NCSU MIE 305 Exam 2 (Chapters 4, 6, 7)

What are the main "default" forms of business organization recognized at common law?

Sole Proprietorships and General Partnerships

Sole Proprietorship

A business owned by one person who receives all the profits from the business and takes all the risks.

Easiest to start

Pass-through taxation

Advantages of Sole Proprietorship

Proprietor owns the entire business and has a right to receive all profits

Easier and less costly to start; allows flexibility

No meeting requirements, no filing requirements from the state

Disadvantages of Sole Proprietorship

The owner is personally liable for all losses or liabilities incurred by the business enterprise.

Most likely form of business to be audited by IRS (5x more!)

Lacks continuity on the death of proprietor; can't convey the business, per se

General Partnership

A partnership in which all owners share in operating the business and in assuming liability for the business's debts.

Partnership agreement may be oral or written down

New partners requires agreement from all partners

Advantages of General Partnership

May be at will (usually) or fixed term

Offers pass-through taxation to partners on profits

Like sole proprietorships, easy to start- no registration/filings usually necessary!

Equal voice among partners in management and profit-sharing (unless unequal are in part. agreement)

Disadvantages of General Partnership

no limited liability for partners; joint & several liability

Profits are always income to partners, even if re-invested in the business

Traditional common law rules (codified in Uniform Partnership Act, 1914), require partnership to go through dissolution and winding up

What is a franchise operation or interest?

a business owner (franchisor) licensing to a third party (franchisee) the right to operate a business unit or provide goods and/or services using the franchisor's business name and system

Differences between sole proprietorships and general partnerships

A sole proprietorship has one owner, while a partnership has two or more owners

Forms of franchise operation or interest

Chain Operations

Distributorship

Local Manufacturer/Processor

Chain Operations

Franchises that use the franchisor's trade name and branding at their premises, and on all or most of their business supplies.

The franchisee is also required by contract to use standardized methods of production, sales and operating procedures developed by the franchisor.

Often, the franchisee is also required to purchase its business supplies from the franchisor, as in the case of many fast food restaurants

Distributorship

A franchise where the franchisee becomes a point of sale or distribution for the franchisor's products, usually being given a specific territory to cover in representing the franchisor in that region.

Local Manufacturer/Processor

a franchise which is not designed to be a point of sale or engage in direct retail activities, but which makes the franchisor's product according to specific requirements or a specific recipe and then takes responsibility for wholesale distribution in a certain territory for the franchisor's products

Similarities between sole proprietorships and general partnerships

Sole proprietorships and partnerships are both easy and inexpensive to set up. These type of businesses are not separate legal entities. This means that these businesses don't file their own tax returns, and everything owned by the businesses are still owned by the owners personally

How do you start (and end) a general partnership?

Create a general partnership agreement (not required)

File a dissolution form

What are the presumptions about ownership interests and liability interests at common law in the absence of a more detailed partnership agreement?

Profits, losses, and liabilities are equal

What is a partnership agreement?

Legal document that clearly defines how the work, responsibilities, rewards, and liabilities of a partnership will be shared by the partners.

Why should a partnership agreement be written?

to protect the owner's investment in the company, govern how the company will be managed, clearly define the rights and obligations of the partners, and determine the rules of engagement should a disagreement arise among the parties

What are the "6 things" that the Small Business Administration recommends in all partnership agreements?

Percentage of Ownership

Allocation of Profits/Losses & Draws

Binding the Partnership

Decision-making

Dispute Resolution

Death, Dissociation or Removal of a Partner

limited liability

A form of business ownership in which the owners are liable only up to the amount of their individual investments.

Pass-through taxation

When an owner's share of business profits is reported on his or her individual tax return.

dissolution

the breaking up into parts; termination of a legal bond or contract

winding up

The second of two stages in the termination of a partnership or corporation, in which the firm's assets are collected, liquidated, and distributed, and liabilities are discharged.

Dissociation

when any partner ceases to be involved in the business of the firm

what's the difference between UPA and RUPA?

Their treatment of a partnership as an organization. The UPA treats the partnership as an aggregate, while the RUPA treats a partnership as an entity

How did a Limited Partnership develop from the general partnership?

In order to form a limited partnership (LP), there must be at least one general partner and at least one limited partner.

One or more general partners manage the business and are personally liable for all of its debts

How do a limited and general partnership differ?

Limited partners are at less risk because they take no part in running the business and incur no liability

How is an LLC developed?

requires registration with Articles of Organization

Who has an ownership interest in LLCs?

