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Business Associations

-Business Trusts

Corporation: Legal Device for carrying on a business enterprise for profit, a legal unity with a stuatus or capacity of its own separate from the
shareholders or members who own it.

Public Corp.
Private Corporations CHC - Closely Held Corps
Ownership consists of widely separate stock
Corps which do not meet Ownership has (1) few owners and stock (2) is not traded
the critera of a CHC, and ona antional exchangre or over the counter, and (3)
are not traded-over the significant overlap b/w MGMT and SH.
counter anyhere.
i. Traded OTC (NASDAQ)
spectrum) more flexibility in practical matters
ii. Nat'l Exchanges

Benefits of Corporate Form

Limited Liability Centralized Managment

Taxation Continuity of
Transferability of
If corporation becomes Act as Legal Unit Control of corp affairs Shares
Favorable for purpose of
insolvent, the only money centralized in (1) BoD and (public corps
reinvestment. Death or other
lost is the CAPITAL A corporation can conduct (2) officers; allows for especially)
withdrawal of an
INVESTMENT. business as an ENTITY specialization of pure
Undistributed profits may investor does not
(not inquestion like with managers. Shares are highly
be reinvested in corp at require a major
Exceptions: pships). liquid, particularly
the lower, corporate tax adjustment to the
i. CHC S/H can sign Separation of experience when compared to
rate. corporate form
personal guarantees on Power to K, sue, hold and source of capital the difficulty of
loans which make them property, and be sued in which plagues pships. dissolving or
In essence, the S/H -> Share buyback
resposnsible (may be its own right winding up a
money can keep growing provision OR shares
needed to acquire credit) PROBLEM: Compliance partnership
faster than Pship are simply devisable
ii. Piercing the veil w/ formalities is 2-edge

Major Disadv.
Corps are "double-taxed" -> both as income to corp and
as payment to sharehodlers. Big reason to be pship

Partnerships RUPA 1001: Convertible easily. Check the box to become a


Partnership - UPA 6: ANY association of two (RUPA allows ONE) or more

Entity v. Aggregate.
people who carry on a business, as co-owners, for profit
Relevant Statutes Advantages Disadvantages Aggregate? Entity
UPA -> RUPA; North Car.
- UPA 7: PROFIT sharing -Control: No sep of -Unlimited liability: All
= prima facie pship (gross ownshp/cntrl partners are jointly and Not a separate entity. Therefore Partnership is a n entity, and can
returns are NOT). severally liable partners are taxed based on hold property, sue in its own name,
-Simplicity: All have interest, whether or not there is a and be sued in its own name.
-UPA 9: Every partner is an equal voice unless - Transferability Difficult: partnership.
agent of the partnership and otherwise stated. j Partner cannot sell interest Property Rights
has the authority to bind directly; need partial Propety Rights: Each partner is NOT co-owner of
principal + fiduciary duty -Less costly. dissolution -> Tenancy in Common for pship property. Cannot transfer
Partners. interest in it, except to assing
-UPA 18: Capital -TAX BENEFITS: - Limited Duration: No -Possession only for partnership partner's share of priffits and losses.
contributions must be Only taxed "once" perpetual life. Any partner purposes
returned to partners in b//c partnership is can dissolve at any time -Assignable by all partners Note: Charging Orders.
dissolution; HOWEVER, not a taxable entity; for any reason. -NOT subject to claims of Even if creditor cannot get the
capital contribution does not merely a reporting individual parnter creditor's property in the pship from jdmtn
equal profit shares. entity -On death, partner's interest agains partner; it can get HIS
INTERSET in the partnership.
Fiduciary Duties
Lenders Not Generally Meinhard: A fiduciary is a trustee and held to a punctillio of an honor most sensitive. "Not
Is there a Considered Partners honesty alone; the most sensitive behavior"
Factors which may indicate
UPA 7(4): "Profit Duty of Care: Misc. Statutory Duties
defacto pship How to Avoid Fiduciary Duties
sharing is prima facie -> CONTROL, right of entry Must take care of
evidence of a things as would UPA 20: Partners must
-> Profit-sharing, rather than -> Just leave, dissolve the partnership. be full & truthful in info
partnership. set payment; take care of own Former partner owes no duties to former
affairs given to other partners.
-> Partnership option. partner/ship.
a) as a debt by
But beware the Freeze-Out Rule of phsips.;
installement; Duty of Loyalty:
Peed v. Peed Need to compensate for opps. taken in some
b) wages; Must act for the
-> Family operation, pship FOUND. way.
c) rent to landlord; benefit of the
d) annuity to widow of i. Both worked on farm
deceased partner; ii. Separate bank accounts
iii. Wife contributed funds from Freezeout Rule
e) interest on a loan; NO
f) consideration for job/savings to the cow business.
COMPETITION A partner cannot freeze out another partner
goodwill of business. while the
Family op. helped establish that it from realizing the profits of the partnership
partnership exists. by leaving and therefore dissolving the
was a pship.
FOR THE curret or future value of pship.

