1. Be in Writing
2. Be signed by the maker or the drawer
3. Be an unconditional promise or order to pay
4. State a fixed amount of money
5. Be payable on demand or at a definate time
6. Be payable to order or to bearer, unless it is a check

Methods of Negotiation: Order and Bearer Instr.

1.Negotiating Order Instrument- Negotiated by delivery and any necessary indorsements

2. Negotiating Bearer Instruments: Negotiated simply by delivery: by transfer in to another person's possesion.

One who is "indorsed" a note or draft:

Example:

"Pay to Aretha Parks"

A.P = Indorsee

1. Blank Indorsements
2. Special Indorsements
3. Qualified Indorsements
4. Restrictive Indorsements

Blank Indorsement

Specifies no particular indorsee and can consist of a mere signiture.

An instrument payable to order and indorsed in blank becomes  a bearer instrument and can be negotiated by delivery alone. -- Anyone can then cash it.

Identifies the person to whom the indorser intends to make the instrument payable.  ( Name the Indorsee )

"Pay to Clay- Followed by the signature of the Indorser"

is sufficient

Example:

  Pay to clay

(Signature of Indorser)

To disclaim the liability.

"without recourse"

When the indorsee wants to negotiate the check to someone else withought assuming liability for its' payment.

2ndary

Preemptive Rights

Dissolution of LLC

LLC may be dissolved if it meets the following requirements:

“ (1) The expiration of the period, if any, fixed by the operating agreement or articles of organization for the duration of the company;

(2) One or more events specified in writing in the operating agreement as causing the dissolution of the company;

(3) The unanimous written agreement of all members to dissolve the company;

(4) Except as provided in division (C) of this section, the withdrawal of a member of the company, unless the business of the company is continued by the consent of all of the remaining members or under a right to continue the company that is stated in writing in the operating agreement;

(5) Upon entry of a decree of judicial dissolution under section 1705.47 of the Revised Code.”

instances where a debtor will refuse to discharge a specific debt in their bankruptcy, and this agreement to pay the debt anyhow is called reaffirmation, or reaffirming a debt

done on a voluntary basis by the debtor, and is not required by the Bankruptcy Code, or any other state or federal regulations.

Corporation by Estoppel

Corporate Organization

corporate organization occurs after incorporation and is the process/meeting, in which the board of directors are elected/appointed, by laws are adopted, and other important decisions are made. It is important to note that the requirements of organization greatly vary by state. Additionally, for organization to be legal it must occur in the same state in which it was incorporated.

.

 “A corporation is an article being, invisible, intangible, and existing only in contemplation of law. As a mere creature of law, it possesses only those properties which the character of its creation confers upon it”

a corporation is a distinct legal entity that acts through its officers, directors or other agents. A corporate organization acts like a natural person in the way that it has rights and responsibilities, contractual obligations and entitlements, and the right to sue and be sued

Corporate Stock Redemptions

the reacquisition of stock by the issuing corporation.”[1]  The most common circumstances in which shareholders opt for these redemption plans are retirement, death, and disability. 

Assignment of Interest in Partnerships

The law states that if one is a partner in a partnership, they have the power to assign the benefits they receive from the partnership to an assignee, such as income. The assignee can also receive the assignor’s share of benefits upon the cessation of the partnership.  

the assignee does not gain any rights of the partner (who is also the assignor) in regards to the activities of said partnership. This means that the rights of the partner (such as voting within the partnership) do not transfer to that individual’s assignee.

Charging Order in Partnerships

A court-authorized right granted to a judgment creditor to attach distributions made from a business entity, such as a limited partnership (LP) or limited liability company (LLC), to a debtor who is a partner of the business entity.”

·         request that a court give him (the creditor) the ability to receive money from the individuals share of a Limited Partnership or a Limited Liability Company.

501(c)(3): Organizations that are Exempt from Federal Taxation

some corporations are exempt from federal taxation due to the nature of their operations or their purpose.  Under section 501 (c)(3) of the Internal Revenue Code entities organized exclusively for charitable, scientific, literary, educational, or religious purposes are eligible for federal tax exemption.  They cannot have any earnings inured to a private shareholder. 

Partial Liquidations

partial liquidation is when a corporation makes a distribution resulting from either the proceeds from the sale of a part of their business or insurance proceeds or a distribution of the asset itself to its shareholders in return for their stock. 

An example of a partial liquidation is when a corporation distributes excess insurance proceeds which were recovered from the permanent destruction of a part of the business due to a legitimate fire to its shareholders in return for their stock.

Chapter 12 Bankruptcy

Corporate Board of Directors

The definition of a board of directors is "a group if individuals who are responsible with aligning the company’s goals with the shareholders’ goals" (Miller)

incorporators (or investors) of the business usually appoint the board of directors, and they remain on the board until the first annual shareholders’ meeting. After the corporation issues stock, the majority vote of shareholders determines who sits on the board. A director usually sits on the board for one year, but this again can vary depending on the size of corporation and the industry in which the corporation operates.