Members

How do you determine ownership interest in LLCs?

a member's share of the profits and the losses of the limited liability company and the right to receive distributions of the limited liability company's assets

What filings are required in determining ownership interest in LLCs?

Operating Agreement or Bylaws in writing

How do LLCs differ from corporations?

an LLC is owned by one or more individuals, and a corporation is owned by its shareholders

What are the major advantages of formal incorporation?

Protects the owner's assets against the company's liabilities. Allows for easy transfer of ownership to another party. Often achieves a lower tax rate than on personal income.

What is required for formal incorporation?

the company's name, type of corporate structure, and number and type of authorized shares

What flexibility do LLCs have when it comes to taxation?

Owners have the ability to pay taxes as sole proprietors, C corporations, or S corporations and take advantage of the benefits that come with them

Fiduciary Duties

The duties of obedience, care, and loyalty owed by directors and officers to their corporation and its shareholders.

Business Judgment Rule (BJR)

rule that allows management immunity from liability for corporate acts where there is a reasonable indication that the acts were made in good faith with due care

Piercing the Corporate Veil

The action of a court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations.

Powers and rights of shareholders of a corporation

voting power, ownership, the right to transfer ownership, dividends, the right to inspect corporate documents

Domestic corporation

a corporation in the state in which it is incorporated

Foreign corporation

a corporation in any state in which it does business except the one in which it is incorporated

Alien Corporation

a corporation chartered by a foreign government and conducting business in the United States

Difference between c-corps and s-corps

C corporations pay tax on their income, plus you pay tax on whatever income you receive as an owner or employee. An S corporation doesn't pay tax. Instead, you and the other owners report the company revenue as personal income

Closely held corporation

corporation that issues stock to only a few people, often family members

Difference between closely held and private company

In closely-held corps, more than 50% of company is owned by 5 or fewer people

Private corps may have more shareholders

Importance of business organization's state of incorporation

Incorporated businesses tend to be more professional than other business entities. The protections on personal assets are more extensive. Corporation owners can also take advantage of tax benefits and grow their businesses more effectively

Why is Delaware a popular state for incorporations?

the many protections Delaware's laws and courts offer. Delaware's strong and well-proven asset protection shield protects the personal assets of company owners

Does it matter in which state a corporation or LLCs incorporates/registers?

Incorporation laws are state-level legislation, which means that each state can make its own laws about the requirements, fees, and tax responsibilities for businesses incorporated within that state. Your experience will vary depending on the state you choose to incorporate in

Double taxation problem of corporations

when business profits are taxed at both the corporate and personal levels. The corporation must pay income tax at the corporate rate before any profits can be paid to shareholders. In this way, the corporate profits are subject to income taxes twice

Main differences between criminal law and civil law with respect to the names of parties to a case, burden of proof at trial, purpose of each type

-Criminal is always based on statute, civil may be used on either statute or common law

-The state bring suit in criminal, and individuals or entities that suffered harm in civil

-The burden of proof in criminal is beyond a reasonable doubt, and preponderance of the evidence in civil

-Remedy is punishment in criminal, and damages/decree in civil

-Nature is to protect society in criminal, and to provide compensation or other relief in civil

Difference between a felony and a misdemeanor

A Felony is a serious crime that carries a punishment of death or imprisonment for more than one year. Examples are murder, rape, robbery, and practicing medicine without a license.

Misdemeanors are less serious offenses. They include traffic violations, disturbing the peace, and minor theft.

Model Penal Code (MPC) definition of felony

a serious crime usually punishable by imprisonment for more than one year or by death

Model Penal Code (MPC) definition of misdemeanor

Any offense declared by law to constitute a crime, without specification of the grade thereof or of the sentence authorized upon conviction

Two basic elements of most crimes?

(1) a voluntary act or omission (actus reus), accompanied by (2) a certain state of mind (mens rea)

Four main MPC states of mind

purposefulness

knowing

recklessness

negligent

purposefulness

conscious object is to commit the act

knowing

commission of act with understanding that it is practically certain it will result in a particular outcome; awareness of cuase-effect

recklessness

conscious disregard of a substantial and unjustifiable risk attendant to one's behavior

negligent

ignoring a reasonable perception of undue risk in an act that is a "gross deviation form the standard of care" of a reasonable person in those circumstances

Actus Reus

guilty act

Strict Liability

Offenses in which states of mind are not required, the completion of the act itself is enough to hold the perpetrator responsible

What does strict liability do to the normal rule of burden of proof in criminal law?

