Business Law Final Flashcard

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What are the reasons to choose different types of Business Organizations?

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Business

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What are the reasons to choose different types of Business Organizations?

- Capital

- Unlimited Liability

- Tax

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Sole Proprietorship

A small business owned by one person, family business

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5

What are the benefits of a Sole Proprietorship?

- Easy to form

- Easy to control/manage

- Inexpensive to create and maintain

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6

What are the negatives of a Sole Proprietorship?

- Unlimited Liability

- Limited capital raising ability

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7

Unlimited liability (Personal Liability)

Liability not limited to the business

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8

Partnership

Contractual Relationship, an agreement of 2 or more parties for common business enterprise

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9

Do partnerships need to be made verbal or written?

They may be verbal or written

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10

What are the 2 types of Partnerships?

general and limited partnerships

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11

General Partnership

Each partner brings something to the table (Money, skill, etc...)

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12

Limited Partnership

Provides capital for profits and tax purposes

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13

What type of risk do general partners have?

Unlimited Risk

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What type of risk do limited partners have?

Limited liability, Can only lose the amount invested

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15

What are the advantages of General Partnerships?

- Easy to create

- Inexpensive

- More Money

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16

What are the disadvantages of General Partnerships?

- Personal Liability

- Potential for more disputes

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17

When do partnerships end?

Until partners dissolve contractual relationship

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18

What type of relationships are partnerships?

Contractual Relationships

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19

Limited Liability Company

A hybrid entity with features of both corporation and partnership

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20

How is a Limited Liability Company born?

Born by filing the Articles of Organization in the state of choice

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21

Is a Limited Liability Company a contractual relationship?

No, an LLC is not a contractual relationship.

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22

When the limited partnership buys life insurance to protect general partners, what type of insurance is this?

Liability Insurance

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23

What are investors in an LLC called?

Members

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24

Limited Liability Company's don't have bylaws, but use a document called ____ .

Operating Agreement

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Operating Agreement

To provide structure for the LLC among members

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26

What are the advantages of an LLC?

- Raise Capital

- Limited Liability

- Less formal legal rules than Corporation

- Tax Flexibility

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What are the disadvantages of an LLC?

none

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28

Franchise

Not a type of business entity, it is a business model.

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What type of relationship does a franchise have?

Franchise are Contractual Relationships

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What do franchises give/use?

Using the intellectual property of the business model

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Corporation

Living an breathing entity

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How are Corporations seen in the eyes of the law?

Corporations are considered "a person" in the eyes of the law

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33

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.

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34

What document is needed to form a corporation?

The articles of incorporation and bylaws

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35

What do corporations need to stay alive?

Money

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Who owns a corporation?

stockholders/shareholders

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Who controls a corporation?

Board of directors

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What are the advantages of a corporation?

- Can raise significant capital

- Tax can be favorable

- Limited Liability

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39

What are the disadvantages of a corporation?

- Difficult to manage

- More expensive to create

- Complex business structure

- Not the best all purpose form

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40

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

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41

Would stockholders, boards, or officers go to jail for the business in modern law?

Yes, if participating in illegal subjects go to jail

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42

Where are stocks publicly traded throught?

Stock Exchange

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43

How do most companies start?

Most start privately owned

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non-profits are...

Not for profit "Charity"

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Do non profits pay taxes?

No

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S Corporation

Small business corporation that avoids 2x taxes

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How many shareholders can an S Corp have?

No more than 100

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How does an S corp avoid double taxation?

Corporation income tax would be ignored by the shareholders taking the tax burden as ordinary income.

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Bylaws

Set of rules on how stockholders, board, and officers interact with each other

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Corporate Bond

A loan to a company for a principle back

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What has the least risk, corporate stock or corporate bond?

corporate bond as the least amount of risk

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Corporate Stock

Giving money to corporation for fractional ownership

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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

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54

What are the two types of stock?

common stock and preferred stock

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How many votes do you get per share?

One share of common stock = one vote

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What does common stock rely on?

Common stock price is market dependant

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Is common stock risky?

Yes, most risk but most benefit

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Preferred Stock

In the event of a corporation goes bankrupt, preferred stock owners are first in liquidation

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Why is preferred stock less risky?

Preferred stock owners get their money first, over common shareholders

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Why do people form corporations?

People form corporations to shield themselves from creditors

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what are the 2 ways the corporate shield get pierced?

- Alter-Ego

- Under Capitalization

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Alter-Ego

If your personal and corporate money becomes comingled, then corporate identity is lost

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If your corporate and personal money comingle then it is an...

extension of you

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If the corporate shield is pierced who do people go after?

They go after you personally

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Under-Capitalization

Corporation not given enough money to live

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If a corporation is under capitalized what are they?

A sham

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What is the rule of directors and officers?

- Directors manage global basis

- Managers handle day to day basis

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Business Judgement Rule

Directors are not required to always be right, by law, as long as they exercise rational business judgement

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According to the Business Judgment Rule, what are directors entitled to?

They are entitled to be able to make mistakes

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Who appoints directors?

Shareholders

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What must corporations hold annually?

Corporations must have an annual meeting of shareholders

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What happens are the annual meeting of shareholders?

Elects directors

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What are the two ways to control a corporation?

- Own 51% of the stock

- Person with most votes (Majority)

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Proxies

Promote competition and prevent monopoly

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Rule 14A

Proxy Solicitation

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What is the purpose of Anti-Trust?

Promote competition and prevent monopoly

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Monopoly

Abuse to consumer

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Sherman Act of 1890

Federal law which attempts to prohibit monopolies

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Clayton Act

Federal law which attempts to prohibit conspiracy

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Conspiracy

Unlawful agreement with multiple companies

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Vertical Integration

Controlling all steps at a higher or lower stage of production

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Horizontal Integration

Controlling all firms that compete with each other in the same market

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Robert Pattman Act

Prohibits price discrimination, everything must be equal

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Robert Pattman Act is anti what?

Anti-competitive

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Price Discrimination

Can not give better or worse prices than to others

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Rule of Reason

A monopoly may be allowed to exist only if there is a reason to allow it

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Hart Scott Rodino Act

Requires mergers to notify the FTC

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Federal Trade Commission (FTC)

Enforces anti-trust laws

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The FTC will allow for mergers if?

If they comply with the Shurman Act

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Mergers

Marriage between companies for financial reasons

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91

If a company does business globally, what anti-trust laws do they need to follow?

Companies must comply with laws wherever business is done

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92

What is the one industry that does not need to follow anti-trust laws?

Baseball industries

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93

Securities

Stock

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94

What was a cause of the Great Depression dealing with stock laws?

There were no stock laws preventing fake companies

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95

Blue Sky Laws

State law to prevent the sale of sham companies

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Is Blue Sky law federal law or state law?

State law dealing with securities and the sale of stock

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33 Act

Registration to public by the SEC

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34 Act

Reporting and disclosure of securities for public stock

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Prospectus

details and status of the company

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What do companies need to do to sell stock to the public?

Must register with SEC to sell stock publicly

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