Bankruptcy and Postpetition Claims

One of the most important protections bankruptcy filers receive beginning on their filing date is an “automatic stay” which lasts until the bankruptcy proceedings have concluded. Under the automatic stay, creditors are not longer permitted to contact the debtor. Creditors are also not permitted to foreclose on the debtor’s home or repossess his or her automobile. These assets of the debtor become part of what is known as the “bankruptcy estate.”

Creditors may request the Bankruptcy Court to grant relief from the automatic stay in a situation in which the debtor has accumulated postpetition debt

Phantom Stock

to retain their best workers, especially top executives

cash is given based on the appreciation in the value of the employer’s common stock between the date the employee was given the phantom stock and the date the benefit is paid

Actual shares of stock are not given to employees

Ø  Employees can receive the financial benefits of ownership without having the risk of actual ownership in the company

Student Loan Discharge

a court can only discharge a student loan when “not doing so causes undue hardship to the debtor or the dependents of the debtor.”

Brunner test (Undue hardship )

1. cannot maintain, based on current income and expenses, a minimal standard of living
2. additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans
3. has made good faith efforts to repay the loans

Exemptions From Registration

• Ø  Securities in the form of offerings must be sold in a single state to ensure that the exemption status will remain.

• Ø  no restrictions on the size of the offering, if a single security were to be sold to an out-of-state purchaser, no exemption would exist

• "Resales"exempt if it is completed, “by any person other than an issuer, underwriter, or dealer”

Controlled Foreign Corporations

“organized and chartered under the laws of another state, government, or country”.

foreign corporation where U. S.  citizens own more than 50% of the corporation’s stock,

CFC) is a corporation in a foreign nation, usually ones with low tax rates, that investors use to decrease their tax liability

Syndicates

Ø  “a group of individuals or organizations combined or making a joint effort to undertake some specific duty or carry out specific transactions or negotiations.”

Ø  exist as either a corporation or a general or limited partnership

Ø  syndicates are a wide variety of organizations that are, legal and illegal, official and unofficial

 usually to reduce sole risk and liability

State Anti-Takeover Statutes

Ø  that intend to stop or hinder companies from attempting hostile takeovers

§  Once company B has fifty one percent of the stock they are entitled to the voting rights and the hostile takeover has been completed to the dismay to company A         

Freeze-outs, as the name implies, essentially freeze a stock acquirer from “engaging in any business combination with the target firm for two to five years

Manufacturing or Process Plant Arrangements

Ø  A manufacturing or processing-plant arrangement is when the franchisor transmits to the franchisee the essential ingredients or formula to make a particular product.

Economic Effects Test

The determination of "substantial economic effect"

for an allocation to have economic effect it must be consistent with the underlying economic arrangement of the partners.^[9]

The partner must bear the economic benefit, or burden, of the allocation.^[9] There are now three methods, or "tests," for determining whether an allocation has economic effect.

Revocation of an S Election

Ø  S corporations are not plagued with being double taxed except on certain built-in gains and passive income

Ø  There are a number of ways and reasons that a corporation can revoke its S election status:

o   , if the shareholders holding a majority of the stock decide to revoke the election

o   if the corporation fails to meet the requirements to be an S corporation

It is easier and with additional benefits for companies to become a limited liability partnership or corporation than to have an S election.

Ø  the owner or owners have unlimited liability

Ø  account for over two-thirds of all companies in the United States

Limited Liabilty Limited Partnership

Ø  The partner shares in profits and losses of the venture. However, the partner is not responsible or liable for more than the capital invested.

(1)    The general partners manage business operations of LLLP, and the limited partners have a financial interest

Ø  Limited Liability Limited Partnerships are currently allowed in twenty-two states. 

Ø  The most popular form of LLLP is used in the real estate industry

State Bankruptcy Exemptions

Ø  Exemptions can be broken down into five categories:

1.      Homestead Exemptions - This includes both real and relative property, or in laymen’s terms, property and mobile homes

2.      Wage exemptions – paid and unpaid

3.      Automobile Exemption –

4.      property exemptions - includes items such as jewelry, clothes, pets, etc

5.      miscellaneous exemptions

Ø  With creditors often holding the upper hand, both local and federal governments have tried to help ease the debtor’s situation with exemptions

Ultra Vires Acts

Ø  “beyond the powers.” It is defined as an act performed by a company that is not given by law or a corporate charter

“unauthorized; beyond the scope of powers allowed or granted by law.”

