BCL: Legal Forms of Business Organization

Initial Public Offering (IPO)

The first time a company issues stock that can be purchased by the general public

Sole proprietorship

A form of business with a single owner in full control over all aspects of the business

Partnership

A form of business with two or more individuals sharing ownership and control over a business

Corporation

A form of business treated as a separate legal entity from its owners

Uniform Partnership Act (UPA)

the law that governs partnerships in most states

Positive features of partnerships

Reduced liability, shared expertise among owners, more capital

Negative features of partnerships

Less control over business, potential for disagreement among owners

Positive features of sole proprietorships

Full control over business and profits, easiest to start

Negative features of sole proprietorships

Includes the most liability, least amount of initial capital

Positive features of corporations

Least liability, most access to capital, unlimited life, more attractive to professional managers

Negative features of corporations

Most difficult to start, least control over business decisions, double taxation on profits and dividends

Partnership agreement

A contract that defines the terms and conditions of a business ownership arrangement between two or more individuals

Trading partnership

partnership that buys and sells goods and services commercially

Non-trading partnership

partnership that provides professional and noncommercial assistance or advice

General partnership

Partnership where all owners of the business have managerial control and liability

Silent partner

A business owner known to the public but takes no active role in management

Secret partner

A business owner not known to the public but who takes an active role in management

Dormant partner

A business owner who is not known to the public and does not take an active role in management

Nominal partner

person who pretends to be a partner or permits others to represent him or her as a partner

Limited partnership

A business with one or more partners that do not assume personal liability for the company outside of any money invested

Joint venture

An agreement between two or more companies to share resources to complete a specific project

Dissolution

A change in the relationship between partners caused by one partner ceasing to be involved in operating the business

Winding-up period

the time period following dissolution of a partnership during which assets are liquidated and distributed

Tenancy in partnership

A form of co-ownership of property between two or more business partners

Domestic corporation

a corporation operating in the state in which it is incorporated

Foreign corporation

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

Alien corporation

a corporation established with a foreign government and conducting business in the United States

Public corporation

a corporation established for governmental purposes (e.g. state hospitals, state universities)

Private corporation

a corporation established by individuals for business or charitable purposes

Publicly-held corporation

a corporation that sells stocks to the general public

Non-profit corporation

A corporation established for a social, charitable, or educational purpose with special tax benefits

Public service corporation

A private company that provides a public service (e.g. public utility companies)

Promoters

People who organize and start a corporation

Articles of incorporation

A legal document that outlines ownership and operating procedures and conditions of a corporation

Incorporators

People who sign the articles of incorporation

Essential terms of articles of incorporation

Name, duration, purpose, number of stock, number and names of directors

Corporate charter

A legal document that the state issues to a corporation to enable the issuance of stock and operation of the corporation

Shares of stock

units of ownership in a corporation

Shareholder

an individual who owns stock in a corporation

Par value

a value assigned to a share of stock and printed on the stock certificate

No-par stock

Stock that has no printed value and sells at a value assigned by the board of directors at issuance

Common stock

Basic form of ownership in a company that allows stockholders to vote in corporate elections

Preferred stock

A type of corporate ownership that pays a fixed dividend but prevents stockholders from voting in corporate elections

Shareholder rights

to own a stock certificate, transfer shares, attend shareholder meetings and vote, increase capital stock, share the profits, share in a distribution of the capital, inspect corporate books of account

Proxy

a person designated by a shareholder to vote on the shareholder's behalf in corporate elections

Directors

People elected to represent the interests of shareholders by hiring executives and setting the overall direction of a corporation

Officers (executives)

High-ranking people in charge of managing the day-to-day operations of the corporation in accordance with the goals set by the board of directors

Examples of officers

CEO, CFO, COO, CIO, President, Vice President

Business judgment rule

A rule stating that shareholders, directors, officers, and all other corporate employees cannot be held personally liable for civil or criminal disputes with parties outside of the corporation for honest errors of judgement made in the course of business

Bonds and debentures

Written promises to pay back money borrowed from an investor by the corporation

Bylaws

A set of governing rules and regulations adopted by a corporation

Consolidation

The process of combining two corporations into one new corporation

Merger

The process of one corporation absorbing another corporation

S Corporation

A type of small corporation limited to 100 shareholders and taxed on only the profits that are distributed to shareholders

Limited Liability Corporation (LLC)

A form of corporation that offers its owners protection from liability, taxation as a partnership, and few restrictions on shareholders compared to an S corp.

Articles of organization

A document filed to create an LLC

Members

Owners of an LLC

Operating agreement

The list of rules and regulations under which an LLC operates

Limited Liability Partnership (LLP)

A form of partnership in which all partners have the right to participate in management and have limited liability for company debts