Forms of Business organizations

1. Mr. Valanzano Business Law Forms of Business organizations

2. Types of Business Organizations • _____________________________ • _____________________ • _____________________

3. Basic Attributes of a Sole Proprietorship • Sole Proprietorship – ___________________________________________ • The _________, most flexible, and ____________ type of business to start. • The owner basically has ________________ control over the business and keeps _______________________. However, the owner also has unlimited responsibility for ___________________________. • If the owner of a sole proprietor breaches a contract, their personal property may be seized to pay damages. • __________________________ – insurance which limits the risks of a sole proprietor and makes the risks more tolerable • In some cases, a ________________________________ and/or permit to __________________________________ may be required. • Some types are subject to government regulations such as ones that _____ _______________________________.

4. Famous Companies that Started as a Sole Proprietorship • Started in 1995 as Auction Web • Went public in 1998 • Made $11.65B of revenue in 2011 • Founded in 1970 • Bought by FedEx in 2004 for $2.4B • Established in 1989 • Filed for an IPO in December 2011 for $100M

5. Basic Attributes of a Partnership • ________________ – an association of ___________________ that operate as co-owners of a business for profit • Owners are usually called ______________________________. • Uniform Partnership Act (UPA) – ________________________ _________________________ • General partners ____________________________________. • The ____________________________ of a partnership makes them an unattractive option for aspiring entrepreneurs. • Owners are able to combine ____________________________ ________________________ to strengthen the business. • Public liability insurance is also available to partnerships to __________________________________.

6. Basic Attributes of a Corporation • Corporation – ___________________________ ______________________________ • A corporation’s existence is _________________ from the people who organize, _____, and run it. • Corporations ________________ and also have the ability to ____________________________. • Investors in a corporation are only at risk to ____ __________________________________. • This is an attractive form of business because of the __________________________.

8. Creating a Partnership • ________________________ – the terms and conditions the partners agree on to guide them in managing the partnership • A partnership agreement _______________ have to be in writing unless required by the _____________________. • Under the UPA, a partnership is treated as both a ________________ and as a _____________________. • As a ________________, a partnership: • __________________________________________________ • Is regarded as a principal where each partner may act as an agent who makes contacts in the company’s name • Must use its own assets to pay its creditors before any individual partner’s assets may be seized

9. ________________ of the Partners • Each partner must pay ___________________________ ____________ even if they are retained by the business. • The business can _____________________ in the name of all the partners. • All debts of the business not paid out of the assets are chargeable to every partner (_____________________). • When any partner drops out of the partnership for any reason, the partnership _________. (Prior arrangements can be made to continue business operations without interruption) • The business cannot attract large sums of new capital ___________________________________________.

10. Parts of a Partnership Agreement • Date, identity of partners, and purpose of partnership • __________________________________________ • Duration and termination procedure • _________________________________ • Forming a reserve fund • ______________________________________________ • Account location and withdrawal procedure • ______________________________________ • Non-routine decision making procedure • ________________________________

11. Types of Partnerships and Partners • Classified by _________________ • Trading Partnership – _______________________________________________ • ____________________ – provides professional and noncommercial assistance • Special Partnership – ____________________________________ • _____________________ – 2 or more firms combining their resources and skills for 1 project • Classified by _____________________ • ___________________________ – all partners assume full personal liability for debts of the business • _______________________ – at least 1 partner must be a general partner while the others are limited partners who are liable to the extent of their investment • Revised Uniform Limited Partnership Act (RULPA) – law which states a limited partner does not participate in the managerial control of the business on their own • Classification of Partners • Silent – __________________________________________________________ • _______________ – not known to the public as a partner and does participate in management • Dormant – _______________________________________________________

12. Duties, Rights, and Liabilities of Partners • ________________________ • Comply with partnership agreement and decisions • Use reasonable care • Act with integrity and good faith • Not conduct a competing business • Keep accurate records • Pay income taxes • _______________________ • Participate in management • Collect profits • Use of partnership property • Extra compensation • Make contracts for the business • Receive money owed and settle claims against the business • Borrow money in the business’ name • Buy and/or sell with cash or credit any property within the scope of the business • Hire and fire employees • Receive notice of any matter affecting the partnership • _________________________ • General partners are equally liable • Limited partners are only liable to the extent of their investment • The partnership and all partners are liable when any partner commits a tort • Liability for criminal crimes are limited to whoever commits the crime; other partners could be liable for civil crimes

13. Quick Review • Answer the following questions on your handout: • 1) Which form of business organization does not terminate upon the death of its owners?A) Sole Proprietorship B) Partnership C) Corporation • 2) The UPA governs ___________________. • 3) True or False: If a partner dies the partnership is dissolved. • 4) True or False: A partner may engage in other businesses, even if they compete with the partnership. • 5) Which form of business has the greatest potential to bring together large sums of capital?A) Sole Proprietorship B) Partnership C) Corporation