Doesnt Have to be Illegal-just outside powers

Ø  if an ultra vires act is committed, the directors will be personally liable for the third party losses

Corporate Promoters

typically promote a company or an event that they did not create nor will they actively participate in

attract investors, form a corporation and launch it in business, all with a view to earning promotional profits

typically does not play a part in the active management of the business their promoting

Ø  The promoter must disclose any “compensation, profits, or advantages derived from the corporation or from persons dealing with the corporation

Ø  Today, the corporate promoter is usually a member of the corporation, serving as a director or an officer of the corporation

Watered Stock

Ø  issued by a corporation for less than its fair market value

Ø  Overvaluation is when a corporation actually has less assets than their books account for, or their assets’ value are not as high as their books entail

Ø  If you trade in land for 5,000 shares of stock at $50 a share ($250,000) and the land is found out to only be worth $200,000, you can be liable for that $50,000 difference.

“an agreement between two or more persons to carry on, as co-owners, a business for profit”

partners share these benefits and responsibilities, they are said to have an interest in the partnership

a written agreement that set forth each partner’s rights and obligations with respect to the partnership

Derivative Lawsuits

Ø  “brought by a corporation shareholder against the directors, management and/or other shareholders of the corporation, for failure by management

Ø  shareholder brings action against those running the corporation for failing to do so in the corporation’s best interest, as is their job to do

Sale of Partners Interest in Partnership

does not necessarily or of itself dissolve the partnership

However, in the instance of a sale of an interest in a partnership to a third party, said third party is not considered to automatically be considered a partner against the wishes of the other partners

Assignment of Interest In Partnership

Ø  they have the power to assign the benefits they receive from the partnership to an assignee, such as income

Ø  The assignee can also receive the assignor’s share of benefits upon the cessation of the partnership. 

Ø  the assignee does not gain any rights of the partner (who is also the assignor) in regards to the activities of said partnership. This means that the rights of the partner (such as voting within the partnership) do not transfer to that individual’s assignee

Lost, Destroyed, and stolen Certificated Securities

a few guidelines and procedures that must be followed in order to replace lost, destroyed, or stolen securities

1. o   “stop transfer” must be put on it by a broker just to be sure no one can transfer ownership to another person without your knowledge

2. o   state all of the facts about the loss of the security in an affidavit

3. o   must buy something called an indemnity bond that protects the corporation against wrongful presentation at a later date by an unknowing purchaser

4. is required to request a new certificate before an innocent purchaser requires it

Ø  Public Secondary Market: Any stock exchange where trading is done between investors and speculators, with no money going directly to the companies. An example of this is the New York Stock Exchange.

Corporate Stock Redemptions

common method of cashing out shareholders

Ø  the reacquisition of stock by the issuing corporation

Ø  It is common for corporations not to have cash on hand to purchase large quantities of stock

Corporation by Estoppel

parties, which act as if they are corporations irrespective of good faith to incorporate, but are now estopped from denying their existence as a corporation

corporation by estoppel is used to protect the defective corporations’ shareholders from being personally liable in a lawsuit, as well as those harmed from business dealings with the purported corporation

Ø  Thus a significant advantage to being deemed a corporation by estoppel is that individuals are not personally liable, rather the corporation is liable

Shareholders Class Action Lawsuits

Ø  Individual shareholders have the option of filing lawsuits against corporations in order to recover from injury formed as a result of acquiring shares of stock

Ø  By combining resources, multiple shareholders can seek the same legal outcome without exhausting all of their resources and absorbing the entire risk

Ø  The exempt transactions consist of:

1.  limited offers,
2. intrastate issues, and
3. resales of securities

o   limited offers is exempt because either they involve small amounts of money or they are only offered to experienced, sophisticated investors

o   second of the three circumstances where the transactions are exempt are when any security is offered or sold to a permanent resident of the single state where the issuer of the security lives and does business.  This is known as “Intrastate issues.

o   Thirdly, the 1933 Securities Act created an exemption for “transactions by any person other than an issuer, underwriter, or dealer.  For that reason, the average investor isn’t required by law to register securities when he or she wants to sell.

Subscribers and Subscriptions

Ø  A stock subscriber is an investor who agrees to purchase stock in a new, often not yet established, company in hopes to receive future profits in either dividends or profitable resale

Holding Period

Ø  Holding period is the length of time the security is owned by someone

Ø  The holding period starts once the security has been bought and paid for in full

Ø  determine whether there is a short-term or long-term gain or loss. A short-term holding period is a period that is less than a year. A long-term holding period is over a year

Hot Assets (Partnerships)

imperative to properly classifying the sale of partnership interest, two incomes that apply, as hot assets are unrealized receivables or inventory items,

Ø   One part of hot assets is unrealized receivables

three types: general, limited, and limited liability.

Ø  General partnerships are the most risky kind because they place the partners’ personal assets on the line if something were to happen to the firm

Ø  A limited partnership is good to use when you have partners that do not wish to “participate in the day-to-day management of the partnership”