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BUSINESS ASSOCIATIONS

 

 

 

Corporate bargain--limited liability

 

 

 

 

 

I.CHARACTERISTICS OF A CORPORATION

 

 

 

A.PRINCIPAL CHARACTERISTICS OF A CORPORATION

 

a)Entity Status--a corporation is a legal entity created

under the authority of legislature

 

b)Limited Liability--as a legal entity, a corp is

responsible for its own debts; its shs liability is limited to their

investment;

 

c)Free Transferability of Interest--shares, representing

ownership interests, are freely transferable;

 

d)Centralized Management and Control--a corps management

is centralized in a board of dirs and officers. Shs have no direct

control over the boards activities;

 

e)Duration--Continuity of Existence--a corp is capable of

perpetual existence;

 

f)Taxation--a corp, as an entity, pays taxes on its own

income; shs are taxed only on dividends;

 

g)Remember Attributes of the Corporation--CLIFF:

 

1)Centralization of management;

 

2)Limited liability;

 

3)Forever (perpetual duration);

 

4)Freely alienable (shares can be sold).

 

 

 

 

 

B.CORPORATIONS DISTINGUISHED FROM OTHER FORMS OF BUSINESS

ASSOCIATIONS.

 

 

 

1.GENERAL PARTNERSHIPS--in most states, pships are governed

by the Uniform Partnership Act (UPA). However, the Revised UPA (RUPA)

has been adopted by a few states

 

a)Aggregate Status--a pship is an aggregation of two or

more persons who are engaged in business as co-owners. Although not a

legal entity, a pship is treated as one for certain purposes, e.g.,

ownership and transfer of property. RUPA confers entity status on

pships;

 

b)Unlimited Liability--every partner is subject to

unlimited personal liability on pship debts;

 

c)Transferability of Interests--a partner cannot make a

transferee a member of the pship. She can, however, assign his interest

in the pship, thus permitting the assignee to receive distributions of

profits. Because the assignee does not become a member of the pship, he

is not entitled to participate in pship business or management.

 

d)Duration and Dissolution--a pship cannot have perpetual

existence. It is terminable at will unless a definite term is expressed

or implied, and is also dissolved by death, incapacity, or withdrawal of

any partner.

 

1)Wrongful dissolution--pships can also be dissolved

in contravention of the pship agreement, by the express will of any

partner, by a court or by a partners conduct. Upon wrongful

dissolution, nonbreaching partners may seek damages for breach and, if

they choose to do so, may continue the pship upon payment to the

breaching partner of the value of his interest.

 

1)Compare--dissociation under RUPA--termination results

in either the winding up of the pship or buyout of the dissociating

partner, depending on the event triggering the termination. A buyout may

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