflict between sources is to be resolved according to the following priorities: |
|
Definition
(1) United States Constitution takes priority over
(2) State Constitution(s), which take priority over
(3) State Statutes, which take priority over
(4) Articles of Incorporation filed by the corporation in the state of incorporation, containing information about the corporation’s organization and functions, which take priority over
(5) Corporate By-Laws adopted by the corporation’s shareholders, which take priority over
(6) Resolutions of the corporation’s board of directors – policy statements adopted periodically by the board |
|
|
Term
| S Corporation: A closely-held corporation that is taxed like a partnership, while affording its owners the limited liability of a corporation. In order to qualify as an S Corporation, the corporation: |
|
Definition
(1) must be incorporated in the U.S.,
(2) must not be a member of an affiliated group of corporations,
(3) must be owned by individuals, estates, or certain trusts (S Corporation shares cannot be owned by other corporations, partnerships, or nonqualifying trusts),
(4) must have 100 or fewer shareholders,
(5) must have only one class of stock (although not all shares must have the same voting rights), and
(6) must not have any nonresident alien shareholders. |
|
|
Term
| Promoter: A person who takes the preliminary steps in organizing a corporation, including: |
|
Definition
(1) issuing a prospectus – a document required by federal or state securities laws that describes the financial operations of the proposed corporation sufficiently to enable prospective investors (subscribers) to make an informed decision;
(2) procuring stock subscriptions;
(3) making contracts (e.g., to purchase or lease property for corporate facilities, to secure the services of attorneys, accountants, and other professionals); and
(4) securing a corporate charter. |
|
|
Term
| De Facto Corporation: A corporation which, despite some substantive defect in its incorporation or continuing status, is recognized to exist, even if its existence is improper or illegal. De facto status requires: |
|
Definition
(1) a state statute under which the corporation can be validly incorporated;
(2) a good faith effort by the corporation to comply with that statute; and
(3) the corporation has actually undertaken to do business |
|
|
Term
| The following factors may persuade a court to pierce the corporate veil: |
|
Definition
(1) the plaintiff was tricked or misled into dealing with the corporation rather than the individual;
(2) the corporation was created never to make a profit or had insufficient capital at the time of its formation to meet its prospective debts or potential liabilities;
(3) the corporation does not observe statutorily-required corporate formalities; and
(4) personal and corporate interests are commingled to the extent that the corporation ceases to have a separate identity from its owners. |
|
|
Term
A corporation is governed by a board of directors who are:
The ultimate authority of a corporation |
|
Definition
(1) elected by the corporation’s shareholders;
(2) to serve for a period of time, and subject to early removal only for cause (can’t be removed without cause unless shareholders reserve the right to do so at the time of election);
(3) compensated as provided for in the articles or by-laws;
(4) entitled (a) to receive reasonable notice of and to participate in all board meetings, (b) to inspect all corporate books and records, and (c) in most jurisdictions, to be indemnified by the corporation for any judgment entered against them, and for any legal fees and expenses incurred defending claims made against them, for acts taken in their directorial capacity; and
(5) responsible for (a) authorizing major corporate decisions, (b) appointing, supervising, and removing corporate officers and managerial employees, (c) declaring and paying corporate dividends, and (d) deciding whether to issue stock or bonds. |
|
|
Term
|
Definition
1. executive committee – handle interim management decisions on ordinary business matters between board meetings.
