Business Associations Flashcards

Under the California Revised Uniform Limited Liability Company Act (RULLCA), a member of an LLC is generally:

Answer: Shielded from personal liability for the LLC's debts and obligations

A core benefit of the LLC form is that members are generally shielded from personal liability for the LLC's debts and obligations, similar to corporate shareholders.

In a member-managed California LLC, which members have the authority to bind the LLC to a contract in the ordinary course of business?

Answer: Any member acting in the ordinary course of the LLC's business

In a member-managed LLC, each member is an agent of the LLC and may bind it to contracts entered into in the ordinary course of the LLC's business.

Under California law, a 'close corporation' election allows qualifying corporations to:

Answer: Manage the business directly through shareholder agreements without a formal board of directors

California's close corporation provisions permit qualifying corporations to operate under a shareholders' agreement that manages the business directly, eliminating the requirement for a board of directors.

A promoter who enters into a contract on behalf of a corporation not yet formed is:

Answer: Personally liable on the contract unless the third party agrees to look solely to the corporation

A promoter is personally liable on pre-incorporation contracts because the corporation does not yet exist as a party; liability continues until a novation substitutes the corporation as the contracting party.

Under California corporate law, a board of directors may adopt a 'poison pill' shareholder rights plan as a takeover defense if:

Answer: The board acts in good faith on an informed basis in the best interest of the corporation and its shareholders

California courts permit poison pills when the board adopts them in good faith, with adequate information, and in the honest belief that the plan serves the corporation's and shareholders' best interests.

Under California Corporations Code §1600, a shareholder's right to inspect corporate books and records requires the shareholder to hold:

Answer: At least 5% of the outstanding shares OR to have been a shareholder for at least 6 months

California Corporations Code §1600 grants inspection rights to shareholders who hold at least 5% of outstanding shares or who have been shareholders for at least six months.

Under the California RULLCA, a member dissociates from an LLC by:

Answer: Providing express notice of their will to withdraw from the LLC

Under California's RULLCA, a member dissociates by providing express notice of their will to withdraw, though dissociating before the LLC's term expires may constitute wrongful dissociation.