Chapter 31 Test 3 Who can participate in the management of a general partnership General partners From the book on limited partnership o Limited Partnership an unincorporated business association consisting of at least one general partner and at least one limited partner may elect to not be a separate tax entity General partners have unlimited liability for the company s debts and equal right to control of the partnership Limited liability partners have limited liability for the company s debts up to the amount that they contributed and limited control of the partnership Partners may assign their financial interest they may not assign their position as a partner Death bankruptcy or withdrawal of a partner dissolves a limited partnership From Class on limited partnership o Limited partnerships have to be in writing Why Because if the company were to be sued they would want documentation of how limited their liability is o Limited partnerships have to have a general partner Partnerships cannot be a non profit organization Definition of a partnership the association of two or more persons to carry on a business as co owners for profit All partners must agree on admitting another partner to the partnership delectus personae Choice of the person the right that one has to choose their partners General Partners have a fiduciary duty to each other they can t deal against the partnership can t compete with the partnership hold as a trustee for the partnership any property profit or benefit derived by the partner for the business General Partners have the duty to split profits they can t have a salary even if they feel like they are doing more for the company than the other partners sharing of gross returns does not establish a partnership but if you are receiving a share of the profits you are considered a partner Statute of Frauds for Real Estate if the contract is for more than one year for the continuing of a partnership with the interest in transfer of real estate or to buy a partnership the contract must be in writing Chapter 32 During winding up unfinished business is completed receivables are collected payments are made to creditors and the remaining assets are distributed to the partners termination occurs when this process is finished o The first step in winding up is to pay back the creditors o Who can t participate in winding up All partners who wrongfully dissociated From the book on torts o Torts and Crimes of Partnership under respondeat superior a partnership may be liable for an unauthorized tort committed by its employee if the employee committed the tort in the scope of his employment this goes the same for a partner in a partnership vs employee which we learned in the last test The partner committing the tort or breach of trust is liable for indemnity to any damages the partnership has to pay to the third party Joint and Several Liability means that all of the partners may be sued jointly in one action or they can be sued for separate actions leading to separate judgments may be maintained against each of them Even if the act and judgment are separate the partners not involved are still liable However the accused partner would owe the partnership indemnity for their tort see figure 32 2 From class on torts o A partner could be liable for the torts of another if they authorize the act Effect of Dissociation upon a partner s dissociation they are no longer able to manage and conduct anything within the partnership however if they have not wrongfully dissociated and the company is winding up they are entitled to participate o The duty not to compete terminates immediately after dissociation they can compete immediately o Must complete prior fiduciary and care duties to the company The most popular limited liability business is the limited liability company A foreign corporation a company that was not created established in that state They can be discriminated against if they don t register in the foreign state and they have to follow the laws of the state in which the business was made Can also be found in Chapter 34 on page 670 Shareholders do not manage corporations Shareholders elect the board of directors who manages the company The board of directors elects the officers who run the day to day business A corporation is a legal entity and is liable out of its own assets for its debts A promoter is a person who pools together capital and financing from investors stock creates the assets and basically organizes the corporation to get its feet off of the ground The incorporators file the papers for a corporation with the Secretary of State of the State that it is Corporation De Jure formed in substantial compliance with the incorporation statute and the being incorporated required organizational procedure Corporation De Facto fails to comply substantially with the incorporation statute but is still recognized for most purposes as a corporation Piercing the corporate veil is when the shareholders are personally attacked o From the book Going behind the corporate entity to confront those seeking to insulate themselves from personal accountability and the consequences of their wrongdoing is known as piercing the corporate veil Stock dividends a proportional distribution of additional shares of the capital stock of a corporation to its shareholders Cash dividends declared and paid at regular intervals from legally available funds vary in amount depending on the policy of the board of directors and the earnings of the enterprise Earned surplus corporation s undistributed net profits income gains and losses computed from its date of incorporation Capital surplus the entire surplus of a corporation other than its earned surplus Chapter 33 Chapter 34 Chapter 35 Chapter 36 Proxy an authorization by a shareholder to an agent to vote on behalf of their shares o Must be in writing to be effective o Statutes limit the duration of proxies to no more than 11 months The board of directors declares the amount and type of dividends distributed Quorum when a committee board of directors meeting of shareholders legislature or other body of persons cannot act unless at least a certain number of them are present when enough of them are there they can vote o Also a majority of shares entitled to vote constitutes a quorum A majority of shareholders must vote on fundamental changes o Fundamental changes do not include dividends Direct Suit a shareholder bringing up a suit that is against the