14. Advantages & Disadvantages of a Corporation • Advantages • Can continue to function after any owner or manager dies • ___________________________ • ______________________________________ • _______________________________________ • _______________________________________ • ______________________ • The federal government taxes net income when it is brought in and again when it is distributed to shareholders • _____________________________________________ • Larger corporations are subject to extensive regulation of the sale of their stocks and bonds to the public

15. Types of Corporations • Corporations are classified according to their ___________________ ____________________________________. • _______________ – chartered and does business in a particular state • Foreign – _______________________________________________ • ________ – chartered in another nation but does business in the U.S. • Public – ________________________________________________ • Private – ________________________________________________ • ____________________ – a private corporation organized to produce a financial profit for its owners • Nonprofit – ______________________________________________ • ____________________ – usually a private corporation that provides essential public services

16. How a Corporation is Formed • ___________________ – an individual who brings interested parties together and take preliminary steps to form a corporation • An application for incorporation must be filed with the state where they want to be incorporated (usually with the Secretary of State). • ______________________________ – filed by the incorporators and serve as the basic plan of operation; needs to be signed by 1 or more of the incorporators • At least 1 of the incorporators must have ______________________ __________________________________. • The state will issue a ________________________ or a __________ upon approval of the plan. • Shares of ___________ are then sold and the __________________ (owners) meet to elect a board of individuals to administer the corporation. • The board then hires managers who will run the ________________ _______________________________________.

17. Parts of an Articles of Incorporation • _______________________________________ • Duration (definite or perpetual) • ________________________________________ • Number and kinds of shares of capital stock to be authorized for issuance • Location of corporation’s principal office and name of its agent whom legal notices can be given to • ___________________________________________ • ____________________________________________ • Any other provisions the corporation wants to add that are consistent with the law

18. Stock • Each share of stock represents a ___________________________________________________________. • Shareholder – __________________________________________________________________________ • Corporations use the money from the initial sale of stock to buy equipment, supplies, and inventory; hire labor; and pay expenses. • __________________________________________________. This allows more shares of stock to be sold. • Stock ownership does not transfer title to specific corporate property to the stockholder. • Par Value – _________________________________________________________________________ • _____________________________ – a stock that does not have a par value and is originally sold at a price set by the board of directors • Common Stock – ________________________________________________________________________ • Dividends – ___________________________________________________________________ • Preferred Stock – gives the holder a stated dividend before the common shareholders receive anything but usually no voting power • Liquidation – ___________________________________________________________________________

19. Who controls the business of a corporation? • No shareholder, even one that owns most or all the stock, can act for the corporation or bind it by contract. • Shareholders ___________________________________________ by electing the directors. • Shareholders also have the power to _______ on major issues such as: _________________________________________________________________________________________________________________. • _____________ are responsible the overall direction of the corporation. They are bound to act in good faith and oversee the corporation and formulate general policies with due care. • Inside Board – _____________________________________________ • ______________________ – has no officers as members and looks at corporate performance more objectively and critically • Mixed Board – _____________________________________________

20. Powers & Duties of Corporate Officers • Commonly include a president, vice president, secretary, and treasurer. • Officers of a corporation are its _____________, so they are governed by _______________________ _____________________________. • Officers are __________________________ to the corporation for ____________________________ ______________________________. • Business Judgment Rule – neither shareholders, directors, officers, nor other corporate employees can be held personally to be criminally or civilly liable to parties outside the corporation for honest errors of judgment made in the course of business

21. How does a corporation end? • ______________________________________ • ______________________________________ • _____________________________________ • __________________________________ • ____________________ – when 2 corporations cease to exist a new corporation is formed (approved by both boards of directors and a majority of both corporation’s shareholders) • ____________ – when 1 corporation absorbs another; surviving company retains its charter and identity while the other disappears (approved by board and shareholders of both corporations) • ____________________________ • ____________________________

22. Powers of the Corporation • ____________________________ • Corporation can continue indefinitely or for period stated by incorporators • ____________________________ • Can have nay name that isn’t identical or deceptively similar to the name of another business • _______________________ • Rules and regulations for the internal management of its affairs • _______________________________ • Make contracts, incur liabilities, acquire assets, make/indorse/accept commercial paper, issue stocks and bonds, mortgage/pledge/lease/sell/assign property, buy stock back from owners, buy and hold stock of other corporations, make reasonable donations, hire and fire employees, establish benefit and incentive packages, sue or be sued • Other implied powers • ____________________________________________________________ • Research and development, leasing space and equipment, advertising, buying health, life, and liability insurance for employees

23. Rights of Shareholders • ___________________________________ • __________________________________ • ___________________________________ • _________________ – used for voting when a shareholder does not want to attend a meeting or vote in person • ________________________________ • Capital Stock – ____________________________________ • Shareholder’s right to purchase additional stock to maintain the percentage of stock they owned before the increase of capital stock • ________________________________________________ • ________________________________________________ • _____________________________________________________

