OVERVIEW OF BUSINESS OWNERSHIP and OTHER LEGAL ISSUES

1. OVERVIEW OF BUSINESS OWNERSHIP and OTHER LEGAL ISSUES Mr. Sherpinsky Council Rock School District Accelerated Business Law

2. Understand the different forms of business ownership Summarize the advantages and disadvantages of each type of business ownership Evaluate the differences related to taxation, formation, dissolving, owner liability, and managerial control. Objectives

3. THREE BASIC FORMS OF BUSINESS OWNERSHIP • Sole proprietorship • Partnership • Corporation Your choice depends on your needs & goals

4. SOLE PROPRIETORSHIP • A business owned and operated by one person; the business and the owner are one and the same in the eyes of the law • Approximately 76 percent of all businesses in the U.S. are sole proprietorships.

5. ADVANTAGES OF SOLE PROPRIETORSHIPS • Easy and inexpensive to create. • Owner makes all business decisions. • Ownerreceives all profits. • Least regulated form of business ownership. • Business itself pays no taxes. • Very easy to discontinue.

6. DISADVANTAGES OF SOLE PROPRIETORSHIPS • Owner has unlimitedliability for alldebts and actions of the business. • Unlimited liability: The debts of the business may be paid from the personal assets of the owner. • Difficult to raisecapital. • Sole proprietorship is limitedby his/her skills and abilities. • The death of the ownerautomaticallydissolves the business.

7. COMMON TYPES OF SOLE PROPRIETORSHIPS • Repair shops • Automotive • Lawn mower • Small retail stores • Tailors • Bicycle • Service organizations • Hair salons • Nail Salons • Food shops

8. CREATION AND OPERATION • Usually a few formal requirements to establish a sole proprietorship • May require: • Licenses to legally operate as business • Having employees requires having an EIN: Employee Identification Number • Occupational licenses • Certain types of liability insurance • Some states require formal filing to begin operations or to use fictitious names

9. Review What You’ve Learned What is a sole proprietorship? A form of business that is owned and operated by one person How does a sole proprietorship begin? A person needs only to begin the operation of the business

10. Review What You’ve Learned Name the advantages of a sole proprietorship? • Ease of creation • Total control • Retention of profits • Freedom from excessive governmental control • One-time taxation of profits

11. Review What You’ve Learned Name the disadvantages of a sole proprietorship? • Limited capital • Unlimited liability • Limited human resources • Limited lifetime

12. FICTITIOUS NAMESRegistration with STATE! • A person who goes into business can choose to operate under his or her own name or can make up a name • If the Sole Proprietor uses anything but his or her own name, the law calls the made-up name a fictitious name. • Must not be a name already in use anywhere in the state and can not be misleading

13. FICTITIOUS NAMESRegistration with STATE! • Search Your Own Name • Look up business names you may potentially choose • Look up business names you think you would use for yourself • Look up small variations for potential names • PrintScreen out of the personal named businesses. • Report your findings.

14. PARTNERSHIP A form of business ownership in which two or more people share the assets, liabilities, and profits. EXTRA CREDIT KNOWLEDGE: Formed under new law called Revised Uniform Partnership Act (RUPA) or UPA: Uniform Partnership Act. Both laws emphasize a partnership with at least 2 or more partners and must be in business to make money.

15. ADVANTAGES OF PARTNERSHIPS • Easy to establish • Complementary skills (2 Heads better than 1) • Division of profits and losses • Larger pool of capital (2 persons) • Ability to attract limited partners • Little governmental regulation • Flexibility and Taxation

16. DISADVANTAGES OF PARTNERSHIPS • Partnerships may lead to disagreements. • Some entrepreneurs are notwillingtoshareresponsibilities and profits. • Some entrepreneurs fearbeingheldlegallyliable for the error of their partners. • Each ownerhasunlimitedliability. • Torts Liability (Joint & several) • Contract Liability (Made by partnership)

17. TYPES OF PARTNERSHIPS • General partnership: A partnership in which allpartnershave unlimited personal liability and take full responsibility for the management of the business. • Limitedpartnership: A partnership in which thepartners’ liabilityislimited to their investment.

18. TYPES OF PARTNERSHIPS • Jointventure: A partnership in which twocompaniesjointocomplete a specific project. The partnership ends after a specified period of time. • Strategicalliance: A partnership in which two businesses worktogetherformutualbenefit.

19. TYPES OF PARTNERSHIPS • Secret:Active, Unknown relationship, unlimited liability • Silent: NotActive, Known relationship, unlimitedliability • Dormant: NotActive, unknown relationship, unlimited liability

20. Special Partnerships • Limited partnership-composed of at least one general partner and at least one limited partner • Limited liability partnership-a special type of limited partnership, in which all partners are limited partners • Master limited partnership-a partnership whose shares are traded on stock exchanges, just like corporations • Family Limited Liability Partnerships- a partnership in which the majority partners are related, essentially spouses, parents, grandparents, siblings, etc…

21. Partnership Duties Loyalty 1ST Duty is fiduciary relationship based on trust MUST: disclose property, profits, benefits to others Obedience Written articles of partnership MUST: be followed and all decisions must be executed Duty of Care Work in the best interest of partnership MUST: Use all talents for the partnership Duties of Partnerships

22. Legal Activity: The Case of the Talkative Silent Partner Bill Douglas was a silent partner with Gale Griffin and Bridget Mayfield in a firm known as Titan Industries. When Griffin and Mayfield decide to hire Larry Cedco as the new general manager, Douglas objects, demanding that he be given a chance to vote on the new GM.Question: is Douglas within his rights her? Explain your answer.

