Business Law: Business Organization

Sole Proprietorship

Pro- Easy to start, owner keeps profits

Con- Unlimited liability, limited resources

Partnership

Pro- Shared responsibility, more capital

Con- Unlimited liability (for general partners), disagreements possible

Corporation

Pro- Limited liability, easier to raise money

Con- Expensive, more regulation, double taxation (C corp)

Limited Liability Company (LLC)

Pro- Limited liability + flexible taxes

Con- More paperwork than sole proprietorship

Nonprofit

Pro- Tax-exempt, serves public good

Con- Strict regulations, no profit distribution

Line Structure

direct chain of command

Functional Structure

grouped by department (marketing, finance)

Divisional Structure

grouped by product/location

Matrix Structure

employees report to more than one manager

Top Management level

CEOs, presidents

Middle Management level

department managers

Lower Management level

supervisors

Charter

state approval

Articles of incorporation/organization

legal formation

Rights

own property, sue/be sued

Limitations

must follow laws

Liabilities

depends on form (limited vs unlimited)

General Partnership

All partners manage, Unlimited personal liability

Limited Partnership

At least one general partner, Limited partners = investors only, limited liability for limited partners

C Corporation taxation

taxed separately

S Corporation taxation

pass-through taxation

Public

stock sold publicly

Private

closely held

Board of Directors

Sets policies, hires officers

Officers (CEO, CFO, etc.)

Run daily operations

Shareholder's Rights

Vote, Receive dividends, Inspect records, Share in profits

Liability

Limited to amount invested (not personal assets)

Merger

two companies combine

Consolidation

two companies form new company

Conglomerate

unrelated businesses under one corporation

Franchises

Business licensed to operate under a brand. Fits into economy as private business with contractual relationship

Franchisee

owns business

Franchisor

owns brand

Limited Liability Company (LLC)

Business that combines corporation’s limited liability with partnership’s flexibility

LLC Steps

Choose name, File Articles of Organization, Create operating agreement, Register with state, Obtain licenses

Securities and Exchange Commission (SEC)'s Role

Regulates stock market, Protects investors, Requires financial disclosures

Consequences of Securities and Exchange Commission (SEC) violations

Fines, Jail time, Business shutdown, Loss of investor trust

How regulation affects us

Safer products, Fair wages, Honest advertising, Environmental protection, Job security

Antitrust laws

prevent monopolies

Organized labor laws

protect unions

Regulatory agencies

OSHA, EPA, FTC

Businesses must

Know laws, Follow laws, Enforce compliance

Laws affecting records & accounting

Accurate financial records, Retain documents, Prevent fraud, Follow tax and audit rules

Global business legal issues

Trade laws, Tariffs, Labor laws, Environmental laws

Unfair Trade Practices

False advertising, Price fixing, Deceptive labeling, Bait-and-switch tactics, Monopolies

Federal Trade Commission's role

Protect consumers, Promote fair competition