question

entrepreneur

answer

person who forms and operates a new business by himself or co-found a business with others

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what are the major forms for conducting businesses and professions?

answer

1. sole proprietorship 2. general partnership 3. limited partnership 4. limited liability partnership 5. limited liability company 6. corporation

question

sole proprietorship

answer

form of business in which the owner is actually the business; the business is not a separate legal entity; the sole proprietor is the business

question

What are the benefits of operating a business as a sole proprietorship?

answer

1. easy and cheap to form 2. owner has right to make all management decisions concerning business (hiring/firing employees) 3. sole proprietor owns all of the business and has the right to receive all business profits 4. it can easily be transferred or sold if and when the owner desires to do so; no other approval is necessary

question

What are the disadvantages of sole proprietorship?

answer

1. access to capital is limited to personal funds and loans 2. sole proprietor is legally responsible for business contracts and torts his/her employees commit in course of employment

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fictitious business name statement

answer

document that is filed with the state that designates a trade name of the business, the name and address of the applicant, and the address of the business

question

d.b.a.

answer

business that is operating under a trade name is commonly designated as d.b.a. (doing business as)

question

liability of sole proprietor?

answer

personally liable for the debts and obligations of the sole proprietorship; creditors can recover claims against business from proprietor's personal assets; owner can lose entire capital contribution if business fails

question

taxation of a sole proprietorship?

answer

does not pay taxes at business level; earnings/losses are reported on sole proprietor's personal income tax filing.

question

schedule C

answer

income or loss from the sole proprietorship is reported on Schedule C (profit or loss from business) and must be attached to taxpayer's form 1040

question

general partnership

answer

association of two or more persons to carry on as co-owners of a business for profit

question

liability of general partners?

answer

personally liable for debts/obligations of partnership

question

uniform partnership act

answer

codifies partnership law; established to make partnership law consistent throughout USA; covers most problems that arise with formation/operation/dissolution of general partnerships

question

what is the criteria to qualify as a general partnership under the UPA?

answer

1. association of 2 or more persons 2. carrying on a business 3. as co-owners 4. for profit

question

formation of a general partnership?

answer

little or no formality of formation; co-ownership is essential (do parties share profits and management responsibility?)

question

prima facie

answer

receipt of a share of business profits is prima facie evidence of GP because non-partners are generally not given profits

question

what is good evidence of the existence of a general partnership?

answer

if a person is given the right to share profits, losses, and management of a business

question

name of a GP

answer

can't indicate that it's a corporation (Inc.), must file a fictitious business name statement with appropriate govt agency, can't be similar to another business's name, must publish notice of use of trade name in newspaper where partnership does business

question

general partnership agreement/articles of partnership

answer

agreement to form a GP may be oral, written, implied, or inadvertent; no formalities are necessary under statute of frauds, partnership that exists for more than one year or authorized to deal in real estate must be in writing

question

taxation of general partnerships

answer

do not pay federal income tax; income/losses flow through to partners and are reported on partners' individual income tax returns ("flow through taxation"); must file information return with govt telling how much income was earned/lost so govt can verify that partners put correct amounts on their K-1's

question

right to participate in management

answer

each partner has right to participate in management of a partnership and has equal vote on partnership matters

question

what are the other rights granted to general partners?

answer

1. right to share profits 2. right to compensation (partners not entitled to receive salary for services to partnership unless agreed to; income earned by partners from providing services elsewhere belongs to the partnership) 3. right to indemnification (reimbursement 4 travel etc) 4. right to return of loans (first other creditors, then partner gets paid back, with interest) 5. right to return of capital (upon GP termination, but other creditors get paid first) 6. right to information

question

duty of loyalty

answer

duty that partner owes not to act adversely to the interest of the partnership (partners have fiduciary relationship with each other)

question

what are some forms of breaches of loyalty?

answer

1. self-dealing (when partner deals personally with the general partnership such as buying/selling goods to partnership) 2. usurping a partnership opportunity (if partner is offered opportunity, must offer to partnership first) 3. competing with partnership 4. making secret profits 5. breach of confidentiality 6. misuse of partnership property

question

what if partner breaches duty of loyalty?

