Business Organizations
Order by
118 terms
Terms | Definitions |
|---|---|
 Sole Proprietorship | Most common form of business organization - One person owns, operates and manages business |
| Advantages of sole proprietorship | Flexibility; tax benefits; may operate business any way within the bounds of the law |
| Disadvantages of sole proprietorship | Owner and business are one - owner is personally liable for all debts, unlimited tort liability; business dies with owner |
| General Partnership | Two persons who intend to affiliate for the purpose of operating a business. May be based on formal agreement or conduct of the parties |
| General Partnership taxes | Partnership is a pass thru entity; each partner taxed on their proportionate share applicable; partnership not taxed separately |
| Formation and Existence - GP | May exist for any length of time the partners agree; needs applicable TIN an Business license; should have written agreement |
| Partnership Property | Each party generally contributes to partnership (Real property, personal property, cash or services) Property cannot be sold without consent of partners. |
| Financial Structure of Partnership | Contributions from partners; may or may not be equal. If no structure stated, profits divided equally |
| Assignment of Partnership Interest | Can be assigned or sold to third party without consent of partner. Partners cannot sell specific partnership property without consent of other partners |
| Management | Assumes all partners cooperate in decisions, and will work without pay at the business. Any different structure must be in agreement. |
| Silent Partner | One whi assumes all the benefits and burdens of a partner except in management decisions |
| Liability of General Partners | Unlimited personal liability; when they leave partnership, they remain liable for debts unless indemnified; New partners are liable for debts only if they agree to it. |
| Dissolution of Partnership | One partner leaves, the partnership dissolves. If remaining partners want to continue, must form new partnership |
| Limited Partnership | Partnership of 2 or more perrsons formed in compliance with state statute. General partners have unlimited personal liability for debts; limited partners have no liability beyond their investment. |
| ULPA/RULPA | Uniform Limited Partnership Act (1916); Revised Uniform Limited Partnership Act (1985) |
| Difference between GP and LP | Limited partnerships can only be formed by complying with specific statutory requirements; Limited partners cannot participate in the management of the business |
| Limited Partnership Requirement | Maintain an office in the state formed, with the following records (i) current list of names and addresses of all partners; (ii) copy of certificate of limited partnership/amendments; (iii) copies of past 3 years of financial statements and tax returns; and (iv) copy of partnership agreement |
| Financial Structure of LP | May take the form of cash, property or promise to contribute in the future. Also can be services. If no specific terms as to distribution, RULPA provides for distribution based on pro rata value of contributions |
| Management of LP | General partners manage partnership; Limited partners are investors only. If limited partner participates in management, loses limited liability insulation. LP can act as contractor, employee or agent, consultant; surety; attend mtgs; vote of vital partnership matters |
| Liability of LP | LP are only liabile to the extent of their contribution, unless (i) their name appears on the name of the partnership; (ii) participates in management; or (iii) false statements on certificate not corrrected by LP |
| Dissolution of LP | Dissolved by agreement of partners; Withdrawal of GP. Once dissolved, assets collected and creditors paid first. |
| LLC | Hybrid form of business ownership. Limited liability of corporatyion and income pass through of partnership for tax purposes |
| Joint Venture | Combination of efforts by 22 or more people for one transaction or one event only |
| Joint Stock Company | Not prevalent today, unincoporated business whose ownership interests are evidenced by shares of stock |
| Corporation | Artificial person created under the authority of the state to carry on a business or activity separate from its creators. Unlimited liability for corporate obligations, owners liability limited to the extent of their investment |
| Public Corporation | created by the government to administer government purposes |
| Private corporation | created by private persons for private purposes |
| Non Profit Corporation | organized for educational, religious or charitable purposes. Profit may not be used to enrich those who operate it |
| Business Corporation | One organized to operate a business, profits distributed to owners |
| Publicly Held corporation | Owned by many shareholders and stock is publicly traded |
| Closely held corporation | Owned by one shareholder, or small, closely connected group of shareholders |
| Professional Corporation | Formed by small group of professionals for the practice of the business for which they are licensed |
| Domestic Corporation | Operates in the same state in which it is organized and created |
| Foreign corporation | Operates in a different state that which it was organized |
| Subsidiary Corporation | One whose stock is owned entirely or in substantial part by another corporation |
| Parent Corporation | Corporation owning the majoritty of shares in subsidiary corporation |
| Chapter S Corporation | Small business corporation - elects to have income taxed to shareholders under federal tax laws as if partnership; generally avoids corporate taxes on profits and losses are claimed by shareholders |
| Promoter | Person(s) who plan and organize the business affairs of the intended corporation |