The claimant need only prove that the tort occurred and that the defendant was respibsible

Park Doctrine

some business acts or omissions with significant potential to harm the public are essentially strict liability offenses

A responsible corporate officer within the organization can be held personally criminally liable for them

How is the Park doctrine a form of strict liability?

based on the corporate officer's position of authority and the presumption that the officer is in a position to prevent violations of the FDCA

To whom or what do most Park prosecutions apply?

Food and Drug Administration

Where did Park prosecutions come from?

U.S. v. Park

White collar crime

criminal acts involving guile, deceit, and concealment rather than force or violence.

Shoplifting, embezzlement, employee theft, fraud; increasingly we see computers used in larger-scale

Why is white collar crime important in the business context?

It occurs usually by businesses and government professionals

Diminished capacity

although they broke the law, they should not be held fully criminally liable for doing so, as their mental functions were "diminished" or impaired

Rule of Sevens

a child under the age of seven is presumed to be incapable of negligence. The parent may also be liable for directly aiding or encouraging the negligent act

insanity defense

legal defense proposing that people shouldn't be held legally responsible for their actions if they weren't of "sound mind" when committing them

How frequently is insanity pled?

it is used in about 1% of all court cases

How successful is insanity in getting defendants off from serious charges?

approximately one-quarter of 1% of cases in the U.S. criminal justice system

statutes of limitations

In NC, it is two years for most misdemeanors, and there is none for felonies or crimes classified as "malicuous" misdemeanors

Castle Doctrine

Reasonable force can be used to meet equivalent force against an intruder challenging one's lawful right to be in a private place or business premises

Limitations of Castle Doctrine

(1) excessive force is not part of this doctrine

(2) intruder must be acting unlawfully

(3) there must be reasonable apprehension of bodily harm

(4) no "baiting" no entrapment or inducement to intruder

(5) be mindful of statutory modifications

plea bargaining

A bargain struck between the defendant's lawyer and the prosecutor to the effect that the defendant will plead guilty to a lesser crime (or fewer crimes) in exchange for the state's promise not to prosecute the defendant for a more serious (or additional) crime.

Fundamental constitutional protections of accused

4th, 5th, 6th, 8th amendments

Fourth Amendment

Protects those accused of crime from having evidence illegally obtained.

If evidence is illegally obtained, the exclusionary rule prevents its use at trial.

There is a good faith exception to the exclusionary rule

Fifth Amendment

Requires indictment by a grand jury for capital offenses and infamous crimes.

Provision on double jeopardy protects against a person being tried twice for the same offense.

Protection against compulsory self incrimination is personal to the accused. It does not prevent others from testifying or documents in the hands of others from being used as evidence.

Sixth Amendment

Provides a criminal defendant with the right to a speedy and public jury trial.

Guarantees a criminal defendant the right to a competent attorney.

Eighth Amendment

Prohibits excessive bail and cruel and unusual punishment.

May be imposed if subject to stringent safeguards by the courts

Articles of Confederation

A weak constitution that governed America during the Revolutionary War.

Weaknesses of the Articles of Confederation

no power to tax, President lacked power, no money to buy ships or pay soldiers

Difference between federal and confederal governmental system

In a federal system there is centralized authority, while in a confederal system power is distributed equally among the states.

Factors impacting movement toward development of the US Constitution at the Philadelphia Convention

the desire to put the central government on a sound financial basis, the need for national commercial regulations, especially against England and the conflicting state interests, and the necessity of protecting property rights from the attacks of the debtor classes.

basic structure of the Constitution

Preamble, 7 articles, 27 amendments

difference between Articles and Amendment

Articles outline the three branches of government, and specific powers and responsibilities of the government.

The Amendments are additions and changes that have been made to the Constitution since its ratification

subject matter of the Articles

1.legislative branch

2.executive branch

3.judicial branch

4.federalism & interstate relations

5.amendments

6.religious tests, supremacy clause(this constitution shall be the supreme law of the land)

7. ratification of conventions of nine states

Article 1 of the Constitution

Legislative Branch

Article 2 of the Constitution

Executive Branch

Article 3 of the Constitution

Judicial Branch

Article 4 of the Constitution

Relations among states

Article 5 of the Constitution

Amending the Constitution

Article 6 of the Constitution

Supremacy Clause - clearly states that national law will be supreme over state law

Article 7 of the Constitution

Ratifying the Constitution

Separation of Powers

Constitutional division of powers among the legislative, executive, and judicial branches, with the legislative branch making law, the executive applying and enforcing the law, and the judiciary interpreting the law

Checks and Balances

A system that allows each branch of government to limit the powers of the other branches in order to prevent abuse of power

federalism

A system in which power is divided between the national and state governments

police powers

state power to effect laws promoting health, safety, and morals