In Class Final Notes
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Don’t forget: our study of LLCs and Chapter 1 on Agency Law
COMPARISON OF PARTERNSHIPS AND CORPORATIONS
– • • • UPA 1914 is what WE SHOULD USE. Property rights Dissolution – 1997 version of UPA Question or 2 in MCQ on those parts of the UPA
Section 7 factors – look at if Setion 6 is not good Section 16 – estoppel • Like partnership agreements • Might have identical upa, but mght have one document with all the parternship stuff in it • No official document has to be filed with state officials. • Cost: must be cheaper to have a partnership; pays to have a partnership agreement though (need an attorney…) • UPA has rules about default rules
• • • Formal process Need to file an article of corporation including all required information with the state office. Choosing officers, etc. after file article
Board of directors have eto take ACTION TO ADOPT contract “We hereby adapt this contract” accepting the benefits of the contract.•
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Individuals who play a big role: promoters. WAHOOOOOOO!
. under the UPA they can SUE the deadbeat Partner. The contract can only agree to have it off the hook. good faith Careful with contracts There is no automatic liability once it is in existence. Cost: a bit more expensive Flexibility: once size fits all
• Partnership o Profit/loss sharing: key feature of a partnership. it is liable along with corporation. have to make sure they act in a loyal. under 15b all the partners have to be sued together. but if they do that. Southern Gulf Marine case. parters are entitled to share of profits AND losses. have to be careful because they have fiduciary duties. if a partnership isn’t paying amount due. Section 15: partnership liabilities. A&B: A: joinly and severally liable under 13 and 14. honest. Key rules: 13-15. explicit endorsement promoter is not off the hook. What if one partner is a deadbeat? The partners have an obligation to make up the difference. Tricky thing. conducting themselves as if they were a corporation. Unless they agreed differently. A plaintiff can sue any or all the partners! Section 15b: other partnership obligations: jointly liable for certain obligations. SECTION 18: losses in proportion. Have full PERSONAL LIABILITY. No limited liability like corporations. Covachick case (sharing of losses case) Lmite dliability: NO.
rights and obligations that are related to fiduciary duties. All you can transfer is interest of partersnhip. • Corporations o Profit/loss sharing: they share in profits ONLY if dividents is declared by BOD. Cannot transfer status. if it is liquidated. You do not share losses. etc. If yes.
. Lawless case: expel a fellow partner. Putnam case (embezzlement of bookkeeper…. they are in statute: UPA 20-22. Partners have to be careful because those duties continue to exist in the winding up of partnerships too – Meehan case. Interest in charging order. too (judgment). Principles of good faith. but under 1997 act – gets rid of tenancy in partnership. o Property rights: section 24: partners have rights. Also.o Fiduciary Duties: they exist and they are strong. he has no remaining claim to it. anything that is left is shared among shareholders. transferability: CANNOT TRANSFER property. loyalty. Even though they come from case law. similar duties under agency law duties. NO LOSSES. after all of its liabilits is payed off. they have an interest in the partnership (property right). they get there share of DIVIDENDS per share. Can only transfer INTEREST in partnership.)(1914 act). o Free transferable? : You cannot do this. Ditched idea the right to manage. right to management as well too. This includes property. 1)Rights to specific property: section 25 (tenancy partnership). can transfer to someone else. When a partner leaves the partnership.
etc. looking for unity of interest: identified elements.32: establishes that they don’t have personal liability. case law: exceptions to that: Willkes case: closely held corporation. o Fiduciary duties: No. parent and subsidiary: MEYERS case. you can share them: selling them. o Free transferable?: YES. gifting them. o Property rights: No. something that indicates that there is something unusual: when you don’t see a difference in corporation and shareholders. then that could be basis of piercing the corporate veil. doesn’t matter how they are transferred! ←
. Walchoksy case: no test. heiring them. Bristol Meyers case: when a parent is SO involved in business and it’s a problem. Separate entity. advantage of power. but piercing might be possible. you can be held directly liable. This case talked about freezeout tactics.. NO interest in corporate property. Benefits of corporation: If ou own shares of stock. including them into the will. Wanted to make the parent corporation liable. under common law: exceptions: piercing the corporate veil doctrine: consider the possibility of imposing liability to shareholders for justice: Seagram services case.o Limited liability: YES. If you see the substantial domination. However. fiduciary duties to each other. You need to look to CONTROL of parent to subsidiary. That being said. Rule: MBCA 6. owes no duties. then the parent business can be held directly liable for it: TORTS: 324(a) if directly involved. General rule: each shareholder is in it for him and herself.
