Studied by 76 peopleWhat are the reasons to choose different types of Business Organizations?
- Capital
- Unlimited Liability
- Tax
Sole Proprietorship
A small business owned by one person, family business
What are the benefits of a Sole Proprietorship?
- Easy to form
- Easy to control/manage
- Inexpensive to create and maintain
What are the negatives of a Sole Proprietorship?
- Unlimited Liability
- Limited capital raising ability
Unlimited liability (Personal Liability)
Liability not limited to the business
Partnership
Contractual Relationship, an agreement of 2 or more parties for common business enterprise
Do partnerships need to be made verbal or written?
They may be verbal or written
What are the 2 types of Partnerships?
general and limited partnerships
General Partnership
Each partner brings something to the table (Money, skill, etc...)
Limited Partnership
Provides capital for profits and tax purposes
What type of risk do general partners have?
Unlimited Risk
What type of risk do limited partners have?
Limited liability, Can only lose the amount invested
What are the advantages of General Partnerships?
- Easy to create
- Inexpensive
- More Money
What are the disadvantages of General Partnerships?
- Personal Liability
- Potential for more disputes
When do partnerships end?
Until partners dissolve contractual relationship
What type of relationships are partnerships?
Contractual Relationships
Limited Liability Company
A hybrid entity with features of both corporation and partnership
How is a Limited Liability Company born?
Born by filing the Articles of Organization in the state of choice
Is a Limited Liability Company a contractual relationship?
No, an LLC is not a contractual relationship.
When the limited partnership buys life insurance to protect general partners, what type of insurance is this?
Liability Insurance
What are investors in an LLC called?
Members
Limited Liability Company's don't have bylaws, but use a document called ____ .
Operating Agreement
Operating Agreement
To provide structure for the LLC among members
What are the advantages of an LLC?
- Raise Capital
- Limited Liability
- Less formal legal rules than Corporation
- Tax Flexibility
What are the disadvantages of an LLC?
none
Franchise
Not a type of business entity, it is a business model.
What type of relationship does a franchise have?
Franchise are Contractual Relationships
What do franchises give/use?
Using the intellectual property of the business model
Corporation
Living an breathing entity
How are Corporations seen in the eyes of the law?
Corporations are considered "a person" in the eyes of the law
As a corporate entity, what can they do similar to people?
Corporations can enter into contracts, own property, be a party to lawsuits, hire and fire people, etc.
What document is needed to form a corporation?
The articles of incorporation and bylaws
What do corporations need to stay alive?
Money
Who owns a corporation?
stockholders/shareholders
Who controls a corporation?
Board of directors
What are the advantages of a corporation?
- Can raise significant capital
- Tax can be favorable
- Limited Liability
What are the disadvantages of a corporation?
- Difficult to manage
- More expensive to create
- Complex business structure
- Not the best all purpose form
Would stockholders, boards, or officers go to jail for the business in common law?
No, common law didn't know who to put in jail
Would stockholders, boards, or officers go to jail for the business in modern law?
Yes, if participating in illegal subjects go to jail
Where are stocks publicly traded throught?
Stock Exchange
How do most companies start?
Most start privately owned
non-profits are...
Not for profit "Charity"
Do non profits pay taxes?
No
S Corporation
Small business corporation that avoids 2x taxes
How many shareholders can an S Corp have?
No more than 100
How does an S corp avoid double taxation?
Corporation income tax would be ignored by the shareholders taking the tax burden as ordinary income.
Bylaws
Set of rules on how stockholders, board, and officers interact with each other
Corporate Bond
A loan to a company for a principle back
What has the least risk, corporate stock or corporate bond?
corporate bond as the least amount of risk
Corporate Stock
Giving money to corporation for fractional ownership
does the money used to purchase corporate stock belong to the corporation or the buyer?
The money used to purchase stock belongs to the corporation
What are the two types of stock?
common stock and preferred stock
How many votes do you get per share?
One share of common stock = one vote
What does common stock rely on?
Common stock price is market dependant
Is common stock risky?
Yes, most risk but most benefit
Preferred Stock
In the event of a corporation goes bankrupt, preferred stock owners are first in liquidation
Why is preferred stock less risky?
Preferred stock owners get their money first, over common shareholders
Why do people form corporations?
People form corporations to shield themselves from creditors
what are the 2 ways the corporate shield get pierced?
- Alter-Ego
- Under Capitalization
Alter-Ego
If your personal and corporate money becomes comingled, then corporate identity is lost
If your corporate and personal money comingle then it is an...
extension of you
If the corporate shield is pierced who do people go after?
They go after you personally
Under-Capitalization
Corporation not given enough money to live
If a corporation is under capitalized what are they?
A sham
What is the rule of directors and officers?
- Directors manage global basis
- Managers handle day to day basis
Business Judgement Rule
Directors are not required to always be right, by law, as long as they exercise rational business judgement
According to the Business Judgment Rule, what are directors entitled to?
They are entitled to be able to make mistakes
Who appoints directors?
Shareholders
What must corporations hold annually?
Corporations must have an annual meeting of shareholders
What happens are the annual meeting of shareholders?
Elects directors
What are the two ways to control a corporation?
- Own 51% of the stock
- Person with most votes (Majority)
Proxies
Promote competition and prevent monopoly
Rule 14A
Proxy Solicitation
What is the purpose of Anti-Trust?
Promote competition and prevent monopoly
Monopoly
Abuse to consumer
Sherman Act of 1890
Federal law which attempts to prohibit monopolies
Clayton Act
Federal law which attempts to prohibit conspiracy
Conspiracy
Unlawful agreement with multiple companies
Vertical Integration
Controlling all steps at a higher or lower stage of production
Horizontal Integration
Controlling all firms that compete with each other in the same market
Robert Pattman Act
Prohibits price discrimination, everything must be equal
Robert Pattman Act is anti what?
Anti-competitive
Price Discrimination
Can not give better or worse prices than to others
Rule of Reason
A monopoly may be allowed to exist only if there is a reason to allow it
Hart Scott Rodino Act
Requires mergers to notify the FTC
Federal Trade Commission (FTC)
Enforces anti-trust laws
The FTC will allow for mergers if?
If they comply with the Shurman Act
Mergers
Marriage between companies for financial reasons
If a company does business globally, what anti-trust laws do they need to follow?
Companies must comply with laws wherever business is done
What is the one industry that does not need to follow anti-trust laws?
Baseball industries
Securities
Stock
What was a cause of the Great Depression dealing with stock laws?
There were no stock laws preventing fake companies
Blue Sky Laws
State law to prevent the sale of sham companies
Is Blue Sky law federal law or state law?
State law dealing with securities and the sale of stock
33 Act
Registration to public by the SEC
34 Act
Reporting and disclosure of securities for public stock
Prospectus
details and status of the company
What do companies need to do to sell stock to the public?
Must register with SEC to sell stock publicly
Note
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