Business law Business Organizations
Sole Proprietor (How is it taxed/liability)
– An unincorporated business owned and run by one individual with no distinction between the business and the owner.
– Because there is no distinction between the business and the owner, the business is not taxed separately from the owner.
– Responsible for all personal liabilities.
General Partnership (taxes/liabilities?)
– Two or people carrying on a business in order to make profit. Must share profits and management responsibility.
– The taxes are reported by the partners, not taxed separately
– Liable for all personal liabilities together, can be sued as a group even if one did not commit tort.
Limited Partnership (Taxes/liabilities?)
– Formed by at least one general partner and at least one limited partner
– General partners run business and are jointly liable for all obligations.
– Limited partners can not run business in any way or lose their limited liability. Liable for sum of their investment in business.
– General Partners report the taxes for their business
– An independent distinct legal entity owned by shareholders. Can be sued and sue in its own fictitious name.
– The corporation itself, not the shareholders who own it, are legally liable for the debts and obligations
– Corporations pay income taxes on their profits (Unlike sole prop. and partnerships)
Formed to meet a specific governmental purpose
Profit: Conduct business for a profit
Non-Profit: Conduct business for charitable, educational, etc. purposes
Publicly Held Corporations
Lots of shareholders
Closely Held corporations
Few Shareholders, normally family members
Associations of professionals formed to limit personal liability (Lawyers, doctors)
Corporation incorporated in this state
Corporation incorporated in another state
Corporation Incorporated in a foreign country
Corporation taxed as a partnership.
-Must be a domestic corporation
– have less than 75 shareholders
Articles of Incorporation give: (4)
– Company Name
– Number of shares issued
– Name of registered agent
– Established by-laws, design corporate seal, elect board of directors
Ways to Terminate Corporations (3)
– Voluntary Dissolution
– Administrative Dissolution
– Judicial Dissolution
Voluntary Dissolution of Corporation
– If no business has begun, or no stocks have been issued, corp. can be dissolved by majority vote of incorporators
– When the Secretary of State administratively dissolves a corporation
– Termination of corporation handled by the court system
Limited Liability Company or LLC
– Unincorporated business
– IRS taxes an LLC as a partnership so profits are filed on the member’s individual tax returns
– Members are not personally liable for liabilities caused by the LLC but are personally liable for their own torts.
“At-will” LLC Vs. “Term” LLC
LLC whose existence continues indefinitely and LLC whose existence is defined by a specific span
“Member-Manged” LLC Vs. “Manager-Managed LLC
Member-managed is when the members actively take part in operating the business and Manger-managed is when a manger is hired to operate the business
Limited Liability Partnership or LLP
– For top professionals like lawyers, doctors
– All partners have limited liability with the debts and obligations of the partnership
– All partners do flow-through tax benefit
Financing a corporation (2)
– Equity Securities
– Debt securities
– Are stock that is sold by the corporation on a stock exchange.
– A corporation can borrow money from an investor to expand business and pays back investor with fixed interest rate based on risk of the investment
-Long-term loan for a corporation paid back with a fixed interest rate
– Not secured by collateral
– Long term debt that is secured by collateral (asset that borrower offers the lender to secure a loan)
– Own the corporation
– Shareholders elect the directors and can vote on important issues affecting the corporation at annual stockholders meeting
– Responsible for appointing the officers
– Make policy decisions
– Have accès to books, records, etc
– Paid annual retainer, fix own compensation, given stock
– Appointed by the directors
– Run the day-to-day business
– CEO, CFO, COO, secretary
– Must be at least 4
– Agents of the corporation and act with either express, apparent, or implied authority
Straight voting for shareholders
– Shareholder votes the number of his shares for each candidate
– Ex. Shareholder has 10 shares, and there are 3 candidates. He can vote ten times for each candidate.
– Majority shareholder to control election
– Shareholder’s total votes equals his number of shares times the number of candidates. Can vote all for one candidate or split them among other candidates
– Ex. Shareholder has 10 shares, and there are 3 candidates. He has 30 total votes. Can vote 30 on one, or ten on each, etc.
– a distribution of a portion of a company’s earnings, decided by the board of directors to the shareholders
– Can be issued as cash payments or more stock
Pierce Corporate Veil
– When a shareholder dominates a corporation and uses it for improper purposes
– Court can hold the shareholder liable for the debts and obligations of the business
Formation of General Partnership (4)
– Association of 2 or more people
– Carrying on a business
– As co-owners
– For profit (MUST SHARE PROFITS)