NCA Business Organizations flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Sole Proprietorship Liability

The owner and the business are one legal person, so the owner bears unlimited personal liability for business debts and torts. No filing creates the entity; income is taxed once on the owner's return.

General Partnership Formation

Formed when two or more persons carry on a business for profit, whether or not they intend to create a partnership. No written agreement or state filing is required, though agreements govern relations.

Partnership Joint and Several Liability

Each general partner is personally liable for all partnership obligations, and a creditor may collect the full amount from any one partner. That partner then has a contribution right against the others.

Limited Partner Control Rule

A limited partner who takes part in controlling the business may become liable to third parties who reasonably believe the partner is a general partner. Voting on major matters alone is generally safe.

LLC Member Liability Shield

Members and managers of a limited liability company are not personally liable for company debts or acts solely by reason of being members or managers, unless the veil is pierced.

Single-Member LLC Taxation

A single-member LLC is disregarded for federal tax purposes by default, so its income is reported directly by the owner, who also pays self-employment tax on the earnings.

S Corporation Eligibility Limits

An S corporation may have no more than 100 shareholders, only eligible individuals and certain trusts or estates, one class of stock, and no nonresident-alien shareholders.

C Corporation Double Taxation

A C corporation pays entity-level tax on profits, and shareholders pay tax again on dividends distributed from after-tax earnings. Retained earnings avoid the second layer until distributed.

Board of Directors Authority

A corporation is managed under the direction of its board, which sets policy, appoints officers, and declares dividends. Shareholders generally do not manage day-to-day operations.

Piercing the Corporate Veil

Courts may disregard limited liability when the entity form is abused, such as commingled assets, inadequate capitalization, or fraud, and honoring the shield would work injustice.

Business Judgment Rule

A director who acts in good faith, with reasonable care, and without conflicting interest is presumed to have acted properly, and courts will not second-guess the merits of the decision.

Duty of Loyalty

Partners, members, officers, and directors must put the entity's interests ahead of personal gain, which bars self-dealing, usurping corporate opportunities, and competing with the entity.

Express Actual Authority

Authority the principal directly grants to the agent through written or spoken instructions. Acts within that grant bind the principal, and the agent owes duties in carrying them out.

Apparent Authority

Authority a third party reasonably believes the agent has because of manifestations by the principal, even if the agent lacks actual authority. The principal is bound by the resulting acts.

Partnership by Estoppel

A person who represents that a partnership exists, or consents to such a representation, may be liable to a third party who relies on it, even if no partnership was formed.

Partnership Dissolution vs Winding Up

Dissolution ends the partners' authority to carry on business, while winding up completes existing transactions and liquidates assets. Creditors are paid before partners receive distributions.

Fiduciary Duty of Care

Officers, directors, and managers must act with the care an ordinarily prudent person would use in similar circumstances. Gross negligence or deliberate disregard breaches this duty.

Corporate Opportunity Doctrine

A fiduciary may not take a business opportunity that belongs to the entity unless the entity first rejects it after full disclosure and the fiduciary acts fairly.

Shareholder Derivative Suit

A shareholder sues on the corporation's behalf to enforce a right the corporation failed to assert. The shareholder must first make demand on the board or show demand is futile.

Par Value of Shares

The minimum stated price for which shares may be issued, set in the articles. Shares issued below par leave the holder liable to creditors for the difference.

Authorized Versus Issued Shares

Authorized shares are the maximum number the articles permit; issued shares are those actually sold; outstanding shares are issued shares still held by shareholders, excluding treasury shares.

Preemptive Rights

A shareholder's right to buy a proportionate share of newly issued stock before outsiders, protecting against dilution. Rights exist only if granted by statute, articles, or agreement.

Close Corporation Characteristics

A corporation with few shareholders whose shares are not publicly traded, often with restrictions on transfer and shareholder agreements governing management, sometimes dispensing with a board.

Professional Corporation

An entity formed by licensed professionals such as lawyers or doctors. Shareholders remain personally liable for their own malpractice, and the entity shields them from other obligations.

Nonprofit Corporation

A corporation formed for charitable, educational, or similar purposes, with no shareholders and a prohibition on distributing profits to members or directors. Earnings must further the mission.

Ultra Vires Acts

Corporate acts beyond the powers stated in the articles or permitted by law. Modern statutes allow such acts to be challenged mainly by shareholders or the state, not by the counterparty.

Alter Ego Theory

A veil-piercing basis treating the corporation and its owner as indistinguishable because of commingled finances, ignored formalities, or domination used to commit a wrong.

Member-Managed LLC

An LLC in which all members share management authority by default unless the operating agreement vests management in managers. Members then owe fiduciary duties to one another.

Operating Agreement

The contract governing an LLC's management, voting, distributions, and member relations. It may vary most statutory defaults but cannot eliminate the implied duty of good faith.

Partnership Profit Sharing Default

Absent agreement, partners share profits and losses equally regardless of capital contributions, and each partner has one vote on ordinary management decisions.

Dissociation of a Partner

An event causing a partner to cease being a partner, such as notice, death, or expulsion. The partnership may continue, and the departing partner is bought out.

Shareholder Voting Quorum

A meeting cannot act without a quorum, usually a majority of outstanding shares present in person or by proxy. Ordinary matters require a majority of shares voted.

Cumulative Voting

A voting method letting a shareholder multiply votes by the number of seats and spread them, so minority shareholders can elect at least one director.