[REG] Business structure

 

5.1 Sole proprietorships

- one owner = business entity =legal entity

- not required to file secretary of state

- transferable ownership + int

- pass-through taxation

 

5.2 General partnerships

5.2.1 Applicable law

  Revised Uniform Partnership Act (RUPA)

 

5.2.2 Formation of (general) partnership

1. Definition of partnership

- 2 or more than 2persons

- business for profit

- Carry on-infinite period

- co-owners-financial + control interest

- intent-unnecessary

- Entity theory RUPA, P ship is an entity, distinct from its P

- filing is not required

  * LLP/LP/LLC is required to be filed

  * GP not required to file when formed/ dissolution

  * At-will contract 

 

 

5.2.3 Partnership Property

- property acquired by the partnership belongs to the partnership, not to the partners individually

- partner cannot use the partnership property for his personal use

- partner's creditor cannot intervene with the right of partnership over the partnership property

 

 

5.2.4 Management vs Transferable Interest

1. Management

- Per capita: one partner = one vote  vs Pro rate = contribution

- Unanimity = all consent

  1) Out of an ordinary course of biz

  2) admission of a new partner

  3) change of partner

  4) amendment of partnership agreement

  5) Fundamental change in partnership biz

- Management rights are not transferable to others (ownership=mgt)

 

2. Transferable interest

- transferable interest = freely assignable without the consent of others

- right to take profit/right to retrieve contribution are transferable

	Management	Profit
Transferable	X, Only the partner can manage	O, Partner may give the right of profit
Voting	unanimous consent -admission of a new partner, change of partner	No need to vote
Method	1 partner = 1 vote	An equal share of profit

 

 

5.2.5 Profit and Loss share

- Per capita: one partner = one vote  vs Pro rate = contribution

- modified rule:

   profit method fixed> applies to loss method

   loss method fixed> applies to profit method

 

 

5.2.6 Fiduciary Duty & Obligations

1. Partner > partnership

  - Duty of loyalty(self dealing, secret profit, Usurping the pship's opportunity

  - Duty of care

2. Partnership > partner

  - Reimbursement for payments

  - Right to indemnification for liabilities incurred in ordinary course

  - Reimbursement of advances + right to interest if contributes/advances more than agreed capital commitment

 

5.2.7 Liabilities

1. Pship > 3rd Party

  - Contract + Torts events

  - Actual authority + apparent authority(principal =Pship, Agent=partner)

2. Partner > 3rd party

 - Contract + Torts events

 - Personal liability = unlimited liability

 - Joint and several liability: 한 P의 잘못을 다른 P들이 동일하게 책임져야한다

 - Newly admitted General Partner

     limited liability to claims or liability existed before the admission

     personally liable for 3rd party's claim(creditor) occurs after joins

 - Precedent, dissociating partner

     personally liable for 3rd party's claim that occurred before the dissociation

     limited liability or no liability when 3rd party is given dissociation notice and consents to it

 

5.2.8 Dissociation, dissolution 파트너 안할께요, 회사사라짐

Dissociation

GP can voluntarily walk away

P is unable to dissociate until a particular goal is accomplished

- continuing biz: buying out the contributions of dissociating p

- ceasing biz: dissolution + winding up

 

Dissolution 회사사라짐

voluntary dissolution

  - agreement bet partners

  - accomplishment of goal in the partnership agreement

Involuntary dissolution

 - Court order

 - Bankruptcy

Winding up 회사재산 다 팔아버리는것

Liquidation of all assets of the partnership

Order of distribution (creditors > partners)

* no need to file a dissolution doc to the secretary of state because a GP had never been filed before

 

5.3 Limited Liability Partnerships(LLPs)

- Revised Uniform Partnership Act(RUPA)

 

5.3.1 Formation of Limited Liability Partnership

1. Filing requirement

- required to be filed in the secretary of state

- LLP must file a tax return regardless of the filing

- Name, and address of LLP

 