UPA 18 - Governance & Authority

Control & Profit Ordinary Course of Business Rule Binding Statemens LIaiblities
In absence of Sharing
another agreement UPA 9(1) UPA 11 -> Pship is Insepction UPA: Jointly & severally liable.
bound to Rights
UPA 18 (default):
-> Unanimous Unless otherwise Each partner is an agent, therefore can admissions by the RUPA: Joint & several liability.
consent to the bind other party in the ordinary course parties. UPA 19:
agreed, all partners
admission of anew of business. Partners have
share equally in the ENTITY RESPONSIBLITY.
partner Charged Knowledge the right to
control of the If the jurisdiction is entity; and
Extraordinary act? -> Not OCB. ExtraAct inspec
partnership AND in no partner is named only the
-> All partners have must be authorized by other partners. UPA 12 charges partnership
the profits/lossess pship named, then NO binding
equal reights in pship with records.
(regardless of capital judgment against partners, only
management. contribution) Hiring employee not w/n the ordinary knowledge of other
the pship property.
course of business. Summers v. Dooley. partners

Ordinary course of business? Who wins Outside Ordinary CoB? Dissenter wins.
Wanter wins. in Not able to bind. HOWEVER, the wanter may generally do it, but the wanter will be liable for all
Able to bind corp & other partner. deadlock? costs and results.

RUPA -> Not destoryed; may continue to

continue as its own entity. See dissociation. BUSINIESS
Dissolution. (even if W-UP
UPA -> Not Destoryed. 30.
UPA 29: Dissolution of the partnership is the change in the relation of the Important note;
PSHIP. Continues to exist until winding up is
partners caused by any partner ceased to be associated with it. (Term of
completed. But UPA 29 says not necessary. although the
art: Partner peacing out). Not necessarily destsruction of pship.
partnership as an
UPA 30 -> Reasons for dissolution. If there is a CONTINUATION AGREEMENT, the aggregate has
pship may survive. disappeared; the
i) death of a partner; ii) bankruptcy, iii) voluntary withdrawal, iv) Courts are known to imply these sometimes. BUSINESS MAY
expulsion; or v) court order. LIVE as a new
NOTE: Distinction for type of partnership. Windup UPA
Pship at Will Pship for a Term (1) Liquidation; (2) Creditors Paid; (3) Cap.
Contributions repaid; (4) remainder distr.
No agreement Extra agreement (or expected ongoing
specificed. Default. arrangement) provides specific
event/time to end.
Voluntary withdrawal Dissociation -> Change from RUPA to UPA.
at any time with NO Voluntary withdrawal at any time
Two Possible 2) Windup. RUPA 607
Question of law for the court; whether it was for term or not. i)Assets Liquidated
Peed v. Peed -> Two brothers had LP, one dissovled. Course of past ii) Debts satisfied
business made this for a term. Term was recoup of capital investment iii) Assets distributed to partners.
[NO capital contribution return????]

NOTE: " Typically, a partner cannot dissolve a partnership for his Consequences for Departing Partner
own benefit UNLESS he fully compensates the partner. 1) Terminates right to manage; 2) ends duty to not compete; 3)
1) Buyout of
fiduciary duties remain for things b4 disassociation; and 4)
Freeze-Out Rule. the departing
Does not discharge liability for pre-dissasoci. But no new
liabilities. (russian roullete deal possible here)
liabilities. (russian roullete deal possible here)

