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LAST LEGAL TEST :-)))
Terms in this set (85)
a business in which one person is in control of the management and profits.
-has total control
-profits taxed directly as income
unincorporated business owned by one person.
-these people have lots of insurance.
when owner dies, business is dissolved.
the single person at the head of a sole proprietorship
Advantages of of sole proprietorship
1.profits are retained by owners
2. Ease of creation (start up)
3. total managerial control
Disadvantages of sole prop
1. proprietor has personal liability for losses
2. funding is limited to personal funds/loans
voluntary association between two or more people who co own a business for profit
if a partner dies, the business will cease unless there is a continuous agreement
-must have intent by both parties.
-intend to make profit
formation of partnership
articles of partnership, or agreement include:
-name of each partner
-name of partnership
-duration of partnership
-how profits and losses are divided
-division of management responsibilities
-contributions from each partner
partnership by estoppel
-when non-partner represents himself as a partner and a third party reasonable relies on this information to his or her detriment.
overarching duty of loyalty:
-duty of care
-duty of obedience
-know for m.c.
-rights to share in management
-rights to share in profit
-right to compensation
-rights to partnership property
1. as tenants in common with right of survivorship
2. interest in partnership
-right to inspect books
-right to an accounting
Life of partnership
-termination or continuation
partnership dissolves either by
1. court action
2. partnership action
3. or operation of law.
short answer: explain winding up and dissolutoin
dissolution by partnership action
-fulfillment of partnership objective
-expiration of term
-partner withdraws from partnership at will
-they finish the job
-the time runs out
-one guy pulls out
dissolution by law
3.partnership engages in illegal activity
dissolution by court acion
2.impractical to continue business
3.partner incapable of fulfilling duties.
consequence of dissolution
partner must give notice of intent to dissolve in legal organ.
winding up stage
SHORT ANSWER, KNOW THE ORDER
-payment to partnership creditors
-payment of refunds/loans to partners for loans made to partnership
-payment of partners for invested capital
-payment of profits distributed to partners per terms of partnership agreement.
1. payment to creditors
2. payment of refunds and loans
3. payment for invested capital
4. payment of profits to partners per terms of agreement
Advantages of partnership
1. creation is easy
2. income of business is personal income
3. business losses can be deducted from taxes
disadvantages of partnership
1. each partner has personal liability for all losses including those of another partner.
a partnership in which the partners divide profits and management responsibility and share unlimited person liability for the partner's debts.
-Each partner has equal control and unlimited personal liability
-profits taxed as income to partners
-you're income is yours.
you can deduct any losses
-you can choose your partner
-you assume your partners liability
a partnership consisting of at least one general partner and at least one limited partner in which the general partners assume all liability for the partnership's debts and the limited partners assume no liability beyond their originally invested capital
-great for the limited partner. they can profit if the business does well. the limited partner is only liable for their original contribution
-formed through certificate of limited partnership (filed with secretary of state)
-allows investor to share in profits of partnership
-limited partner has no managerial/operational control over business.
Limited liability partnership
a partnership in which all the partners assume liability for any partner's professional malpractice to the extent of the partnerships' assets.
-only applies to professionals. doctors, lawyers, engineers.
***If one partner commits malpractice, another partner;s personal assets cannot be taken.
***each partner pays taxes on his or her share of the income.
a legal entity formed by issuing stock to investors, who are the owners of the corporation
-a creature of state, state sanctioned.
-separate from the owner.
-limited number of shareholders
characteristics of corps
-separate legal entity
-rights as person and citizen
-creature of state
-limited liability of shareholders
-unrestricted transferability of shares
what are the powers of corporations granted by the states
Express powers granted by the state
-right to litigate
-right to make contracts
-right to acquire property
right to borrow and loan money
-right to make charitable donations
-ability to establish rules for managing corporation
how are corps classified?
1. private or public
2. profit or nonprofit
3. domestic, foreign or alien
4. publicly held or closely held
5. s corp
private vs public
public: created by the government to administer law. Ex. Ga lottery
private: any private business
for profit/non profit
non profit: charities.
-reinvests profit into business.
-Does not distribute profit to shareholders.
-objective is to operate for profit
-shareholders seeking to make profit purchase this type of corporate stock
domestic, foreign and alien
domestic: doing business within state of incorporation
foreign corporation: doing business in states other than state of incorporation, must obtain certificate of authority)
Alien Corporation: doing business in a country other than country of incorporation
ex. McDonalds in China
-stock available to public
-does not offer stock to public
-professionals allowed to incorporate
-may still have personal liability for malpractice
how are corporations formed?
-promoters: organize corp formation
1. raise capital through subscription agreements
2. secure financing
3. acquire licenses and incorporation papers
-incorporator: drafts and files articles of incorporation
1. name of corp
2. address of registered office
3. name of registered agent
4. name of addresses
-certificate of incorporation
-first organizational meeting help
when will courts pierce veil?
1. corp lacked adequate capital when initially formed
2. corp did not follow statutory mandates
3. shareholder's personal interest and corporate interests are commingled. (corp has no separate identity)
4. shareholders attempt to commit fraud through corp.
how do corps get funding?
-debt securities: bonds
-equity securities: shares
-preferred stock: stockholder enjoys preferences regarding assets and dividends.
-common stock: stockholder owns portion of corp
-formed under federal law
-owner's(shareholder's) liability limited to amount of investment.
