Contracts | Non
Profit Organizations | Limited Partnerships | Limited Libility
Companies
Contracts
Contracts are promises that the law will enforce. The law provides
remedies if a promise is breached or recognizes the performance
of a promise as a duty. Contracts arise when a duty does or may
come into existence, because of a promise made by one of the
parties. To be legally binding as a contract, a promise must
be exchanged for adequate consideration.
Adequate consideration is a benefit or detriment which a party
receives which reasonably and fairly induces them to make the
promise/contract . For example, promises that are purely gifts
are not considered enforceable because the personal satisfaction
the grantor of the promise may receive from the act of giving
is normally not considered adequate consideration. Certain promises
that are not considered contracts may, in limited circumstances,
be enforced if one party has relied to his detriment on the assurances
of the other party.
Contracts are mainly governed by state statutory and common
law and private law. Private law principally includes the terms
of the agreement between the parties who are exchanging promises.
This private law may override many of the rules otherwise established
by state law.
Statutory law may require some contracts be put in writing and
executed with particular formalities. Otherwise, the parties
may enter into a binding agreement without signing a formal written
document. See § 110 of The Restatement. Most of the principles
of the common law of contracts are outlined in the Restatement
Second of The Law of Contracts published by the American Law
Institute. See Restatement (Second) of Contracts. The Uniform
Commercial Code, whose original Articles have been adopted in
nearly every state, represents a body of statutory law that governs
important categories of contracts. The main Articles that deal
with the law of contracts are Article 1 (General Provisions)
and Article 2 (Sales).
Sections of Article 9 (Secured Transactions) governs contracts
assigning the rights to payment in security interest agreements.
Contracts related to particular activities or business sectors
may be highly regulated by state and/or federal law.See Law Relating
To Other Topics Dealing with Particular Activities or Business
Sectors.
In 1988, the United States joined the United Nations Convention
on Contracts for the International Sale of Goods which now governs
contracts within its scope.
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Non-Profit Organizations
A non profit organization is an organization incorporated under
state laws and approved by both the state's Secretary of State
and its taxing authority as operating for educational, charitable,
soc
ial, religious, civic or humanitarian purposes. The incorporators,
directors and officers of the organization may not receive a
distribution of (any money from) profits, but officers and management
may be paid reasonable salaries for services to the corporation.
Upon dissolution of a nonprofit corporation its assets must be
distributed to an organization existing for similar purposes
under the "cy pres doctrine." In order for contributions to the
corporation to be deductible as charitable gifts on federal income
taxes, the corporation must submit a detailed application (with
a substantial fee) for an Internal Revenue Service ruling that
it is established for one of the specific nonprofit purposes
spelled out in the Internal Revenue Code.
Limited
Partnerships (LP)
A Limited Partnership is an association of
one or more general partners together with one or more limited
partners to conduct business for profit as co-owners. The most
important feature of a LP is that the limited partner enjoys
limited liability as long as s/he does not participate in the
control of the partnership business. The general partners of
the LP are the ones who are responsible for the obligations of
the LP.
In a limited partnership, it is the general partner who remains
liable for the debts and obligations of the entity. For larger
risk exposure, a corporation may be formed to serve as the general
partner. A corporate general partner is protected from direct
attack by a judgment creditor because the ultimate liability
for the debts and obligations rests with the shareholders. By
spreading share ownership, individual exposure is considerably
reduced. Even without a corporate general partner, risk can be
spread by distribution of limited partnership shares. If a judgment
creditor obtains a charging order against one partner, the order
goes to that partner's share in distributions from the partnership,
and not to the entire business.
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Limited
Liability Companies (LLC)
A Limited Liability Company
is a relatively new form of entity that combines
the advantage of a partnership with the advantage of a corporation's
limited shareholder liability, even if the owners participate
in the management of the company. LLC's enjoy the following advantages:
- Limited liability protection,
- No restriction on the number or nature of shareholders,
- "Pass through" of entity losses to investors
- Avoidance of two levels of taxation,
- Flexibility in design of structure
- Easy removal of assets from the business
