Proper Does Not Make it Appropriate

As long as the partnership agreement permits, you can oust your partners in a variety of ways, many of which are not especially pleasant. As an example, check out this article one of your classmates brought to my attention:

Michael D. Hausfeld returned to his office after a meeting to find a notice on his chair telling him he'd been voted out as chairman of the Cohen Milstein Hausfeld & Toll law firm in Washington.

Ouch.

Drafting Exercise

During the last class, I provided a handout with some basic examples of contract clauses that highlighted drafting considerations related to the class discussion. Click here for the handout.

Next Class: Drafting Exercise

There are no materials you need for our next class. During our next class, we will review some basic points of drafting and conduct an in-class exercise related to drafting contracts.

As such, there is nothing you need to do to prepare for class. Instead, please take some time to review prior course work (or catch up on your readings, if needed).

See you in class.

C corps & S corps

Prof. Fershee--

During the last class period you discussed "C corps" and "S corps." I know this question is likely irrelevant for this semester, but for those of us without any "business background" could you give a general definition/description of these types of corporations and some of their advantages/disadvantages?

Professor's Response:

We'll talk about this some more in class, but the basic difference is that a C corporation is taxed as an entity, and then distributions to shareholders (dividends) are taxed separately. If the corporation elects to be taxed as an S Corp, the taxation is the same as partnerships, LLCs, and sole proprietorships, which are taxed as "pass through" entities. This means the owners are taxed directly on their ownership shares, rather than paying taxes as an entity. (Note that LLCs and S Corps must file a form indicating ownership shares.)

The main benefits of a C Corps include certain employee benefit programs and carry forward of losses. S Corps can be taxed as a pass though, but can be restrictive in terms of who can own the entity.

LLC as a Partner/Shareholder in another entity

Professor Fershee-

In Elf v. Jaffari, a Corporation became a member of an LLC. I was wondering, can this happen the other way around?

Can an LLC become a partner in an Limited Partnership or a shareholder in a Corporation?

Can an LLC become a member in another LLC?

Professor's Response:

For the first question, an LLC can own stock in a corporation, which would allow it to vote for members of the board. There is some nuance here in how everything is effected, but yes, an LLC can be an owner of a corporation.

For the second question, yes, an LLC can become a partner in an LP or own shares in a corporation. Click here for an interesting example of an LP with an LLC as the managing General Partner.

Finally, yes, and LLC can be a member of another LLC.