What Is a Limited Partnership - Coursework Example

1- Define a general partnership; define a limited partnership. What are the principal differences between the two types of partnerships General partnership is a form of business structure where in the business is "owned jointly by two or more persons, called partners" (Anthony, Hawkins and Merchant 260). General partnership is more commonly known as simply partnership. In this form of business, the each of partners is "personally liable for all debts incurred by the business" (Anthony, Hawkins and Merchant 260). A limited partnership, on the other hand, is a form of partnership where in one or more of the partners is [are] not personally liable for all debts incurred by the business. Some of the principal differences between a general partnership and limited partnerships are: Liability of partners for the business debts Who has a say on operations Who gets a bigger portion of income 2- Discuss the principal purpose of the 'Business Judgment Rule.' What factors are considered to determine whether an officer or director is protected by this rule The business judgment rule is one of the concepts under the corporation law. This rule states that the "directors of a corporation are clothed with [the] presumption of being [motivated] in their conduct by a bona fide regard for the interests of the corporation whose affairs the stockholders have committed to their charge" (Gimbel v. Signal Cos.). Factors considered whether an officer or director is protected by this rule is if the officer or director expedited his duties in good faith, with care of a prudent person, and in a matter which he reasonably believed to be in the best interest of the business. 3- What are the principal criteria examined to determine whether an individual is considered an independent contractor or an employee What is considered the most important Why According to the Internal Revenue Service, the factors to determine whether an individual is a contractor or employee should provide "evidence of the degree of control and independence" (Internal Revenue Service) of that individual from the employer in question and these are as follows: Control on how the individual does his job, Control on how the individual is paid, and Control on the termination of the individual's service with the employer (Internal Revenue Service). The most important here is the control on the termination of the individual's service with the employer. With the other two, without the power to fire the individual, that individual can't be controlled as effectively by the employer. 4- Discuss the principal purpose of the 'Business Judgment Rule.' What factors are considered to determine whether an officer or director is protected by this rule Same as # 2 5- Ms. F. Fresco is the president and chair of the board of directors of Filex Corporation (Filex) whose shares have been trading recently at approximately $105 per share. In addition to her business capacities, Fresco, who is nearing retirement age, also owns 100,000 shares of the corporation. In an effort to increase her personal net worth, Fresco contacts J. Beethoven, a powerful financial investor and entrepreneur. Beethoven offers to purchase all outstanding shares of Filex for $135 per share. Without the advice of financial counsel or any independent analysis of the value of Filex, Fresco encourages the other members of the board of directors to pass a resolution in favor the purchase. Based solely on the recommendations of Fresco, the other board members (there are seven members total) passed the resolution recommending that the shareholders accept Beethoven's offer. At a subsequent shareholders' meeting the offer is accepted by approximately 85% of the shareholders. Certain shareholders who voted against the offer and own 150,000 shares of common stock thereafter sued the members of the board of directors for damages. Predicated on a series of valuation analyses (liquidation, comparative, and market), a financial analyst for the dissenting shareholders has estimated the value of the Filex shares to be worth $165 per share. Discuss the potential liability of the individual members of the Felix board of directors. Further, what is the legal theory upon which such members may be held liable Discuss fully! First, according to the Business Judgment Rule, the board of directors failed in their capacity as representatives of the shareholders of Filex Corporation. Specifically, in their approval of the repurchase of Filxe shares at $135, they did not act "by a bona fide regard for the interests of the corporation whose affairs the stockholders have committed to their charge" (Gimbel v. Signal Cos.). Although they might have acted in good faith, the board did not act with the care of an ordinarily prudent person. Second, as such the members of the board of directors are liable under the business judgment rule of the corporation law body. Moreover, Ms. F. Fresco shall also be legally liable. Aside from acting unethically, her actions was to enrich herself thereby breaking the trust given to her by the shareholders. 6- Define a Franchise Agreement. Who are the principal parties to the agreement and what are their functions Also what factors are considered by the courts to determine whether one of the parties is legally responsible for the acts of the other to a third party A franchise agreement is the most fundamental document of the franchisee-franchiser relationship. This document is the basis of the legal relationship of both parties, hence it defines the duties, responsibilities and liabilities of the franchisee to the franchiser, and of the franchiser to the franchisee. Basically, the principal parties to the franchise agreement are the franchisee and the franchiser. Several of the functions of franchisee are the operations of the franchise, dealing with trademarks, patents, etc., and payment of royalties and service fees. The functions of the franchiser, on the other hand, are training and operational support, establishment of operating practices, and supply of materials to the franchise. One of the factors considered by courts to determine whether the franchisee or the franchiser are legally responsible for the acts of the other to a third party is whether it was provided for in the franchise agreement. Another is that whether the other was benefited from the act done by either the franchisee or franchiser which resulted to the harm of the third party. In this case, ether of the party might become severally liable. 7- What are the principal advantages of a limited liability company versus a corporation or general partnership One of the principal advantages of a limited liability company over a corporation is that it "may be taxed as a partnership while providing limited liability to its members" (Anthony, Hawkins and Merchant 260). The tax rate for a corporation is much higher than the tax rate of a partnership, hence enabling the business to pass on more of its profits to the owners. An advantage of a limited liability company over a general partnership is that an LLC enables its members only a limited liability unlike that in a general partnership wherein the partners are personally liable for the debts of the partnership. Works Cited Anthony, R., Hawkins D. & Merchant, K. Accounting: Text and Cases. 11th ed. Boston: Mc Graw Hill, 2004. Gimbel v. Signal Cos., 316 A.2d 599, 608 (Del. Ch. 1974). Internal Revenue Service. "Independent Contractor (Self-Employed) or Employee" 2 Nov. 2008 http://www.irs.gov/businesses/small/article/0,,id=99921,00.html (2 Nov. 2008). Read More