Chapter 15 - business structures

Question 1

Types of Authority

Answer 1

• actual -
  
  • express
  • implied
• Apparent - partnership creates impression that partner has authority
  
  • good faith 3rd party reasonably assumes you have
• unauthorized action - not liable unless ratify
  
  • ratification - partnership gives partner authority after contract is made
    
    • principal (partnership) must be fully or partially disclosed
    • must know details of contract made by partner
    • must ratify before 3rd party withdraws

Question 2

partner has no apparent authority to do the following

Answer 2

AGAST:

Admitting new partner: unanimous consent

Guranteeing debts of third party (suretyship)

Admitting or submitting a legal claim

sale or pledge of property (goodwill)

third parties are notified (aware of a limit to the partner’s actual authority

Question 3

Admitting or retiring a new partner (liabilities)

Answer 3

• Admit:
  
  • old - up to capital contributed
  • new - unlimited
• Retire:
  
  • old - unlimited
  • new - liable on apparent authority unless notice is given:
    
    • actual (personal notice)
    • constructive (newsletter)

Question 4

Closely held corp

Answer 4

• stock is not offered to public
• usually less than 50 shareholders
  
  • many share management duties

Question 5

Promoters (liability)

Answer 5

• before corp formation, promoters go into contract for it.
  
  • contract not binding until b of d elects to adopt
• not agent
• liable before adoption and after unti novation is given
• promoters have fiduciary duty

Question 6

Articles of incorporation

Answer 6

• needed by corp:
  
  • name
  • nature & purpose
  • term
  • name and address - of each incorporator
  • capitalization
  • initla board - names of board until first shareholder meeting
  • registered agent (lawyer)

Question 7

Board of directors

Answer 7

• act as board (act as group)
• not agents
• in charge of general operations
• adopt the bylaws
  
  • select officers (president)
    
    • in charge of day to day
    • agents of corp
    • right to be indemnified (reimbursed)
  • reacquire t stock unless insolvent or makes them insolvent
  • declare dividends.

Question 8

Shareholder rights

Answer 8

• Right to vote for following:
  
  • b of d
  • liquidating div.
  • dissolve corp.
  • mergers/consolidations
  • amend the art. of incorp.
  • loans to directors
• not agents
• transfer shares without approval
• right to declared div. (unsecured creditor)
• right to inspect books
• appraisal right - right to get stock appraisal if disagree with merger
• derivative suit - sue in name of corp.
• preemptive right - prevent dilution of ownership with newly authorized stock only
• limited liab. unless pierce the corp veil.

Question 9

Pierce the corp. veil

Answer 9

• undercapitalized
• shareholder fraud
• direct action - shareholders are running corp directly without b of d
• commingling assets

Question 10

Proxies

Answer 10

• authorization by a shareholder to an agent to vote his shares at a meeting
• must be written
• no more than 11 months unless otherwise stated in proxy
  *

Question 11

Voting trusts

Answer 11

• give voting rights to trustee
• limited to 10 years

Question 12

shareholder agreements

Answer 12

• shareholders agree in advance to vote in a specific manner
• no time limit.

Question 13

subscriptions

Answer 13

• if a person signs a contract agreeing to purchase shares of a corp, they are liable if shares are made avail. within 6 months of sub.

Question 14

ultra vires act

Answer 14

• when corp has narrow purpose (in art. of incorp.)
• when director or offer acts outside of purpose can be liable for damages