2. audit committee – selection compensation and oversight of accountants who audit the company
3. nominating committee - chooses candidates for the board
4. compensation committee – reviews and decides salaries
5. litigation committee – decides whether to pursue shareholders requests to file lawsuits. |
|
|
Term
| Duty of Care: Directors and officers are expected to |
|
Definition
(1) act in good faith in performing their duties,
(2) exercise the care that an ordinarily prudent person would exercise in similar circumstances, and
(3) act in the best interest of the corporation. |
|
|
Term
| Directors and officers must do what is necessary to become and stay informed on important corporate matters. In addition, directors are expected to: |
|
Definition
(1) make reasonable decisions;
(2) exercise reasonable supervision over corporate officers and employees; and
(3) attend and participate in board meetings and clearly indicate their disagreement with any decision of the board. |
|
|
Term
| Duty of Loyalty: Directors and officers are required to place the corporation’s best interest ahead of their personal interests when the two do not coincide. As a general rule, directors and officers may not: |
|
Definition
(1) use corporate funds or confidential information for their own personal gain,
(2) engage in self-dealing (i.e., vote on corporate action so as to maximize one’s own personal benefit),
(3) compete with the corporation, or otherwise usurp (take personal advantage of) a corporate opportunity,
(4) have an interest that conflicts with the interest of the corporation,
(5) engage in insider trading, or
(6) authorize corporate transactions detrimental to minority shareholders without shareholder approval. |
|
|
Term
| Business Judgment Rule: Directors and officers are immune from personal liability for actions that result in harm to the corporation as long as |
|
Definition
(1) the directors and officers acted
(a) in good faith,
(b) in the best interest of the corporation, and
(c) with the care that ordinarily prudent persons in a similar position would exercise in similar circumstances, and
(2) the actions taken were within
(a) the corporation’s power to act, and
(b) the directors’ and officers’ authority. |
|
|
Term
| Inspection Rights: Shareholders are entitled, both as a matter of common law and of statute, to inspect the corporation’s books and records |
|
Definition
(1) for a proper purpose,
(2) in person or through an agent, attorney, accountant, or other authorized assistant, and
(3) provided that the request is made in advance. |
|
|
Term
| Shareholders may petition a court to dissolve the corporation and appoint a receiver if |
|
Definition
(1) the board of directors is deadlocked, or corporate affairs are otherwise being mismanaged, such that irreparable injury to the corporation is occurring or threatened;
(2) the directors or those in control of the corporation are acting illegally, fraudulently, or oppressively;
(3) corporate assets are being misapplied or wasted; or
(4) the shareholders, after a specified number of ballots over a specified period of time, are unable to agree to a slate of directors. |
|
|
Term
| SOLE PROPRIETORSHIP: PROS AND CONS |
|
Definition
a proprietorship is easy and inexpensive to form (fewer legal formalities required);
the proprietor receives all of the profits (because he assumes all of the risk);
the owner has the maximum degree of control over business decisions (can sell it to whomever whenever without approval); and
the proprietor may establish a tax-exempt retirement account and only pays taxes as personal income taxes.
COns
the proprietor has unlimited liability for any losses or liabilities incurred by the entity (creditors can go after the owner’s personal assets);
the entity will not survive the proprietor’s death, disability, or retirement; and
the proprietor may only raise capital for the business out of his personal funds and from loans others are willing to make based on his personal liability (loans based on owner’s credit). |
|
|
Term
| In addition, federal statutes govern particular types of franchises or aspects of franchising. For example: |
|
Definition
The Automobile Dealers’ Franchise Act protects automobile dealership franchisees whose franchisors impose unreasonable demands and then terminate the franchise because of the dealer’s failure to satisfy them.
The Petroleum Marketing Practices Act prescribes the grounds and conditions under which a franchisor may terminate or decline to renew a gas station’s franchise.
More generally, the Federal Trade Commission requires franchisors to disclose material facts that a prospective franchisee needs in order to make an informed decision whether to purchase a franchise. Called the “Franchise Rule,” which also requires explanation the provisions of termination, cancellation, and renewal. FTC can sue for violation of the Franchise Rule on behalf of the injured parties. An expansion to the rule more recently allows franchisors to supply documentation via the internet, as long as all electronic disclosure documents are downloadable or savable. |
|
|
Term
| ISSUES IN FRANCHISE CONTRACTS |
|
Definition
Paying for the Franchise: The franchisee typically pays an initial fee or a lump-sum price for the franchise license, separate and apart from the cost of any equipment and products purchased by the franchisee from the franchisor. In most cases, the franchisee will also pay the franchisor a percentage of annual sales and, quite often, will contribute to advertising and administrative costs of the franchisor.
Business Premises: The agreement should specify whether the franchisee must lease or purchase its business premises.
Location: Typically, the franchisor determines the franchisee’s territory and whether it will be exclusive (territorial rights). Many cases involve territory disputes, generally comes down to good faith and fair dealing decision by the court
Business Structure: The franchisor may specify one or more acceptable business forms (e.g., partnership, LLC), capital structures, and record keeping. Also can have stringent control over employee training and have standards of operation
Quality Controls: A franchisor may establish and enforce certain quality standards in order to protect its reputation. Because of the vested interest in brand reputation, franchisors have a lot of control in this category, but if they exert too much they may be vicariously liable for torts against a franchisee.
Price Controls: A franchisor may suggest the price at which its franchisees will sell its product; however, a franchisor mandating price may run afoul of applicable antitrust laws. |
|
|
Term
| ). However, corporations do not enjoy |
|
Definition
Fifth Amendment protection against self-incrimination or
the protection of the Privileges and Immunities Clause |
|
|
Term
| Ultra Vires Acts: Acts of a corporation – through one or more officer or director – that exceed its express and implied powers, triggering the following remedies |
|
Definition
Derivative Action: The corporation’s shareholders may sue the officers or directors on behalf of the corporation to enjoin the ultra vires act before they commit it or to recover damages caused by a completed ultra vires act.
Direct Action: The corporation may, itself, sue the officers or directors to recover damages caused by a completed ultra vires act.
State Action: The state attorney general may seek an injunction or may dissolve the corporation. |
|
|