23. Forming a Partnership Two Ways: • By agreement • Requires the valid assent of all parties • Express (in writing) • But can be oral • Lasting more than 1 year • (MUST BE IN WRITING) • KNOWN AS the “Articles of partnership” • 2. Proof of Existence (Conduct) • Shared profits • Shared expenses • Shared banking • Shared management EXTRA CREDIT KNOWLEDGE: Partnership by Estoppel: Occurs when someone says or does something that leads a 3rd party to believe a partnership exists.

24. PARTNERSHIP PROPERTY • Limitations • Important to distinguish between property of partnership and individual partners. • Property contributed to partnership becomes partnership property • Property Rights of the Partners • Certain rights exist: • Right to use/control the property • Right to manage the firm • Right to share in profits

25. FORMING A GENERAL PARTNERSHIP • Statute of Frauds: Requirements • Under the Statue of Frauds, if a partnership is to last more than a year or if the partnership is formed to sell, buy, or lease real property, it mustbeevidenced in writing. • Dissolving a Partnership • Legaldetachment: change in the relationship when partnerstopsbeingassociated with business • Doesn’tnecessarilybringend to business

26. DISSOLVING A PARTNERSHIP • Effects of Dissolution • Otherpartners may wish to continue • If so, newagreementneeded • Publicnoticegiven to relieveretiringpartners from liability for any newdebts or actions • Distribution of Assets • Paid in this order: • Money owed to creditors • Money lent to partners to the firm • Original money paid by partners • Surplus owed to partner

27. CORPORATION A business that is chartered by a state and legally operates apart from its owners. Charter is known as: Articles of Incorporation Extra Credit Knowledge: The corporation’s official authorization to do business is known as the “Certificate of Incorporation”

28. TYPES OF CORPORATIONS • C-corporation: The most common form of corporation. It protects the entrepreneur from being personally sued for the actions and debts of the corporation. • Subchapter S corporation: A corporation that is taxed like a sole proprietorship or partnership. • Nonprofit corporation: Legal entities that make money for reasons other than the owner’s profit. • Limited Liability Company (LLC):A new form of business ownership that provides limited liability and tax advantages. EXTRA CREDIT KNOWLEDGE: A legally formed corporation is a “de jure” corporation. A corporation that does not exist in laws but doers exist in fact is called a “defacto” corporation

29. ADVANTAGES OF CORPORATIONS • Can raise money by issuing shares of stock. • Offers owners limited liability. • Limited liability: Owners are liable only up to the amount of their investments. • People can easily enter or leave the business by buying or selling their shares of stock. • The business can hire experts to professionally manage each aspect of the business.

30. DISADVANTAGES OF CORPORATIONS • Legal assistance is needed to start a corporation. • Start-up is costly. • Corporations are subject to more government regulations than partnerships or sole proprietorships. • A lot of paperwork is involved in running a corporation. • Income is taxed twice.

31. Alternate approaches to starting a business • Buy an existing business. • Enter a family business. • Own a franchise business.

32. Forming a Corporation • Corporate Promoters: someone who helps organize a new corporation. • The name of a corporation must include the word “Corporation, Incorporated, or Company”.

33. ADVANTAGES OF BUYING AN EXISTING BUSINESS • Existing businesses already have customers, suppliers, and procedures. • Seller of the business may be willing to train the new owner. • There are existing financial records. • Financial arrangements may be easier.

34. DISADVANTAGES OF BUYING AN EXISTING BUSINESS • Business may be for sale because it is not making a profit. • Problems may be inherited with the purchase of an existing business. • Many entrepreneurs may not have the capital needed to purchase an existing business.

35. ADVANTAGES TO ENTERING A FAMILY BUSINESS • There is a certain sense of pride and accomplishment that comes from being part of a family endeavor. • A business can remain in the family for generations. • Some people enjoy working with relatives. • The efforts of running a family business gives one the benefit of knowing that their efforts are helping those whom they care about.

36. DISADVANTAGES TO ENTERING A FAMILY BUSINESS • Senior management positions are often held by family members who may not be the best qualified. • It may be difficult to retain qualified employees who are not members of the family. • Family politics may affect decisions regarding the business. • It is often difficult to separate business life and private life in family-run businesses. • It is often difficult to set policies and procedures and to make decisions.

37. OWN A FRANCHISE BUSINESS Franchise: A legal agreement that gives an individual the right to market a company’s products or services in a particular area. Franchisee: A person who purchases a franchise agreement. Franchisor: The person or company who sells a franchise. Initialfranchisefee: The fee the franchise owner pays in return for the right to run the business.

38. ADVANTAGES OF PURCHASING A FRANCHISE BUSINESS • An established product or service is being provided. • Franchisors often offer management, technical, and other assistance. • Equipment and supplies may be less expensive. • A guarantee of consistencyattracts customers.

39. DISADVANTAGES OF PURCHASING A FRANCHISE BUSINESS • The cost of franchises may be high, which can reduce profits. • Franchise owners are limited in the decisions they can make regarding the business. • The performance of other franchises impact on the franchisee. • The franchise agreement may be terminated by the franchisor.

40. YOU MUST COMPLETE QUIZ ONLINE by Next Class QUIA