Limited Partnership
Rulpa and Re-Rulpa
General Partners Limited Partners
LP Basics
Control: Complete control; responsible Control: Do not partake in day-to-day
Benefits over other for managment of the enterprise on business. Generally, need to become
Permits the profit-sharting for LL Alts day-to-day basis. general partner to make these
passive investors. Liaiblity for [Good for GP to decisons. SPLIT.
passive investors limited to attract capital and Fiduciary Duties: Owed to the limited RULPA: Some control allowed.
investment in business; taxation keep own discretion] partners as if in a partnership. Re-RULPA: Control will not make GP
benefits of a partnership. UNLESS it misleads 3rd party to think
-> Guarantees **May be limited by contract. ** person is gp for liability
Classes of Partners centralized At some
(1) General managment, effective Agency Status: Full agent, may point, CL: Courts focus on WHETHER A 3d
(2) Limited. way of limiting the completely bind within the ordinary we'lls ay an pty was misled to believe that a LP
influence of the course of business. LP is a was a GP (may get liability here)
Taxation financier GP; if
Fiduciary Duties: Generally do not
Taxed like a PARTNERSHIP. -> Subordination: Subordinated in debt INVOLVED.
have very strong fiduciary duties; weak.
Huge benefit. Problems to creditors.
But still present.
Still illiquid.
Sliding scale: The more involvement,
Corporation-swap-trick: Remember, the more fiduciary duties will be inferred
Illiquidiity Solutions you can usually make a corporation the & applied.
(subj 2 fed sec law) general partner in order to avoid Agency Status: NOT agents and
liability. cannot bind the LP
" Master" Limited Partnerships
Subordination: Subordinated in debt
Publicly owned LP intended to make the Safe Harbor for LP involvement: RULPA to creditors.
interests LIQUID. -> MLP is sollution to illiquidity 303(b)
issue. Liaibilities: Only to the extent of the
An LP will not be a GP if: investment.
No limited partners, instead, people hold - He is contractr for agent of the LP/ GP.
"units" of the LP. Act as assignees of a -Consulting with the GP Safe Harbor Also Protects Voter on
depository with the LP status. - Approving or disapproving amendment to some Organic Matters.
Roll-Up Transaction: pship No liability as GP if:
Combines several illiquid LPs into one tradable -Acting in suerty -Voting on dissolution; transfer of
MLP (or corp). Can utilize the MLP or simply "go -OTHERS: Court must examine to substantially all assets; incurrence of
public" determine if liability should attach b/c debt beyond ordinary course of
activity equates to participation in business; change in nature of lp
-> Investotrs recieve equity in exchange for lost general managment removal of GP.
LP interests.
-> Advantages. Fix to illiqudity
- Diversfication Formation.
-> Compliance with RULPA or Re-RULPA- Filing of certificate with sec of state; essentially
- Consolidation of mGmt/ economies of scale.
articels of incpro. NO DEFAULT to this. Failure = partnership & full liability

LIimited Liability


LLP is [same def as pship, except] "that extends

limited liability to the partners involved. Liability

-> Essentially identical to the LLC; but NO No automatic vicarious liability Advantages Disadvantages
statutorily mandated structure. Wyoming.
-Liable for own wrongful/negligent acts -Ability to rely on -Stuck with pship
BENEFITS pship caselaw caselaw (can't try
-> ease of creation (check box) -Liable for wrongful/negligent acts by novel args)
-> ability to partially rely on developed pship third party under P's control. -Pship taxation
law; less uncertainty. -Lenders (as a
Fiduciary Duties? -Ease of practical point) will
creation avoid the LL by
Yes. But only to one another. requiring personal
Formation. -Some allow gaurantees.
RUPA 1001 -> Check the box partnership on
state tax form. So long as the pship conforms to
state LLP regulations, it enjoys LL.
Limited Liability

Management: Can be either member-managed or Disassociation: LLCs ahve

General: A general partnership in which all the
nonmember-managed. semi-autonomous identy; therefore the
owners enjoy limited liability & partnership
concept of dissociation applies rather than
Consequences of fiduciary duty and agency law. dissolution.

First designed for ranchers

who wanted control of farms Member-Managed Nonmember-Managed
but with limited liabilitiy.
-> Treated like -> Treated like a Check the Box
regard to fiduciary LIMITED For P-ship OR Corporation
Fiduciary Duties? Yes, pship. But only owed to
duties and managming PARTNERSHIP w/
partners. respect to duties.

Business Trust.

Only in MA and DE.

Assets of business placed into trust. The

owners of the business are the beneficiaries If attempted in any other
of the trust. And the managment are state, it will be treated as a
trustees. (NOTE-> beneficaires are not "true PARTNERSHIP. Requires a
owners" in a sense; only beneficiaries. special statute.

Trust is actually run by MGMT