2. Transformation to LLP(GP-> LLP)

- depending on pship agreement

- depending on applicable state statute- majority, unanimous

- Filling 성공전까지 GP 무한책임 > filling 성공 LLP 유한책임

 

5.3.2 Liability

- all partners of LLP are limited partners > no personal liability for claims caused by pship biz

- Partner is personally liable for his negligence, fraud, and tortious conduct> no joint and several liability

 

 

5.3.3 Dissociation, dissolution

1. Dissociation = asme as GP

2. Dissolution: file to the secretary of state

3. Winding up: liquidation of all assets of pship, Order of distribution(creditors> partners)

 

5.4 Limited Partnerships(LPs)

5.4.1 Applicable laws: Revised Uniform Limited Partnership Act (RULPA)

5.4.2 Formation of Limited Partnership

GP≥1	LP≥1
MGT	경영에 참여안함, Passive income, Passive activity
Personal liability	Limited liability
filing format > Name address of GP
Profit/Loss > Share distribution based on contribution

   

5.4.3 Rights and obligations

1. General partner

- right: management of the partnership

- obligations: personal liability, fiduciary duty

 

2. Limited partner

- Right: giving advisory opinions, voting and participating in a meeting(fiduciary), inspection of records, doc

  * GP가 mgt수행하면 더 이상 LP 혜택을 누릴수 없음

- Obligations: Limited liability up to the amount of contribution, fiduciary duty(x) 소액주주와 같음

 

3. Admission of partners

	ULPA	RULPA
Admission of GP	Consent of all GP	Consent of all Partners (GP, LP)
Admission of LP	Consent of all Partners (GP, LP)	Consent of all Partners (GP, LP)

 

4. Profit sharing

- profit sharing plan > proportion of capital contributions

 

5.4.4 Liabilities

1. pship> 3rd party

  - Actual authority(within the scope of LP agreement, biz)

  - apparent authority

  - Ratification 비준 (all/nothing)

2. partners > 3rd party

  - GP = personal liability

  - LP > personal liability(x), limited liability(generally)

         > personally liability(1.mgt 2. name used to Lpship's name)

 

5.4.5 Dissociation, Dissolution

1. Dissociation = same as GP

2. Dissolution =  same rule of GP +

               1) Disasociation of GP > other P do not agree to continue the pship, no more GP

               2) Dissolution of LLP is required to be filed to the secretary of state

3. Winding up

 

 

5.5 Joint Ventures(GPship 비슷)

temporary form association of two or more persons based on a contract who combine their resources in pursuit of a particular project

- no need to file to the secretary of state

- the death of JVer does not lead to the dissolution of the JV

- Each joint venturer is personally liable for its activity

- Each joint venturer has a fiduciary duty to the JV

- No need to file the dissolution doc to the secretary of state

 

5.6 Limited Liability Companies

5.6.1 Applicable laws

- Delaware limited liability company act (DLLCA)

- Revised Uniform Limited Liability Company Act(RULLCA)

 

5.6.2 Formation of Limited Liability Company

1. Basic concept

- member = partner = limited liability

  * member's negligence or tortious conduct > personal lia

- Pass-through biz entity(no tax, yes tax return)

- Members- managed LLc vs Manager- managed LLc

  

2. Requirements

- article of organizaiotn(certificate of formation) must be filed in the secretary of state

- Name, and address of LLC

- At least one member

- Operating Agreement(LLC agreement) may be attached w the article of organization

* 관공서에 filing되면 제3자가 열람가능. 제3자에게 notie 준것으로 간주. constructive notice

 

 

5.6.3 Management & Profit/Loss share & voting

	Member-managed LLC	Manager-managed LLC	General partnership
Voting based on	% profit = %contribution	agreement	Per capita
Ordinary course of biz	> 50% (majority)	agreement	> 50% (majority)
Not ordinary course	> 50% (majority)	agreement	Unanimous
Admission of new member	Unanimous	Unanimous	Unanimous
Profit&Loss	% contribution	% contribution	per capita
Fiduciary duty	0	0	0
Agency law	0	0	0

