Business Associations Flashcards

Under the Revised Uniform Limited Partnership Act adopted in California, a limited partner who participates in control of the business:

Answer: Has no liability beyond their capital contribution regardless of control participation

Under RULPA and modern LP acts, limited partners are not personally liable for LP obligations solely by reason of participating in control of the business.

A shareholder in a close corporation brings a derivative suit. Before filing, the shareholder must:

Answer: Make a written demand on the board and wait 90 days unless demand is futile

California Corporations Code requires a plaintiff in a derivative suit to make demand on the board unless demand would be futile, and generally wait 90 days for a response.

Which doctrine allows courts to disregard the corporate form and hold shareholders personally liable for corporate debts?

Answer: Piercing the corporate veil

Piercing the corporate veil (also called alter ego liability) allows courts to hold shareholders personally liable when the corporate form is used to perpetrate fraud or injustice.

In an LLC, which document primarily governs the internal affairs of the company and the rights of its members?

Answer: Operating agreement

The operating agreement governs the internal affairs of an LLC including member rights, management structure, and profit distributions.

Under California law, when a general partner of an LP withdraws in violation of the partnership agreement, the remaining partners may:

Answer: Continue the business and recover damages from the withdrawing partner

Under the California Revised Uniform Limited Partnership Act, wrongful withdrawal allows the remaining partners to continue the business and sue for damages caused by the breach.

A corporation's articles of incorporation contain an exculpation clause eliminating director liability. Under California law, such a clause CANNOT eliminate liability for:

Answer: Intentional misconduct or knowing violation of law

California law permits exculpation clauses for duty of care violations but not for intentional misconduct, knowing violations of law, or self-dealing transactions.

Two attorneys form a law firm as a general partnership. One partner commits malpractice. The other partner's personal liability for this tort is:

Answer: Full joint and several liability under California partnership law

Under California's UPA, all partners are jointly and severally liable for torts committed by a partner acting in the ordinary course of partnership business.