24. Quick Review • Answer the following questions on your handout: • 1) Which of the following is NOT required to be in the articles of incorporation? A) Name of corporationB) Period of duration C) Purpose of being organizedD) All of the above ARE required • 2) True or False: A corporation that provides utilities to consumers is known as a public service corporation. • 3) Usually, _________ shareholders do not vote in corporate elections. • 4) A rule adopted by a corporation’s board of directors that calls for stockholder meeting every 6 months would be known as a(n):A) Article of incorporation B) Bylaw C) Corporate amendment • 5) True or False: Shareholders will always be paid dividends as long as the corporation makes a profit.

25. Traditional Small Business Forms • ____________________________________ • 1 general partner has unlimited liability • Limited partners liable to the extent of their investment • General partners have freedom to set up business as they see fit • More government regulation than a general partnership • Uniform Limited Partnership Act (ULPA) • Revised Uniform Limited Partnership Act (RULPA) • Can only be created by proper execution, recording, and publication of limited partnership certificate • Limited partners who participate in managerial decisions lose that status and become liable without limit • ________________________________________ • Governed by subchapter of the Internal Revenue Code • Not subject to double taxation like a subchapter C corporation • Earnings and losses are treated like a partnership and are only taxed at the individual owner’s level • Hybrid Business Entities – business forms with mixed attributes of a partnership and corporation • Requirements: timely filing (before March 15), domestic, shareholders must have a certain identity, 75 or fewer shareholders, and only 1 class of stock • Formed in same way as a corporation. S corporation is only a tax status.

26. New & Evolving Small Business Forms • __________________________________________ • Must be formed and operated in accordance with the laws in the state in which it was formed. • Articles of Organization: Name, type of business, address, agent(s), organizers, & initial LLC members • Members – owners of an LLC • Owner’s liability is limited to their investment • Advantages: no limitation on number of members, identity of stockholders, and members can manage business without fear of losing their status • Disadvantages: Centralized management, indefinite life, double taxation, and free transferability of ownership • ____________________________________ • Avoids double taxation and partial limited liability protection • Since the inception of LLPs in 1991, almost all states enacted LLP statutes within 6 years. • Limited liability protection extends to protect against the consequences of the malicious acts of others involved in the partnership.

27. Government Regulation of Business • The federal government is given the responsibility for regulating interstate commerce under ________________________________. • ____________ – _______________; __________ – _____________ • A large number of administrative agencies were created under _____ as a response to the Great Depression. • Agency rulings can be appealed, but the appeal is heard by agency-staffed appellate bodies. • Court review of agency decisions: • __________________ – notifying parties of the charges and of the upcoming hearing or trial, providing parties the opportunity to appear at the proceeding to present evidence, confront witnesses, and defend themselves • Courts check to make sure that the action causing the appeal is within the powers granted to the agency by Congress. • The court also makes sure that the agency did not act in an arbitrary or capricious way. • _________________ - subject to individual will or judgment without restriction; contingent solely upon one's discretion • _________________ - subject to, led by, or indicative of whim; erratic

28. Major Government Agencies • _________________________________________________ • Oldest federal agency (1887); regulates various modes of interstate and land transportation • _______________________________________________________________ • Created in 1914; helps protect consumer rights and enforce laws against anti-competitive business activities • _______________________________________________________________ • 1934; controls the enforcement of laws regulation the disclosure of info to the buying and selling of stocks and bonds; regulates stock exchange • _________________________________________________________________ • 1935; preserves employee rights to join unions and participate in collective bargaining • ___________________________________________________________ • 1934; controls interstate channels of communication (satellite, TV, radio, phone) • ______________________________________________________________________________ • 1964; protects against workplace discrimination based on race, religion, sex, color, ethnicity, age, and disability • _______________________________________________________________________________ • 1970; develops and issues rules to govern health and safety in the workplace • Consumer Product Safety Commission (CPSC) 1972 • Food and Drug Administration (FDA) 1906 • ________________________________________________________________ • 1970; enforces Clean Air and Clean Water acts; concerned with environmental safety • ___________________________________________________________________ • 1975; insures the safety of our nuclear power plants

29. Quick Review • Answer the following questions on your handout: • 1) True or False: Interstate commerce means commerce that actually crosses state lines. • 2) Which of the following is necessary for due process?A) Notice of hearing B) Opportunity to present evidenceC) Opportunity to confront witnesses D) All of the above • 3) Toxic chemical wastes would be the responsibility of the __________________________. • 4) Safety in the workplace is the responsibility of the:A) FTC B) FCC C) EEOC D) OSHA • 5) The ___________________ was created to help the government enforce the country’s antitrust laws.