Chapter 7 Business Structures

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Partnership
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an ordinary partnership may be organized easily and cheaply, whereas a corporation must be organized in accordance with specific statutory procedures and must have sufficient capitalization. A partnership generally is burdened less than a corporation by government supervision and reporting requirements. The owners have unlimited liability, similar to a sole proprietorship owner.
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Joint Venture
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a special form of partnership that is formed for only one transaction or series of transactions, rather than for a general purpose.
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Limited Partnership
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a special partnership that provides limited liability for some, but not all, owners. Must file in accordance with state requirements that generally are less burdensome than those for corporations, but more than for an ordinary partnership
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Limited Liability Entities
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As a hybrid of corporate and partnership structures, limited liability companies (LLC) and limited liability partnerships (LLP) have many advantages over these structures. Tend to be the most flexible structures. No limit on the number of owners. A single individual may form an LLC.
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Limited Liability Partnership (LLP)
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Merely an ordinary partnership which has made an election to invoke the limited liability protection of the enabling state statute by filing a document with the state. A partner is personally liable for her own act and the acts of employees and agents under her direct control.
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C Corporations
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A corporation formed under state corporate law generally is taxed as a corporation for federal tax purposes.
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S Corporations
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Has the advantage of being classified as a corporation while generally being taxed at the shareholder level instead of the corporate level.
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Silent Partner
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A partner who does not share in the management of the partnership
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Ostensible or Nominal Partner
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one who is not actually a partner, but who may incur the liability of a partner by estoppel insofar as she is held out to appear to be a partner.
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Dormant partner
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A partner who is undisclosed and generally inactive
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Secret partner
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a partner who actually participates in the management of the partnership, but is undisclosed
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Interest in partnership
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A partner’s interest in the partnership is her share of the profits and surplus and the partner’s right to receive distributions. This interest is classified as personal property and can be transferred by the partner.
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Winding Up Business
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RUPA provides that a partnership continues after dissolution only for the purpose of winding up its business, after which it is terminated. The partners who have not dissociated wrongfully may participate in winding up the partnership business.
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Partner’s Liability at Dissociation
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A dissociation from a partnership does not discharge the existing liability of any partner
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General Partner
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A general partner is analogous to a partner in a ordinary partnership. Responsible for the management and control of the partnership and is personally liable for its debts. May also own a limited partnership interest. May be a secured or unsecured creditor of the partnership
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Limited Partner
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A limited partner is one who makes a capital contribution to the partnership and thereby obtains an interest in that partnership. May be a secured or unsecured creditor of the partnership. Liability is ordinarily limited to the amount of the partner’s contribution in the partnership unless she takes part in the management of the business or violates name restrictions or if there is any difference between her contribution as actually made and that which the partner agreed to make in the certificate.
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Insiders
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Officers, directors, and holders of more than 10% of the company’s stock are insiders. Unlawful for insiders to buy and sell stock for a profit within any 6-moth period.
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Promoter
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The individual who is primarily responsible for forming, arranging for capitalization, and initiating the general business of a corporation. Duties also include drawing up the corporate charter and promoting stock subscriptions. Has a dute to comply with the 33 Act.
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Articles of Incorporation
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Name of the corporation, corporate purpose, capital stock authorized, location of the principal office, number of directors, the name and address of the registered agent for service of process, capital structure, and a duration.
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De Jure Corporation
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Under current common law, any corporation that substantially complies with the mandatory statutory requirements of incorporation is deemed a de jure corporation. Such corporate status cannot be attacked by anyone, including the state.
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De Facto Corporation
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if the corporation fails to comply substantially with mandatory requirements, the courts might, nevertheless, recognize its existence as de facto. This status forces third parties to perform on corporate contracts and shields shareholders from direct liability; however, the state still may bring a suit challenging the corporate existence through a quo warranto proceeding.
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Authorized Capital
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Capital is the consideration or other property received by a corporation in exchange for issued and outstanding stock. The original capital may be contributed in the form of money, property, or service.
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Issued Stock
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that portion of authorized stock that has been issued to shareholders.
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Outstanding Stock
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that portion of authorized stock that has been issued to, and still is owner by, shareholders.
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Treasury Stock
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stock that has been issued, but that is no longer outstanding because the corporation ahs redeemed it (reacquired it). May be purchased only with surplus. It carries no right to vote or receive dividends. May be resold without regard to pay value. May be distributed as a stock dividend. Is canceled, the effect is to reduce stated capital by the amount represented by the shares, and such canceled shares are restored to the status of authorized, but unissued, shares.
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Watered Stock
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stock that is issued for less than its par or stated value
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Common Stock
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stock that entitles its owner to share in any dividends declared by the board of directors. Is entitled to share in liquidating distributions of corporate assets. May be either voting or nonvoting.
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Preferred Stock
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has certain rights and preferences, . May be either voting or nonvoting. At liquidation, holders of preferred stock receive the par value of their stock before the common stock holders are entitled to any value.
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Convertible Preferred Stock
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holders of this stock may convert into common stock after a stipulated time
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Cumulative Preferred Stock
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holders have the right to receive fixed yearly dividends. If corporation fails in payment for year one, the rights cumulate to the next year. Must receive full payment of all arrearages before common shareholders receive their dividends
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Participating Preferred Stock
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Share ratably with common shareholders in any profit distribution beyond the prescribed preferred rate. Fully participating preferred holders share equally with common holders in excess profit distribution, while partially participating preferred holders share in a more limited manner in such excess.
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Preemptive Right
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In a newly authorized issue of stock, existing stockholders have the right of first refusal to subscribe to the new issue in proportion to their existing holdings. This does not apply to treasury stock or previously authorized, but unissued, stock.
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Ultra Vires
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Acts by the corporation or its management that are beyond the scope of corporate authority as granted by its charter, bylaws, or state law.

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