(2 partners and each disagreed…. Each partner gets one vote. they can do it in person or by proxy. Austin case (executive committee). limited: passive investors. Limited partnerships: public filing: general partner. those rights as shareholders to not include reight to participate in management. acts as an agent. However. Corporations: o Owner’s roles: shareholders. actual authority: each partner has these types of authority…) UPA 9 is not subject to contrary provision. Careful! (Holtzman case: if someone oversteps boundaries of role as limited partners. you have rights. Might enter into shareholder’s agreements to govern relationships with owners: might agree that certain people can be officers of corporation: Barr v Barr case. Sometimes partners will want to change this (if partner invests more money). saying that they have breached their duties to corporation. then they could lose the limited liability…. Rights are limited to voting for directors and voting on other matters: (rarely) MBCA says this 7. Basic way of profit is sharing the profits. limited rights. Many cases on this.) o Roles of Others: basic picture is that the partners thsmeslves are the ones that are primarily involved. They do have litigation rights: bring lawsuits: a) derivative suit: suing someone on behalf of corporation: bringing a suit on BOD themselves. not themselves. In terms of exercising voting rights. section 18(f) no partner is entitled to compensation for having a bigger role. Tricky: NABISCO case. (h): make decisions as partners: default.) Agency law comes into play here: UPA 9(each partner is agent of partnership: apparent. limited partner: general: usual control. B) Director suit: directors did something that does something irectly to shareholders:
.o Owner’s roles: default rule: partners have equal rights in management and conduct.25. get to share on profits based on what they agreed to. Damages go to CORPORATION. Also. UPA 18(e). But they HAVE TO HAVE this agreement to do this.
they are basically looking at same kind of consideration. Smith case: different approaches. And self dealing. Regardless which approach court takes. they can be held responsible coming up with their own money. the BJ rule protects the directors. Corporate opportunity: EBAY case: fourfactor opportunity test: MBCA: Complex approach to opp. then the BJ rule doesn’t help them. If it incrues liabilities. Dodge case. then they have the burden to prove. Once someone is accused that breached DOL. duty of loyalty for Directors: case law: business judgment rule for duty of care: presumes that directors met their duty of care. They file operation return how much income they’ve earned • Corporations:
. Two main: did you get proper approval in the deal? Can you prove this is fair? Procedural focus: did u get proper approval from someone else? Cases: Barron (wife board. and then they might decide to add additional..01: Dodge v For Motor company. Selfdealing: cases: BJ rule is out the window.o Roles of others: 8. o Taxation: single or double: they are not tax entitities. What do they have to prove? It depends: courts have different approaches. Francis case: did not see business judgment rule: in this case. duty of care. Two main: statutory test and common law test: requires directors to defend themselves. ← FINANCING/CAPITALIZATION/TAX STATUS • Partnerships: o Owner contributions: partners make capital contributions into the partnership. Duty of loyalty: requires directors to be loyal to their corporations: their interest above self interest. could be money. could be property that they distribute into it…make this. Two main bodies of law: self-dealing and corporate opportunities. but if they do not make any decsion. gig singing song) benihana case: statutory approach: self-dealing transaction can not be basis for liability unless….
Cases: complications that can arise when there are asset disputes. Section 32: get a court to decree dissolution. Dies: section 42(state has to decide whether or not to liquidate partnership or let the other partners continue…) Section 38: • Corporations: o Continuity/duration & owners
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CONTINUITY/DISSOLUTION • Partnerships: o Continuity/duration & owners o Dissolution: UPA has detailed revisions dealing with dissolution of partnerships. prospectus. shareholders are not responsible for responsbilities. Dissolution UPA 30: partner is gone for whatever reason. Once this is completed. can make money by selling debt securities. Disclosure of material information to investors. Raising more money: selling more stock. corporation can sell more stock. the partnershp is terminated. Exception: small corporations. Insider trading Section 10b. Tricky: losses. Shortage of asset: kick in money from partners. Could happen from possibitilites: UPA 31: dies. Basic idea: Section 29: once dissoluton takes place. DOUBLE TAXES. Shareholders also have to treat that as income and pay taxes. someone becomes insane. have to think about federal securties act 1933: requires a couple things: have to register the stock with the SEC. (Prentice case). “S” corporation status.o Owner contributions: shareholders are paying money for their shares of stock. assets left over: goes to partners. expelled from partnership. bonds etc. Winding up: what liabities and assets are. unless you qualify for an exemption (Doran case). o Taxation: single r double: IS A TAXABLE ENTITITY. there is a winding up process. Meehan case.
. doesn’t matter how many shareholders or anything. It is a completely separate existence.o Dissolution: legally sturdy entitites.