answer

must give any profits made from breach to partnership and is liable for any damages caused by the breach

question

duty of care

answer

obligation partners owe to use same level of care and skill that a reasonable person in same position would use in the same circumstances; breach of this duty is negligence; General partner is liable to partnership for any damages caused by his negligence

question

duty to inform

answer

duty a partner owes to inform his co-partners of all info he possesses that is relevant to affairs of the partnership

question

what if partner doesn't inform other partners of info?

answer

imputed with knowledge, they are expected to know it

question

duty of obedience

answer

duty that requires partners to adhere to provisions of partnership agreement and decisions of partnership; if partner breaches, he's liable

question

action for an accounting

answer

general partners aren't permitted to sue partnership or other partners at law, instead they're given right to bring action for an accounting -formal judicial proceeding in which the court is authorized to 1. review partnership and partners' transactions, and 2. award each partner his or her share of partnership assets

question

liability of general partners?

answer

personal liability for contracts and torts of general partnership

question

tort liability

answer

general partnership is liable if act is committed while person is acting within ordinary course of partnership business

question

joint and several liability

answer

tort liability of partners together and individually; plaintiff can sue one or more partners separately. if successful, plaintiff can recover entire amount of judgment from any or all of the defendant-partners who have been found liable

question

joint liability

answer

liability of partners for contracts and debts of the partnership. a plaintiff must name partnership and all of the partners as defendants in a lawsuit

question

what if plaintiff's suit does not name all general partners?

answer

judgment cannot be collected against any of the partners or the partnership assets; releasing any general partner from the lawsuit releases them all

question

partner who is made to pay more than his proportionate share of contract liability may...

answer

may seek indemnification from partnership and from partners who haven't paid their share of the loss

question

liability of incoming partner

answer

liable for existing debts and obligations (antecedent debts) of partnership only to extent of his capital contribution; personally liable for debts/obligations incurred by general partnership after becoming a partner

question

liability of outgoing partner

answer

if GP is dissolved, each partner is personally liable for debts/obligations of partnership that exist at time of dissolution if GP is dissolved because a partner leaves partnership and partnership is continued by remaining partners, outgoing partner is personally liable for debts and obligation of partnership at time of dissolution, but not liable for any new debts after dissolution as long as proper notification is given to creditor

question

limited partnership

answer

type of partnership that has two types of partners: general partners and limited partners

question

general partners

answer

partners in a limited partnership who invest capital, manage the business, and are personally liable for partnership debts

question

limited partners

answer

invest capital but don't manage business and aren't personally liable for partnership debts beyond capital contributions

question

revised uniform limited partnership act

answer

RULPA -> a revision of ULPA that provides a more modern, comprehensive law for the formation, operation, and dissolution of limited partnerships

question

certificate of limited partnership

answer

creation of limited partnership is formal and requires public disclosure... document that two or more persons must execute and sign that makes a limited partnership

question

what must a certificate of limited partnership include

answer

1. name of limited partnership 2. general character of biz 3. address of place of business 4. name and biz address of each partner 5. latest date on which the LP is to dissolve 6. amount of cash/prop/services contributed by each partner

question

when is LP formed?

answer

when certificate is filed with secretary of state

question

domestic limited partnership

answer

limited partnership in the state in which it was formed

question

foreign limited partnership

answer

limited partnership in all other states besides the one in which it was formed

question

when can the name of an LP include the surname of a limited partner?

answer

only if it is also the surname of a general partner or the business was carried on under that name before the admission of the limited partner

question

what are other restrictions on the name of a limited partnership

answer

1. name can't be same as or deceptively similar to names of corporations or other limited partnerships 2. states can designate words that cannot be used in limited partnership names 3. name must contain, without abbreviation, the words limited partnership

question

defective formation

answer

occurs when 1. certificate of limited partnership is not properly filed 2. there are defects in a certificate that is filed 3. some other statutory requirement of the creation of a limited partnership is not met if there's a substantial defect, persons who though they were limited partners can find themselves liable as general partners

question

if limited partners accidentally find themselves as general partners (defective formation), what can they do to escape general partner liability?