| Incorporation | Governed by statute; specific procedures vary by state |
| Articles of Incorporation | Require: name, duration, purpose, statement of authorized classes of stock; address of registered office, names and addresses of directors, and name and address of incorporator |
| Certificate of incorporation | issued by the Secretary of state upon filing of articles and payment of fees |
| Bylaws | rules which supplement articles of inc; govern internal affairs of corp |
| De jure corporation | corporation which has complied with all statutory requirements governing its organization and existence |
| De facto corporation | not a corporation at all; failed to comply with statutory requirements - legal fiction |
| Corporation by estoppel | when a third party deals with a corporation, unaware that it is not a corporation, and later discovers not corporation. If third party cannot collect from owners of corporation |
| Piercing the corporate veil | Basis: Insufficient capital invested; failure to observe corporate formalities; failure to treat corp as separate entity; excessive fragmentation; affirmative wrongdoing |
| Equity Security | share or other interest in the property of the corporation (stock shares) Give 3 rights to holders - right to share of distributions, right to vote on corporate matters, right to proportionate share of net assets on sale |
| Debt Security | Obligation of issuer (notes, debentures or bonds) |
| Capital Structure | combination of debt and equity securities of corporation |
| Preferred Shares | special classes that have preference over other classes in the payment of dividends or distributions of assets - usually non-voting |
| common shares | residual ownership of corporation; entitled to distribution of assets on sale, after creditors |
| Redeemable shares | certain classes of stock which can be reacquired by corporation at a fixed price |
| convertable shares | shares that can be converted to another class of shares at a predetermined ratio |
| stock options | entitle holders to purchase a stated number of shares at a specific price and within a limited period of time |
| stock warrants | options are evidenced by these certificates (usually long term) |
| stock rights | short term share options often issued in connection with issuance of debt securities or preferred stock - freely transferable and traded |
| Preemptive rights | shareholder can purchase proportionate share or new issue of common stock before offered for sale to others |
| Stock certificate | evidence of holders undivided interest in corp - not the share itself |
| Outstanding stock | shares issued to shareholders |
| treasury stock | stock shares reacquired by corporation - usually non-voting |
| Par Value | Dollar amount stated as the value of the share in articles of inc |
| Stock Subscription | offer to potential shareholder to purchase a specified number of previously unissued shares of a corporation (pre-incorporation) |
| Watered stock | stock issued for something less than the full value established by the BOD. Dilutes the value of stock held by other shareholders, inflates capitalization |
| Bond | Obligation secured by a lien or mortgage on specific corporate property |
| Debenture | unsecured corporate obligation (unsecured creditor of corp)) |
| Trust indenture | financial institution that acts as trustee to handle bonds and debentures for corporation |
| Notes | either long or short term loans from commercial banks for the corp |
| leverage | occurs when total investment in the business (debt + equity) yields higher rate of return than cosst of borrowing money (interest rate) |
| Dividend | distribution for corporations past or current earnings, paid to shareholders; usually in the form of cash |
| cumulative preferred stock | receives a prescribed dividend for the current year as well as all prior years in which the corp has not paid a dividend. Paid before any dividends paid to common stock |
| cumulative to the extent earned preferred stock | carries forward and accumulates any unpaid divdends to the extent that the corporation had earnings to pay the dividend but does not pay it |
| noncumulative preferred | stock that receives only the prescribed dividend for the current year |
| participating preferred stock | receives the preferred dividend fixed by articles and participates in dividends paid to other classes of stock |
| Nonparticipating preferred stock | receives only the preferred dividend |
| Stock Dividends | distributes additional shares of stock, not assets, to shareholders. |
| fractional share | holder is entitled to fractional voting right, fractional dividend, and fractional distribution on liquidation |
| scrip | certificate representing a percentage of a full share. Once enough are accumulated, can surrender them for 1 share of stock - no voting rights |
| stock split | creates more shares of stick, each valued at a proportionally lesser amount - typically no tax consequences |
| Insolvency Test | Dividends cannot be paid if corporation is insolvent or would be rendered insolvent by the payment |
| Equity Insolvency | inability to pay debts as they become due in the ordinary course of business |
| Bankruptcy Insolvency | Excess of total liabilities over total assets |
| Repurchase/Redemption | Corp has power to acquire own shares of stock through these options |
| Double Taxation | Corporate profits taxed at corporate rate; dividends taxed at personal rate |
| Subchapter S Election Qualifications | No more than 75 shareholders; shareholders must be natural persons; only one class of stock; no nonresident aliens as shareholders - works best when corp anticipates losses not profits |
| Section 1244 Stock | Stock issued under § 1244 by qualifying small business corporations. If § 1244 stock is disposed of at a loss or becomes worthless, the shareholders may claim an ordinary loss rather than the usual capital loss. |
