LLCs
Corporations Pt 1
Corporations Pt 2
Piercing and Mysterious Other Question
Miscellaneous Fun Category
100
By default, when do you get your money back when you leave an LLC?
When the LLC ceases to exist
100
Where should you incorporate the corporation you use to do business?
Bonus: where should you incorporate your managing corporation?
The state that you are doing business in
Bonus: Wyoming
100
How should you sign things to make sure you are never personally liable.
ABC CORPORATION
BY _______
President
Secret bonus: you might still be personally liable. This is just the best way.
100
What is piercing the corporate veil?
In a lawsuit, going through the corporation and getting to the assets of the members of the business entity.
100
When can you divide a business to cheat avoid taxes?
When you have a legitimate business reason for doing so (Business Judgement Rule)
200
What 4 things do you want in your LLC exit agreement?
There is actually 3:
Notice Period
Payment Plan / Payout Mechanism
Valuation of the worth of the LLC
200
What is the internal affairs rule?
Generally anything that happens in or among a corporation is an internal affair, which is generally governed by the bylaws of the corporation.
200
Why should you make your owner a registered agent in your corporation?
Bonus: how many registered agents do you need?
You shouldn't. That tells everyone who they need to sue and whose assets they should pursue.
Bonus: one in every state your corporation is in
200
Roses are red
Violets are blue
The owner put in his LLC
The money he stole from you
How can you get your money back?
Reverse piercing
200
Caitlin and Paul form a manager-managed LLC. As part of the operating agreement, only Caitlin, the sole manager, has the authority to bind the LLC. Paul makes a contract with Brittany for the LLC to purchase 50 McRibs. Brittany tries to enforce the contract.
Caitlin travels back in time to prevent her LLC from being held liable. However, she can only travel to a time after the operating agreement was made but before the McRib contract was made. Paul will still make the McRib contract (it is a canon event). What is her best option to ensure the LLC is not liable?
She can put the manager-managed provision in the Articles of Organization.
300
What are the 6 restrictions on S-Corps
There is only 4:
100 or less shareholders
Individuals or estates (no business entities as members)
No more than one class of stocks
No Non-resident aliens
300
What is the difference between a registered name and a reserved name?
Reservation simplifies the formation of a new corporation or the registration of a foreign corporation.
Registration allows a corporation not registered to do business in the state to preserve the right to use its unique corporate name if it decides later to register in the state. It ensures corporate name availability in areas of potential future expansion.
Secret Bonus:
Foreign corps can sometimes pick: if the corporation reserves its name, that name will be kept for 120 days and then become available again; if the corporation registers its name, that name will be kept for the remainder of the calendar year, unless renewed.
300
What is an EIN?
It's like a business entity's social security number. It is used for tax purposes.
300
When is a subsidiary the alter ego of its parent? (5 parts)
Single Economic Entity Test:
Use of a cash management system in which the subsidiary’s funds are managed by the parent
Parent’s exertion of control over major transactions by the subsidiary
Parent’s dominating presence on the subsidiary’s board which simply means that the parent determines who the subsidiary’s directors are (usually employees or officers of the parent)
References to parent in advertising, promotional and the like (often though the use of the parent’s logo)
Non-arm’s length transactions
300
Explain both ways to acquire another business entity and which one gives you successor liability
There is actually 3:
Acquiring assets (no successor liability)
Merger
Stock Acquisition
400
Name 3 advantages and/or disadvantages of easy liquidation
Pro:
Easy liquidation allows members to recover the value of their invested capital and prevents freezeouts
Eliminate need for oppression doctrine and uncertainty
Threat of dissolution of the firm or a mandatory buyout may help to constrain the majority from acting selfishly or oppressively against minority
Disadvantages of easy liquidation
Minority may use the threat of dissolution or buyout to extract unjustified concession
Right to mandatory buyout may be difficult for financially strapped firms without selling critical assets
Wealthy partner may dissolve, purchase, and continue to operate without the others, this is a similar problem in Easy liquidated LLC
Less need for this when there is limited liability. No personal liability to creditors if the remaining members incompetently manage the business in the future
Makes business unstable
400
Muad'ib Usul forms the corporation "Combined Mercantiles" for the stated purpose of "selling spice." After the Japanese attack on Pearl Harbor, on SUNDAY, DECEMBER 7TH, 1941, Combined Mercantiles begins selling arms and armaments to the Japanese Empire. The attorney general, Christopher Walken, sues Combined Mercantiles to stop Usul. Result and why?
The suit will be successful under the doctrine of Ultra Vires. Only the shareholders, the attorney general, or the corporation can bring such a suit.
Also this would probably be a violation of the Neutrality Acts and treason
400
White Enterprises is owner of the famous $100 million dollar Gotham train system. Last year, the train system brought in $100.00 in profits. Miss White, the owner, wanted to spend 50% of the profits ($50.00) on hockey pads so she could go beat up Gotham's criminals. (Assume that beating up criminals is unrelated to owning and operating a train system). Stockholder and butler Michael Pennyworth sued to stop this from happening. Result?
It is okay!
De jure: 10% of the ASSETS
In practice: 5% of the ASSETS
$50.00 is under 5% of 100 million
400
What are the 5 reasons to pierce?
There is 5 (we think):
Fraud or misconduct
Complete dominion and control over the LLC to commit wrongful acts
Undercapitalization/inadequate capitalization (not usually alone)
Failure to follow formalities
Intermingling funds
400
Emma owns a dragon-breeding business. Her corporation specializes in "safe and easy to train" Hungarian horntail dragons. However, Emma decides she wants to retire so she can visit all the countries on Earth (except all the dangerous ones). She sells all of her dragons to the military industrial complex. Now she has 500 billion Galleons in the bank (sweet!). How can she get the money without being sued by all her former customers who are injured by the dragons?
Get quotes from a bunch of insurance companies. Go with the cheapest one. The rest are conflicted out.
500
Emma, Caitlin, and Josie register with the Secretary of State, Brittany, to form McWendy's LLC. They hire Michael to purchase 500 tons of spice from Paul. After forming the contract, Paul discovers that the Secretary of State should have rejected the LLC registration because the LLC infringed on copyright (the LLC sold excessively dry biscuits, which Popeyes copyrighted). Who can Paul hold liable for the spice contract?
McWendy's LLC.
Even if the Secretary of State should have rejected the registration, as long as the registration is accepted, an LLC has been formed.
500
Explain De Jure vs De Facto corporations (DAILY DOUBLE)
De jure
When you have done everything you are legally supposed to do
De Facto
A valid law under which corporation can be lawfully organized
Attempt to organize thereunder
Actual user of the corporate franchise
Good faith in claiming to be and in doing business as a corporation is often added as a further condition
Maybe also does not exist
500
What is a closed corporation?
Generally a small corporation often below 35 people, not publicly traded, that is run directly by shareholders without as many formalities (meaning a formal board of directors and a formal annual meeting)
500
What is a charging order?
A court order that requires that the money the LLC distributes goes to the creditor that sued the LLC first
500
What is the corporate tax rate for a corporation in Louisiana?
26.5%
Secret Bonus: 21% Federal and 5.5% State