-100 or fewer shareholders
investors in a corporation. (own the corporation)
-elect/remove board of directors.
-approve major board decisions ex. changing the name.
-have rights to corporate dissolution, file derivative suit,
file direct suit.
-meet and vote on important decisions
-appoint and supervise officers
-declare and pay corporate dividends
-manage the corp
*directors do not micromanage
-run day to day business of firm
-agents of corporation
par value shares
fixed face value noted on stock certificate
stock shares offered at below market value
stock subscription agreement
contractually obliges individuals to buy shares in corp
Shareholder's derivative suit
pre emptive rights
preferential rights given to purchase new shares.
duties of shareholders
1. duty of care
2. duty of loyalty
3. duty to disclose conflict of interest.
"you have duty to disclose self interest and abstain from interest."
-there has been full disclosure
-the majority of board members approve it.
liability of directors and officers
-can be held personally liable for their own torts/crimes.
-can be held personally liable for torts/crimes of their employees
-can be held liable for wrongful transactions involving company stock
exception: cannot be held liable for decisions that harm company is they were made in good faith.
when one company absorbs another, and one survives. combining two corporations so one can exist.
1. amended articles of incorporation
2. liable for debts and obligations of absorbed corp
-absorbs property and assets
combine to form a whole new corporation.
procedure for mergers and consolidatoins
-board of directors agree
-the corporations must submit their plan to the secretary of state
-the state must review the plan, and if it satisfies the requirement, you get an approval certificate.
short term merger
parent corp merges with a subsidiary corp, does not require shareholder approval
one corp can extend its business operations by purchasing the assets of anther company.
all intangible items owned by the corp
take over by an acquiring corporation.
types of takeovers
-tender offer:aggressor offers target shareholders a price above current market value
-exchange offer: offers to exchange target shareholders current stock for stock in aggressor's stock
-cash tender offer: The tender offer is a public, open offer or invitation (usually announced in a newspaper advertisement) by a prospective acquirer to all stockholders of a publicly traded corporation (the target corporation) to tender their stock for sale at a specified price during a specified time, -
beachhead acquisition: A beachhead acquisition occurs when a company acquires a business in another geographic market to establish an entry point for future growth.
self tender offer:
defense to hostile take over.
-corp offers to buy its shareholder's stock. you can maintain control.
buys outstanding corp stock held by public
end of a corporation:
part of legal death:
1. dissolution: process of dealing with unfinished business and assets.
--Voluntary: occurs when directors or shareholders initiate process.
--involuntary: government forces corp to close.
happens if: you do not pay your taxes, if you do not notify change, if duration has expired, court order, fraud, insolvent (bankrupt)
dissolution procedure: articles of dissolution. file in legal organ.
life of corp
advantages to corporation
1.limited liability for shareholders
2. ease of raising capital by issuing stock
3. profits taxed as income to shareholders, not the partners
disadvantages to corporation
1. corporate income taxed twice
2. formalities required in establishing and maintaining corporate form.
site table on p 424
the next terms are ways of doing business
an organization formed by individuals to market new products. Individuals in a cooperative pool resources together to gain an advantage in the market
example: farm share. they pool their vegetables
joint stock company
a partnership agreement in which company members hold transferable shares while all the goods of the company are held in the names of the partners.
a corporation that enjoys the tax status of a partnership
a business organization governed by a group of trustees, who operate the trust for beneficiaries.
a person who operates a trust for beneficiaries in a business trust
a person who can expect to benefit from a relationship
an investment group that comes together for the explicit purpose of financing a specific large project.
Ex. braves stadium
an association between two or more parties wherein the parties share profits and management responsibilities with respect to a specific project.
-2 corps get together to build a subdivision, and separate when its finished.
a business arrangement between an owner of a trade name or trademark and a person who sells foods or services under the trade mark/name.
an agreement between franchisor and franchisee.
the owner of the trade name or trademark in a franchise
ex. LENNY'S :))))))))) or chic fil a.
the seller of goods or services under the trademark/name
advantages of franchisee
1. help from the franchisor in starting the franchise
2. instant recognition du to the franchisor's strong trademark or tradename
disadvantages of franchisee
1. must meet franchisor's standards or risk losing franchise
2. has little to no creative control over business
advantages of franchisor
1. low risk in starting franchise
2. increased income from franchisees
disadvantages of being franchisor
1. has little control over franchisee
2. can become liable for the franchise if it exerts too much control
chain style business operation
a type of franchise in which the franchise operates under the franchisors business name and is required to follow the franchisors standards and methods of operation
Ex. Lenny's!! or chic fil A, Dunk n donuts
a type of franchise in which the franchisor provides the franchisee with a formula or necessary ingredient to manufacture a product
Ex. Coke bottle manufacturer.
nature of partnership:
any individual proprietor, partnership, corporation, association, or other org that has, in the eyes of the law, the capacity to form an agreement and the ability to assume an obligation and to discharge an indebtedness.
articles of partnership
written agreement that creates a partnership
a type of franchise in which the franchisor manufactures a product and licenses a dealer to sell the product in an exclusive territory.
Ex. car dealerships. - corporate VW allows hal to sell VWs.
how to evaluate partnerships:
a contract whereby a company grants permission to another entity to use the franchisor's name, trademark or copyright in the operation of a business and associated sale of goods in return for payment
-payment for trade name or mark
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