Bec Study Notes

Business Environment & Concept

I.

Business Structure (Chap 48-49)

** ref to page 49-17 Exh2 A. Legal structure -- Advantages, Implication & Constraints 1.

Sole proprietorships and general and limited partnerships

1) Partnership

2.

a)

Guidance: Revised Uniform Partnership Act (RUPA)

b)

Nature: infant, corp, partnership, trustee. ***NFP is not partnership

c)

Classification: limited liability vs. unlimited liability

d)

Property use: acquired on account of partnership, can’t assign

Limited liability companies (LLC), Limited liability partnerships(LLP), and Joint ventures

1.) Limited Partnership (LLP) a)

Guidance: Revised Uniform Limited Partnership Act (RULPA)

b)

Nature: must have at least one general partner (unlimited liability)

2) Limited liability companies (LLC) a)

Nature: member=owner, members may involve in business without losing liability shield

b)

One person may form LLC

3). Joint ventures: for only one or limited transactions 4). Corporation a) b)

3.

Guidance: Revised Model Business Corporation Act (RMBCA) Attribution: centralized by B.O.D; limited liability; continuous life; transferability of interest; taxation; cost of formally incorporating

Subchapter C and Subchapter S Corporations a)

S Corp:

 Federal tax @ shareholder level  Criteria: max. 100 S.H; one class of stock; S.H consent

B.

Formation, Operation, and Termination of Business

1. Partnership a)

Documentation: Article of partnership, certificates, filing with state-specified office

b)

Evidence of “existence”: share of profit, ownership of property, contribution of capital, designation of business relationship as “partnership”

c)

Estoppels: liability extends only to the partners who consented to the “agent” for misrepresentation

d)

Dissociation:  Cause: accordance or violation of partnership agreement  Effect: continuing or winding up business  Asset distribution in winding up: 1) creditors (partnership>individual)>owing to partners>capital & profit; 2) filing with stmet of dissolution; 90 days notice to creditors

2. Limited partnership: a)

Death or assignment of interest does not dissolve partnership

b)

Certificate: Less info on certificate under ULPA than RULPA

c)

Distribution: creditors> unpaid distribution+ return of capital>capital & profit

3. LLC a)

Filing: Article of organization; operating agreement among members (states member rights and how the business conducted);

b)

Dissolution: right to continue the business

c)

Distribution: creditor>capital>profit

4 Corporations a) b)

c)

Incorp Process: Article  File with StateCertificate (exists of corp) Bylaw Defects in formation: De jure corp  de facto corp corp by estoppels  Non corp (personal liable) Dissolution:  Voluntary: Recommended by B.O.D approval by S.Hfiling of Certificate of Resolution with State court  Involuntary: Quo warranto action (exceeds law); S.H actions

d)

Fundamental Change: Reorganization: merger, consolidation;

 Short form mergers: simplified procedure, only when parent owns >= 90% of o/s shares of each class of stock of subsidiary ; only approved by B.O.D  Process: Board approval  S.H approval State Filing Certificate  Appraisal (FV of shares)  Quasi-reorg: eliminate deficit to pay dvd by revaluate asset at NRV  amt of deficit  charge deficit to PIC A. Financial Structure, Capitalization, Profit and Loss Allocation, and Distributions 1.

Partnership: a)

2.

Interest in partnership (personal property): assignable; profit/loss + surplus (P&L are shared equally regardless of unequal capital distribution or service unless agreement specifies)

Limited partnership: a)

3.

B.

Interest in partnership: assignable

Corporations a)

Pre-incorporation subscribers: enforceable amount subscribers

b)

Par value shares may not be issued for less than par value

Rights, Duties, Legal Obligations, and Authority of Owners and Mgmt

1. Partnership: a) b)

c)

Fiduciary (Duty): duty of loyalty and the duty of care Rights by default: equal right to conduct business; share in P&L& asset, books &info, formal accounting of partnership affairs Authority: actual & apparent i.

d)

Limitation: assign partnership property in trust; disposal of goodwill; confess a judgment; submit clam or liability to arbitration

Liability: i.

Contract:  Partner’s dealing > bond authority  other partners are not liable  Other partners ratify the contract --> partnership is bound by contract

ii. e)

Tort: wrongful act or omission of a partner

Action b/t partner & partnership: suit in equity for dissolution and accounting; action at law

2. Limited Partnership: (right of limited partner)

a)

No right to manager or control the partnership

b)

No right to appear in partnership name unless indicate

c)

Allowable service under RULPA by limited partner: contractor consulting& advising, surety, voting; (under ULPA, only cash or property, no service)

3. Corporation a)

Powers:  Implied: by transaction undertaken  Not implied unless authorized: gift, partnership, surety, acq/reacq shares

b)

Corp Liability:  “Respondeat Superior”: within normal course of employment  liable  “Ultra Vires”: beyond scope of corp authority  not liable  Not liable on pre-incorporation contracts by promoter unless adoption by statute, agreement, or implied by accepting benefits

c)

Piercing corporate Veil: personally liable for debts of corp  Cause: under-capitalization at formation; subsidiary corp; fraudulent dealing; fail to act as corp; commingling personal and corp assets How to elect

Promoter B.O.D

Inside, outside

Officer

by B.O.D

Shareholder

Right Duty Responsible for Fiduciary duty forming corp & initiate general biz Reimbursed for Due care, expense, not loyalty, corp compensation opportunity doctrine Authorization to Fiduciary duty contract Amendment of article No fiduciary via major vote duty

Liability Personal liable to per-incorporate contracts unless state in contract, 3rd party agrees To bind board action

Tort liability Repymt of dvd to insolvent corp; unpaid portion of stock subscription

II Economic Concepts Essential to Obtaining an Understanding of an Entity’s Business and Industry A.

Business Cycles and Reasons for Business Fluctuation

B.

Econ Measures and Reasons for Change in Economy

C.

Market Influences on Business Strategies

D.

Implication to Business of Dealing in Foreign Currencies, Hedging and Exchange Rate Fluctuation