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Published bySharleen Carter Modified over 9 years ago
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Business Organizations Special Corporate Forms and Dealing with Special Problems
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“Close Corporation” 17 states, including Delaware and Texas, allow election of “close” status (usually 30-50 shareholders maximum) Main issues: – Controlling board decisions – Controlling voting by other shareholders – Controlling transfer of shares – Abuse of minority shareholders by majority (Note—this is not the same as close corporation or closely held corporation for federal securities purposes.) 2
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Close Corps. v. Public Corps. Major conflicts for close corps are different: – majority vs. minority. – shareholder-manager vs. non-manager shareholders. – valuation problems because of lack of public markets for shares. – discipline of public capital markets absent. – many disputes occur in endgame scenarios. 3
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Other control agreements Shareholder voting agreements Voting trusts Super class shares 4
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Deadlock Avoid through effective planning – Pre-dispute arbitration – Tie breaker shareholders – Tie breaker rules 5
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Members organize “operating agreement” – Cross between corporate by-laws and partnership agreement Hybrid: tax treatment of partnership + limited liability of corp. + more flexible management LLC 6
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Nevada: Top Choice for LLC 7 Advantages: No Personal Income Tax No Corporate Profit Tax Special Business Courts Strong Protection for Directors/Officers LLCs May Be in a Series (one own another) Strong Protection for Corporate Veil
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An Ad for Nevada LLCs 8
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XYZ, LLC. ABC, Inc. Shareholder Member 9
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Filing required to create an LLC, details vary by state. Operating agreement - governs internal operation, establishes process for new members, withdrawal, contribution, voting, dissolution and windup. Maximum freedom / flexibility: “It is the policy of this chapter to give maximum effect to the principle of freedom of contract and to the enforcement of limited liability company agreements.” DE St. 18- 1101(b) 10
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Fiduciary obligations in LLCs About half of LLC statutes allow altering fiduciary obligations in the LLC Operating Agreement 11
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