 

 

5.6.4 Rights and Obligations

1. Members, Managers

Right: Mgt of partnership

Obligation: personal liability, Fiduciary duty

 

2. Admission of members: unanimous consent of members

 

5.6.5 Liabilities

LLC> 3rd Party	actual authority(within the scope), apparent authority, ratification
members > 3rd Party	limited liability, 3rd party claim is caused by member's negligence

 

5.6.6 Dissociation, Dissolution

Dissociation: requires LLC authorization

Dissolution:

   1) Approval of majority members

   2) Member's death, bankruptcy, dissociation unless others continue the LLc

   3) Court order

Winding up

  liquidation of all assets of the partnership

  Order of distribution: creditors > partners

  

5.7 C corporations

5.7.1 Applicable laws: Delaware General Corporation Law(DGCL), Revised Model Business corporation Act(RMBCA)

5.7.2 Features of the Formation

1. Filing

     Formal creation: under a state law > secretary of State

     Mandatory report-gov regulation: Rules of Securities and Exchange Commission 10-K,10-Q, 8-K

 2. Any separation of ownership & control

     SH > Ownership, BOD > Control

 3. Personal liability for owners 

     no, limited liability, piercing the corporate veil(=alter ego) 

4. Transferability of ownership

5. Infinite duration

6. Double taxation

 

 

5.7.3 Formation of Corporation

1) Potential SH 에게 부탁, Be a promotor 2) Promotor 계약체결       - 건물매입(6.3)       - widget 구매계약(6.3) 3) Filing AOI > C corp created! 4) Initial SH meeting (7.5)      - BOD selection      - 과거 promotor가 체결한 계약을  assign(이행)할지 결정

1. Filing the article of incorporation(AOI)

  - Must: Name/address of corporation,

              number of authorized stocks,

              Name/address of incorporation,

              Name/address of registered agent

  - May: Name/address of directors,

             the purpose of corporation biz(*Ultra vires issue, SH: beyond the scope of biz)

             Par value

2. Promoter=incorporator

  - a person who facilitates the forming of the corporation

  - Promoter ≠ agent of corporation

	Promoter	Corporation
Assignment	Liable	Liable
Rejection	Liable	Not liable
Novation	Not liable	Liable

 

3.Organizaitonal meeting(Initial shareholder meeting)

   - Director election(BOD), By law adoption, Officer election

   - Bylaw: mgt and gov of corporation, 경영 지배구조, Officers 선출

   * AOI/ Bylaw의 개정을 위해서는 BOD/SH 과반수동의가 필요함, SH동의를 위해서는 BOD동의가 선행되어야함

   * 회사의 헌법은 AOI임. 실질적인 내용은 Bylaw가 담고 있음

 

4. Types

Public corporation(상장) vs closed corporation(비상장)

 

 

5.7.4 Stocks(Class A,B,C / Common vs Preferred stock)

1. Authorized stock-AOI-total stocks of the corporation

2. Issued stock - consideration for purchase

   1) more than or equal to par value

       - Service performed, Intangible property, Services contracted to be performed in the future

    2) less than par value(Watered stock)

      - corp insolvent + watered stock issued > creditor may recover difference bet paid amount and par value f watered SH

3. Treasury stock

   - Issued but not outstanding stock

   - no voting power + no dividend

   - possibly issued less than par value

	Common Stock	Preferred stock	Debt, note
Voting	Voting(BOD election/removal)	Voting(x)	Voting(x)
Dividend	Yes, if declared	Yes, but or mandatory+priority to common stock first	No
Against corp	Lawsuit(o)	Lawsuit(c0	Lawsuit(o) Watered stock
Example		- cumulative preferred stock - participating preferred stock - convertible preferred stock - Callable preferred stock

 *회사청산 시, 돈 나눠주는 순서

   1. Secured Creditor 담보를 가지고 있는 채권자

   2. Unsecured(general) creditor 담보X, 채권자

   3. Preferred stockholder 우선주주

   4. common stockholder 보통주주

 