answer

1. cause the appropriate certificate of limited partnership to be filed 2. withdraw from any future equity participation in the enterprise and cause a certificate showing this withdrawal to be filed

question

limited partnership agreement

answer

sets forth the rights and duties of general and limited partners; the terms and conditions regarding the operation, termination, dissolution of a partnership, etc

question

what rights are granted to limited partners in a limited partnership?

answer

1. share of profits and losses.. agreement should specify how these should be shared, but if it doesn't say, then they're shared on basis of value of each partner's capital contribution 2. right to information

question

admission of a new partner, when is it effective?

answer

new limited partner can be added only upon written consent of all partners; effective when amendment of certificate of limited partnership

question

personal liability of general partners

answer

unlimited personal liability of general partners of a limited partnership for the debts and obligation of the general partnership

question

limited liability of limited partners

answer

liable only for debts and obligations of the limited partnership up to their capital contributions, and they are not personally liable for debts and obligations of limited partnership

question

participation in management for general partner and limited partner

answer

GP can manage affairs, LP can't

question

personal guarantee

answer

if a limited partner personally guarantees a loan made by a creditor to the limited partnership and limited partnership defaults on the loan, the creditor may enforce the personal guarantee and recover payment from limited partner who personally guaranteed the repayment of the loan

question

general rule of liability of limited partners of a limited partnership

answer

limited partners are not individually liable for the obligations of the partnership beyond the amount of their capital contribution

question

what are the exceptions to the general rule of liability of limited partners?

answer

1. defective formation 2. participation in management 3. personal guarantee

question

section 303

answer

amendment to RULPA that permits limited partners to participate in the management of a limited partnership without losing their limited liability shield

question

partnership for a term

answer

partnership with a fixed duration

question

partnership at will

answer

partnership with no fixed duration

question

dissolution for partnership at will

answer

any general partner may rightfully withdraw and dissolve partnership at anytime

question

dissolution of a partnership for a term

answer

general partner has power to withdraw and dissolve the partnership at any time but does not have the right to do so

question

wrongful dissolution

answer

a situation in which a partner withdraws from a partnership without having the right to do so at that time (prior to expiration for partnership for a term)

question

winding up

answer

the process of liquidating a partnership's assets and distributing the proceeds to satisfy claims against the partnership surviving general partners have right to wind up and is entitled to reasonable compensation for services

question

notice of dissolution

answer

must be given to third parties. third parties who have actually dealt with the partnership must be given actual notice of dissolution (verbal or written). 3rd parties who haven't dealt with partnership must be given constructive notice (publishing a notice of dissolution in newspaper where biz was conducted)

question

what if proper notice is not given to required third party after dissolution of partnership and a general partner enters into a contract with the third party?

answer

liability may be imposed on the previous partners on the grounds of apparent authority

question

distribution of assets of a general partnership upon dissolution and winding up?

answer

after general partnership's assets have been liquidated and reduced to cash, the proceeds are distributed to satisfy claims against partnership. order: 1. creditors 2. creditor-partners 3. partner's capital contributions 4. remainder of the proceeds

question

distribution of assets of a limited partnership upon dissolution and winding up?

answer

order: 1. creditors of limited partnership including partners who are creditors 2. partners capital contributions 3. remainder of proceeds

question

right of survivorship

answer

rule that provides that upon the death of a general partner, the deceased the partner's right in specific partnership property vests in the remaining partner or partners; the value of the deceased general partner's interest in the partnership passes to his or her beneficiaries or heirs

question

continuation agreement

answer

expressly sets both the events that allow for continuation of the partnership

question

what happens when a partnership is continued after a partner leaves?

answer

old partnership is dissolved and new partnership is created

question

liability of limited liability limited partnership

answer

needs one general partner and one limited partner neither general partners nor limited partners have personal liability for the debts and obligation soy LLLP. debts of LLLP are solely the responsibility of the partnership

question

typical responsibilities of a general partner and limited partner of LLLP

answer

general partners- manage partnership; can manage affairs but not be personally responsible for debts of LLLP limited partners- investors who only have a financial interest in the LLLP

Biz Law II Chapter 26 – Flashcards

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