1. Complex Commercial / Business Court Cases
BUSINESS ENTITIES
AND TRUSTS
Rew R. Goodenow
Saturday, March 9, 2013
National Judicial College, Reno, Nevada
parsonsbehle.com

2. Sole proprietorship
 Mom, but not Pop, starts a business
 No formal filing with any governmental
agency to initiate the business?
 Business licenses
 Tax identification numbers
 Payroll
 Fictitious firm name
2

3. Add Pop




No formal filing
Partnership?
Who has control? (authority to bind)
Who has ownership? (distribution on
dissolution)
 Who is liable for the debts?
 Community property (revisit for all other
entities), dissolution of marriage
3

4. Add a secret ingredient







Intellectual property
Trademark, tradename
Trade secret
Patent
Copyright
State v. federal law, formal filing v. none
Contracts
4

5. Home cooking
 Legal Zoom
 Secretary of State online filing
 Digital operation agreement (trouble
following the recipe?)
 The handshake (whose recipe?)
 Formal organization, informal operation as
a partnership (No turmeric, just add . . .)
 Loss of the chief cook and bottle washer
5

6. Probate and bankruptcy
 A new cook (the PR or trustee)
 The head chef (trustee), the sous-chef
 Change the menu (different duties and
goals for the business)
 We liked Dad’s cooking better (a
restructuring may not be welcome)
6

7. Showing up for dinner
 Absentee owners and their problems and
complaints v. active participants
 I never write down the recipe. (providing
adequate information to avoid later claims)
7

8. Potluck
 I assumed you would bring the deviled
eggs! (Incorrect assumptions about what
the other participants are doing or not
doing often leads to problems later.)
 Just desserts (lack of formal, coordinated
structure often leads to failed functions)
8

9. Joint venture
 A Partnership
 Also a contract
 May not have clear guidelines as to who is
in control
 May not receive contributions
 Often has an objective that is not achieved
 No formal filing
 Earn-in
9

10. Corporations
 Formal filing with the Secretary of State,
corporations commission
 Formality is a key, but is often lacking
(structure, documentation, operations)
 Bylaws
 Annual lists, public display of the officers
and directors
 Stockholders’ agreement (buy-sell)
10

11. Stock
 Shareholders ledger, defines who the
shareholders are
 Share certificates or un-certificated shares
 Preferred stock, blank check preferred
 Approvals are often imperfect, resolutions
lacking or defective
 Control Shares Act violations
 Derivative claims, Rule 23.1
11

12. Limited liability company






Formal filing
Articles of organization
Operating agreement
Member managed
Manager managed
Titles of participants (some entities use
corporate titles for positions in the
company)
12

13. Limited liability and other myths
 An operating agreement is a contract
between the parties
 A lease is a contract with a different party
 Fiduciary duties and their waiver
 Charging order
 Bankruptcy remote entity
 Personal guaranty
13

14. Tax
 The second primary driver of choice of
entity
 Default based upon corporate form
 S Corp. (limitations)
 Complexity added by additional
distribution of salary and employment
filings
 Partnership taxation
14

15. Limited partnership






Formal filing
Articles of limited partnership
Limited partnership agreement
General partner
Corporate general
Limited partners
15

16. Professional entities




PLLC
PC
Restrictions on ownership
Often have quirky or different methods for
distributing revenue
16

17. BusinessTrusts
 Formal filing
 No formal filing
17

18. Business trust formation
 Created by agreement of the parties,
without formal statutory sanction or filing
 Some states recognize by statute, some
do not
 Shares several corporate characteristics:
limited liability, centralization of
management, transferability of ownership,
and continuity of existence
18

19. Business Combinations




Merger
Conversion
Domestication
Share exchange
19

20. Business sales




Sale of stock, or other interest
Asset sale
Mere continuation doctrine
Bellingham case
20