The C. court agreed, holding that Stover had induced GE Credit to do business with a limited partner. IX. In the case of Shimko v. Guenther, an Ohio law firm sued a client for 360,ooo of unpaid attorneys fees. A. The clients were limited partnerships in Arizona. B. The firm had represented Mr. and Mrs. Guenter both as individuals and as LPs C. The firm argued the Guenthers had acted as general partners and were liable for all of the legal fees. D. The court held that the Guenthers were only liable for their personal fees; the law firm was expected to be more knowledgeable about limited partnership law than an ordinary creditor E. The court stated that the firm should be familiar with the clients organic documents; i.e. the certificate, partnership agreement, etc. X. A limited Liability Company is a recent development that allows the management flexibility and flowthrough taxation of apartnership to be combined with the limited liability of a corporation. A. The IRS has a test for an association to determine corporate taxation status. 1. The first two requirements (that a group of individuals conduct a business for profit) will always be met in the cases were interested in. 2. The other requirements are: a. Continuity of Life b. Centralized Management c. Limited Liability d. Free Transferability of Interests B. LLCs are structure so tha at least two of the last four requirements are not met. 1. Generally, LLC statutes will set a time limit of 30 years or less until dissolution occurs by law. 2. Generally, LLC statutes will also hold that member shares are not freely transferable 3. Historically, LLCs were required to have more than one member but this requirement was eventually dropped by almost all states. C. LLCs are more flexible than corporations at both the operational and organizational level. D. Similar to the LP, all procedural filing requirements must be met and an agent must be specified for service of process against the LLC.
1. Most states allow the LLC to designate the Secretary of State as such an agent. XI. A Limited Liability Company is owned by its members and operated by its managers. A. An LLC can have as many managers as it deems necessary. B. By statutory default, a majority vote of the managers is necessary for regular decisions and a supermajority or unanimous vote is required for special decisions. 1. These rules can be modified for individual LLCs in the Operating Agreement. 2. The rules for a corporations governance are much more complex and formalized. C. The different members of the LLC are not required to have equal ownership shares; there are no rules governing the issuance of stock as there are for a corporation. D. In a corporation, some parties are only allowed to amend the articles of incorporation while some are only allowed to amend the by-laws. E. The members of an LLC can amend the Operating Agreement in whatever manner they deem appropriate. XII. There are four non-corporate limited liability entities: A. Limited Liability Company. B. Professional Limited Liability Company 1. Accountants were the biggest lobbyists for a PLLC law. 2. In most instances every member or shareholder must be a member of the profession. 3. Prior to the PLLC law, the law provided for professional corporations. These statutes distinguished between contract liability and tort liability arising from malpractice. 4. Generally, liability for malpractice is unlimited. 5. The PLLC statutes are racially different in their extent of authorization of limited liability. a. These statutes tend not to hold professionals vicariously liable for the torts of another professional who wasnt under their direct supervision. 6. Some professional oversight organizations have restricted the manner in which their members can organize to limit liability. C. Limited Liability Partnership 1. Why not have it all?
2. What this option available, why would anybody choose to operate as a general partnership? D. Limited Liability Limited Partnership (you get the idea) XIII. Taghipour v. Jerez in LLC case. XIV. Countryman v. Farmer Co-op is a 2nd LLC case. XV Palmer v. Moffat is a 3rd LLC case. XVI. Gottascher v. Monnier is a 4th LLC
III. Unlike directors, shareholders can vote by proxy if theyre unable to attend the meeting. A. A proxy allows somebody who actually is at the meeting to cast your vote. B. A proxy has to be in writing. C. There are usually no requirements to whom you can give your proxy. D. Most shareholders usually give their proxies to management in large public corporations; management will send a statement of their position to the shareholders with along the proxy form. E. Most state laws have been amended so that proxies can be submitted via fax or e-mail attachment. F. You generally cannot sell your proxy, but it can be given coupled with an interest. (For example, giving your proxy to a creditor.) G. A proxy form must also specify its duration (ex. For the Jan 30th
meeting only) or else its usually good for 11 months by default.
H. The proxy will tell the individual holding it how to vote for any item on the agenda of the meeting.
I. If an item of new business comes up, the proxy holder is required by law to vote the way they think the shareholder would vote. (The shareholder wouldnt give a proxy to somebody they thought was a poor decision maker.)
J. Management, however, cannot withhold items form the meeting agenda in order to vote any way that they want. K. A proxy can be revoked unless it says otherwise (ex. a creditor may offer a loan conditional on a grant of proxy) L. A voting trust gives the stocks proceeds and benefits to the shareholder, but shareholder has no rights to management decision-making.
IV. Shareholders may also have pre-emptive rights that protect their proportional interest in a corporation. A. For example, current shareholders have the right to purchase newly issued shares before anybody else. B. Pre-emptive rights are permissible under the RMBCA. C. Pre-emptive rights are mandatory in New York (for corporations organized before 1998) but may be proscribed by the Articles of Incorporation in other states. D. In Schwartz v. Marien, a company reissued treasury stock (which generally doesnt carry preemptive rights) in a way that would dilute the interest of minority shareholders.) 1. There was a question of whether preemptive rights should attach to these re-issued shares. 2. The court once again held that the majority shareholders have a fiduciary duty to protect the minority interest. V. Shareholders also have a broad right to inspection. A. Any shareholder can walk into corporate headquarters and ask to see the journal, ledger, meeting minutes, contracts, etc. B. Under the RMBCA if the corporation doesnt want to share the records, they bear the burden of showing that the shareholders purpose is improper. C. In the Compaq Computer case, a shareholder requested a list of all the shareholders because he was worried about improper compensation and wanted to gain support for his case from fellow shareholders. 1. The court sustained his claim. D. In Seinfeld v. Verizon Communications, a shareholder was worried that the company had redundant positions and too much executive compensation was being paid out. 1. In this case the court did not grant the shareholder access to the records. 2. The court held that Seinfeld lacked credible evidence to support his claim. E. In NY you have to own 5% of a corporation or be a shareholder for six months to exercise the right of inspection; this is so a competitors employee cant buy one share of stock just to harass your company. VI. A derivative action is brought by an insider who feels that the corporation is being wronged and by somebody within the corporation; (i.e. Corporation v. Corporation) and that management is unable or unwilling to act on the problem. A. Shareholders, directors, or officers can bring these cases. B. There are rigid procedures to ensure that cases arent brought to coerce, intimidated, or embarrass directors. (a strike suit) C. You generally must be able to show at least some evidence of violation of the business judgment rule to bring such a case. D. Since the corporation is both plaintiff and defendant, you wont recover damages even if you win such a suit. E. You have to provide notice or demand a remedy before filing the suit unless you convince the court that such steps would be totally pointless. F. Once filed, these suits cannot be settled without court approval.
VII. A direct suit is brought to protect a shareholders individual rights such as the pre-emptive rights or the rights to inspection. A. These are not subject to the same procedural restrictions as derivative suits. VIII. Appraisal rights allow shareholders to have their shares purchased by the corporation. A. These rights are not always available to a dissenting shareholder. B. These might arise during a merger or acquisition whre pre-emptive rights or stock preferences will be abolished. C. A pending amendment to the bylaws might also create such a situation. D. There is a strict procedure for the exercise of these rights proscribed by stature. E. How are appraised shares valued? 1. They can be worth Fair Market Value.