Figures: tax year 2026
An owner may receive distributions and inspect records while lacking authority to sign a contract for the business. Management participation, economic participation, voting power, and external authority are separate legal attributes.
Corporate management rules below assume the Model Business Corporation Act’s 2016 revision, without later amendments. Older review materials and many exam questions call the same model act the Revised Model Business Corporation Act (RMBCA), after its 1984 revision; read that name as this act. General partnership rules assume the original revised Uniform Partnership Act of 1997.
Limited liability company rules assume the revised Uniform Limited Liability Company Act, as amended in 2013. Limited partnership rules assume the modern Uniform Limited Partnership Act of 2001, except where the legacy control rule is expressly identified.
The governing statute supplies management defaults, while valid organizational documents can change many internal rules. Mandatory duties, creditor protections, and third-party rights constrain those changes; an internal restriction does not necessarily prevent the entity from becoming bound externally.
Common mistakes
- Capital determines every vote. An 80% contributor does not receive 80% of general-partnership management votes under equal-vote defaults.
- Ownership supplies signing authority. A nonmanager owner’s signature requires a separate agency basis, even when the owner receives most distributions.
- Abstentions always oppose approval. In Example 4, the 70 combined abstentions affect presence but are excluded from the affirmative-versus-negative shareholder comparison.
Bottom line
- Economic ownership, management participation, voting power, information rights, and external authority are separate attributes.
- General-partnership defaults provide equal management and profit rights, majority ordinary decisions, and unanimous extraordinary decisions unless validly modified.
- Partnership and company management duties depend on the governing act, management role, and permissible agreement modifications.
- Corporate fiduciary analysis separates informed conduct, conflicts, business-judgment protection, damages liability, and financial protection.
Exam shortcut
Start with entity form, statutory edition, organizational documents, and the actor’s actual role. Mark each requested conclusion separately. For a signature, identify the transaction’s ordinary-course character, actual permission, entity manifestations, and the counterparty’s knowledge. For voting, write three counts: entitled, present, and cast. Test every required class before combining results. For a fiduciary challenge, examine information considered and conflicting benefits before looking at the financial outcome.
The full lesson (about 9,977 words, 67 min read) adds 11 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- II.E2
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