| Corporate Management | Responsibility divided between shareholders, board of directors and corporate officers. Shareholders elect BOD, which manages corp. BOD elects or appoints officers. |
| Shareholder meetings | Annual or special meetings as needed. Advance notice required, can cast votes by proxy or in person. Corp can also take action without meeting if written consent is signed by all shareholders |
| Record Date | Date selected to determine which shareholders are eligible to vote. Only shareholders of record on that date are eligible |
| Voting Record | Complete list of shareholders entitled to vote |
| Straight Voting | 1 share = 1 vote |
| Cumulative voting | Voting in which each share of stock allows the shareholder a number of votes equal to the number of directors being elected. The shareholder can then cast all of his or votes for a single candidate or split them among the various candidates. |
| Proxy Voting | Grant of authority for another to vote stockholders shares |
| Voting Trust | an agreement under which legal title to shares of corporate stock is transferred to a trustee who is authorized by the shareholders to vote the shares on their behalf. |
| Voting Agreement/Pooling Agreement | contract between 2 or more shareholders to vote shares a certain way |
| Exceptions to Preemptive rights | Shares issued for property or serviices; shares issued in conjunction with merger; shares issued to satisfy conversion or option rights; treasury shares or shares issued to directors or officers |
| Directors | Make basic policy decisions; appoint, supervise and remove corporate officers; determine executive compensation; determine when dividends will be paid; determine financing and capital structure; adopt, amend or repeal bylaws; participate with shareholders in major changes to corp; overall supervision of business |
| Board of Directors | Number set by articles of inc; act in properly called meetings; decisions reached by majority vote; can appoint committees to manage specific tasks |
| Limitations on Committee Activities | Cannot authorize distributions; approve a merger; fill vacancies on BOD; adopt, amend or repeal bylaws; authorize or approve reacquistion of shares |
| Express Authority | Express authority comes from (i) state corp statutes; (ii) articles of inc; (iii) bylaws or (iv) resolutions of BOD |
| Apparent Authority | When a corporation leads others to believe that a person has the authority to act on their behalf - may be able to bind corp with their actions |
| Duties of Corp Management | Duty to exercise reasonable care in managing the corporation and fiduciary duty of loyalty to corp |
| Directors Duty of Care | Act in a manner which they reasonably believe are in the best interests of the corp, and that an ordinarily prudent person would do in their position |
| Business Judgment Rule | Provides that a director will not be personally liable for a decision involving business judgment, provided the director made an informed decision, took reasonable care, and acted in good faith. |
| Charter Option limitation | the Articles of Inc limit or eliminate the liability of corporate directors for damages |
| Self Executing Statutes limitation | Statutes automatically limit a directors liability, with stated exceptions |
| Conflicts of interest | Director or officer may breach this if they fail to disclose any potential conflict, which results in unfairness to the corporation |
| Corporate Opportunity Doctrine | A doctrine, established by case law, that says corporate officers, directors, and agents cannot take personal advantage of an opportunity that in all fairness should have belonged to the corporation |
| Appraisal remedy | Statutes which provide that minority shareholders be paid cash for their shares if they dissent from extraordinary, major corporate changes |
| Merger and Consolidation | 2 or more corps may be merged together (1 survives) or consolidated into a new corp |
| Tender Offer | an offer to buy shares in a corporation (usually above the market price) for cash or securities or both |
| Problems with Closely Held Corps | Usually only other shareholders purchase additional stock; corporate formalities can be forgotten; internal disputes over issues; deadlock between shareholders in making decisions |
| Blue Sky Laws | state laws to prevent sale of worthless stock. |
| Shareholder Derivative Actions | Suit brought by shareholders against insider who has injured corporation by his negligence or wrongdoing - subject to restrictions- shareholder must exhaust corporate remedies, be an owner at the time of suit, pledge security for costs and case can be dismissed if proven by independent group that litigation is not in the best interests of the corp |
| Strike Suit | Suit filed merely to secure a favorable private settlemetn rather than to redress a corporate wrong |
| Voluntary Dissolution | BOD adopts a resolution to dissolve, must be approved by shareholders. Corporate assets liquidated and creditors paid. Notice of dissolution given directly to creditors, wind up business. File Articles of Dissolution with SOS |
| Involuntary Dissolution - SOS | By SOS for failure to pay corp taxes; Articles of inc procured by fraud; abuse or exceeding legal authority; failure to maintain reg. agent. |
| Involuntary Dissolution - Court | If directors are deadlocked; acts of directors are illegal, oppressive or fraudulent; corp assets being misapplied or wasted; shareholders deadlocked in voting for directors (2X) |
| Involuntary Dissolution - Creditor | If it has obtained a judgment against corp, which is unsatisfied and the corp is insolvent; or corp admits in writing that amt is due and they are insolvent ( |
First Time Here?
Welcome to Quizlet, a fun, free place to study. Try these flashcards, find others to study, or make your own.