Business Law Final Flashcard

Flashcards based on notes Good Luck...

What 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