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Chapter 12: Business Organizations
Terms in this set (46)
a business owned by a person who is not organized as a corporation. (oldest and simplest form of business organization)
negatives of SP
1) limited alternatives for raising capital
2) owner is personally liable for all business debts
an association of two or more persons to carry on a business as co-owners for a profit; not organized as a corporation.
a partner in a limited partnership or any partner in a general partnership who accepts, or has imposed by law, personal liability for all debts of the partnership.
(share control over the business's operations and profits)
an association of two or more persons to carry out a single business enterprise for profit; also a common undertaking in which two or more combine their property, money, efforts, skill, or knowledge.
(a form of partnership.)
Partnership law, what governs it?
Uniform Partnership Act (UPA) and the Revised Uniform Partnership Act (RUPA) offered to states by Uniform Law Commission.
*Forming a Partnership
C: Zhou vs. Bickley
Bickley got 2 chinese ppl to help him open a motorcycle shop. Bickley wouldn't let Zhous have any part in the business. No formal partnership agreement was made b/t them. Trial said was no partnership only vague agreement.
each partner act in good faith for the benefits of the partnership. Partners must place their personal interests beneath those of the partnership. 1
control by partners
presumption is that each partner has an equal voice in partnership management. If major decision; all partners usually involved. In most large partnership one person is usually under control known as a banging partner.
the process of terminating or winding up a corporation or partnership that changes the nature of the organization or ends it completely. This may come about involuntarily, such as through forced bankruptcy, or may be voluntary, as when a board of directors approves the end of the life of a company.
completing any unfinished business and then collecting and distributing the partnership's assets.
a business organization consisting of one or more general partners, who manage and contribute assets to the business and who are personally liable for the debts of the business, and one or more limited partners, who contribute assets only and are liable only up to the amount of that contribution.
(unlike in a general partnership, not all partners in a limited p have the right to participate in the management of the enterprise and debts.)
(good way to invest in a business w/o being heavily involved.)
a partner in a limited partnership whose liability for partnership debts is limited to the amount of his contribution to the partnership. (general partners in a LP are treated same as partners in general partnership)
terminating a limited partnership
terminated in same way as a general partnership. LP receive their share of the profits BEFORE general partners receive anything (unless LP agreement holds otherwise.)
a business organized under the laws of a state that allow an artificial legal being to exist for purposes of doing business in its name. (artificial person, or legal entity created under state law.)
a certificate issued by a state government recognizing the existence of a corporation as a legal entity; it is issued automatically upon filing the information required by state law and payment of a fee.
(often grants special privilege such as giving a bank the privilege of being the only bank in town.) (GM , Coca-cola, Microsoft)
Certificate of Incorporation
after reviewing a corporation's application for completeness, this is what the state issues to the corporation so they can create a corporation (described above). After this they have 1st meeting and elect a board of directors, enact corporation's bylaws, and issue stock. (have to fill out different sections such as name, purpose, capital stock, etc.)
the rules that regulate and govern the internal operations of the corporation. Shareholders, directors, and officers of the corporation must follow the bylaws in conducting corporate activities.
the existence of a thing, other than a natural person, that has legal existence so that it can function in a legal capacity; such as a corporation doing business. Recognized under both federal and state law as a "person".
relationship of the parties within corporation
3 major groups: the shareholders, the board of directors, and the managers. Important feature is legal separation of ownership (shareholders) and control (mgt and board of directors.)
the owner of one or more shares of stock in a corporation. Have a limited right to inspect the corporation's book and records.
the minimum number of members of a body, such as a board of directors or shareholders of a company, necessary to conduct the business of that group.
giving another person the right to vote on one's behalf.
Board of Directors
the principals of a corporation, elected by shareholders, responsible for governing the business, especially as to major decisions
a legal obligation that is owed to another and that must be satisfied; an obligation for which somebody else has a corresponding right.
a person who, by explicit or implicit agreement, authorizes an agent to act on his behalf and perform acts that will be binding on the principal.
Business Judgement Rule
a principle of corporate law under which a court will not challenge the business decisions of a corporate officer or director made with ordinary care and in good faith.
(makes directors and mgrs immune from liability when problems result from hones mistakes in judgement.)
Fiduciary Duty of Loyalty
the duty of loyalty stands for the principle that directors and officers of a corporation in making all decisions in their capacities as corporate fiduciaries, must act without personal economic conflict. The D o L can be breached either by making a self-interested transaction or taking a corporate opportunity.
hired by corporation's board of directors to run the business. The extent of managerial control and the compensation enjoyed by managers are matters of contract and agency law.
a closely held corporation; a corporation that has stock that is not allowed to be widely held; the number of shareholders is limited and usually, unlike a public held corporation, the shareholders are active in oversight of the firm.
a corporation may be granted S status if it does not own any subsidiaries, has only one class of stock, and has no more than 75 shareholders, all of whom must be U.S. citizens or U.S. residents. (popular for smaller businesses; C Corporation are regular corporations.)
in most states, a category of corporations that may be used by those providing a personal service that require a license, such as physicians, dentists, architects, and accountants. The primary reason to adopt this status is for tax benefits. Each partner is not personally liable for the debts of all the others.
the imposition of two taxes on the same property or income during the same period; especially the taxation of corporate profits that are then subject to taxation again when remainder of profits are paid as income (dividends) to the shareholders. (Disadvantage for corporate form of organization.)
the fact that shareholders of a corporation are not liable for the debts of the corporation beyond the amount of money they have invested in the corporation. (advantage for corporate form of organization)
Limited Liability Company (LLC)
a business organization that is treated like a corporation for liability purposes but like a partnership for federal tax purposes. (become very popular)
Articles of Organization
limited liability companies must produce this document, and submit a copy to the state, to be recognized as a legal entity; generally provides minimal information necessary, such as name of LLC, its purpose, life, and names and addresses of organizers.
in LLCs, owners of the enterprise have this title rather than shareholders as in the case of a corporation; members report income or losses from the LLC on their personal tax returns.
share of ownership in limited liability; much like shares in a corporation or shares in a partnership; the legal claim to a portion of an LLC's profits.
a contract among members of a limited liability company setting forth the parties' agreements about funding, development, operations, and other key issues of the LLC. (similar to bylaws of a corporation.)
LLC is technically not allowed "perpetual life".
limited liability key occurences
courts can pierce the veil of a LLC in some instances. if court finds that it is a sham and that the owner can actually operated the business as a proprietorship or partnership rather than an LLC. (12.3 figure)
a general presumption in corporation law that a corporation will exist forever; most organizations do not have a specific date fixed for termination.
a contract between a parent company (franchisor) and an operating company (franchisee) to allow the franchise to run a business with the brand name of the parent company, so long terms of the contract concerning methods of operation are followed.
(have 2 characteristics in success: 1) good trademark 2) uniform product or service.)
Types of Franchises
can be separated into three basic categories
1) product distributorships: such as a car dealership, in which the franchisee has the right to sell the product of the parent company.
2) trademark or trade-name licensing: the franchisee has a license to market the company's brands, such as Coca-Cola.
3) Business Format Franchising: franchisee follows same business model set out by parent company, like McDonald's.
The law of franchising
have to give detailed disclosure agreement to enable prospective investors to learn about the business. (FTC Franchise Rule)
the contract between a franchisor and franchisee that sets forth the terms and conditions of the franchise relationship. Federal law, and some state laws, regulate some terms of such agreements.
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