5.7.5 Governance- BOD's power and duty

1. BOD's meeting

  1) By law(authority, modify): Div declaration, Officer selection, Biz decision

  2) Process: Quorum 점족수: 회의개최가 가능한 인원수 > Approval: 투표

  3) Fiduciary Duty

Duty of loyalty	Self	* Exception: 1) FMV to corp, 차액reasonble, OK, 2) SH>50% approval                      3) BOD, independent from CEO >50% approval
	Usurfing the corporation's opportunity
	Secret profit
Duty of due care	Biz judgment rule(BJR): reasonable CEO, Officer, BOD member라면 나와 동일한 판단을 했을 것임-dealing

4) Meeting에 Agenda 보낸다

5) BOD (agent X, fiduciary) > committee(위원회)

                                               - audit committee(SOX of 2002)

                                               - compensating committee

                                               - nominating committee

 

5.7.6 Governance-SH's Power and Duty

1. SH meeting

1) Quorum(1/2)

2) Approval(1/2 CS): election or removal of directors

                                approval of audit report

                                Director's salary or compensation

3) Voting strategy: Majority SH vs Minority SH

     - Voting Agreement

     - Voting trust(Minority SH transfer the right to vote to a trustee)   

     - Straight voting vs Cumulative voting

straight vote 일반적인	Cumulative vote 소액주주보호
1 SH = 1 Vote	1 SH * number of directors(후보)
Majority 최대주주가 원하는대로	minority 소액주주가 자신의 의사에 맞는 BOD 선출할 수 있음

 

2. Special issue- Dividends

- BOD's exclusive right -Declaration of dividends

Cash	Property	Stock
	- Distribution of corporation property - SH must report the income dividend as an FMV of property	Stock dividend distorts SH's powers if SH sells stock in mkt

* illegal dividend(violation of the dividend rules in state statute)

 1) insolvent, declaration of dividend 2) total assets < total liabilities + preference liquidations

 

3. Rights

- Right to inspect records(prior written notice, 5 biz days)

- Preemptive right(새로 발행되는 주식을 기존주주가 먼저 살 권리)

 

4. Direct lawsuit vs Derivative lawsuit

1)  SH's personal damage > Direct lawsuit against the corporation

2) Corporation's mismanagement by officers, BOD > Corporation's damage > SH's damage > Derivative lawsuit

     회사 재무상 손실, 일반회사 경영관련 사건

 

5. Piercing the corporate veil

- SH = alter ego =corporation > abuse of formation > SH's personal liability

- commingling personal property with corporation property 돈 섞어쓰기, 같은 계좌사용

- Under capitalization, corp 돈이 없어서, SH가 equity 채워줌

- substantially subject to the SH

 

5.7.7 Merger & Acquisition

 

 

5.7.8 Dissolution

1) BOD approval > SH approval > winding up > filing dissolution document

2) court's dissolution order > filing dissolution document

- Liquidation expenses(lawyer, CPA) > Creditor(secured > unsecured) > preferred SH > Common SH

 

5.8 S corp

	S corp	C corp
Tax	- pass through - 1120S - profit/loss 발생하면 tax return해야함	- double taxation - dividend로 세금신고
filing	Only Domestic corp	Domestic(o), Foreign(o), Alien(o)
class stock	Only one class	Article of incorporation(AOI)
SH	Nonresident(x), Alien(x), Scorp(x), partnership(x) S crop(o), Resident(o), Estate/trust(o) as one SH	Article of incorporation(AOI) - S corp는 C corp 주식 소유가능,   Electing small biz trust 100% 소유가능
number of SH	Less than or equal to 100 SHs	Article of incorporation(AOI)
Registration	Election by S corp must be filed to the IRS (unanimous consent of SHs)	N/A
Termination	- Majority (SH) - Over 25% income(3yrs) =passive income * reelection after 5yrs	Article of incorporation(AOI)