Business Law Unit 1

12 point discussion, chp 15, chp 16, chp 17

Types of business entities

Sole proprietorship, partnership, corporation (s. corp, c. corp), limited liability company, limited liability partnership, limited partnership

Factors to consider when creating a business?

Ease of formation. Taxation. Liability. Ability to raise capital. Control. Ease of Transfer. Perpetual life of business.

What does unlimited liability mean for the business owner?

The owner of the business is responsible for all accidents and financial responsibilities. Possible to lose everything (personal and financial assets)

What is Pass through taxation?

Avoids double taxation, business owner/entity only pays personal taxes once with business profits reported as personal income.

what protects a person/business from legal trouble? (alleged negligence, wrong doing, etc.)?

Insurance

What are the 3 main sources of law?

Common law/case law. Statutory law (legislative). Administrative

T or F: If it’s legal, it’s moral

False

T or F: Illegal acts can be morally preferable

True

Who are the parties involved in a civil case?

Plaintiff vs. Defendant.

Plaintiff - accusing party (seeking compensation)

Defendant - person defending themselves (accused)

What evidence is needed for a Civil case? What is on the line?

Preponderance of evidence of 51%. Compensation (seeking money)

Who are the parties involved in a Criminal case?

Prosecution vs. Defendant

Prosecution - government (accusing, trying to punish)

Defendant - individual accused of crime

What does acquitted mean?

Innocent in the court of law

What evidence is needed for a criminal case? What is on the line?

Beyond a reasonable doubt of 95% is needed. Freedom/liberty is on the line (jail/prison time)

What does “Pro-se litigant” mean?

Representing yourself in court. (no lawyer for you)

What does “Pro-bono” mean?

Lawyer working for free for indigent (poor) client. '“For the public good”

How is a Supreme Court judge selected?

1. Nominated by the president 2. Nominee taken to senate and voted on 3. Appointed

How long does a state justice serve for?

Serves 4 - 6 years

How does a state justice get selected?

Must be voted in

How long does a Supreme Court justice serve?

For life

What are some cases federal courts will hear?

Constitutional disputes. Bankruptcy. Case w/ both parties from different states.

What does liable mean?

Finically responsible

How many justices serve for the Supreme Court? Why?

9. 9 justices prevents “gridlock”.

What is “ease of formation”?

Requirements for the formation based on type of business entity being formed

What is “ease of transfer”?

How easy it is to get in and out

What is “perpetual life”?

How long can a business live?

What is ability to raise capital?

Can a business make more money using money from investors?

What is liability?

Who is responsible for financial and punitive disputes?

What is taxation? (regarding the formation of a business)

How a business entity is taxed by state/fed/etc. government

What is a sole proprietorship’s factors to consider?

Ease of formation → Easy

Taxation → “pass through”

Liability → unlimited

Control → Total

Ease of transfer → difficult

Perpetual life → dies with owner

What does “pass through” taxation mean?

Business is taxed as the owner. Earnings get reported as owner’s income. Don’t have to pay double taxation.

What are the duties of the owners for a partnership?

Fiduciary → faithful representatives (treat the little guys well)

What is a partnership entity?

two or more people/entities form a business partnership

What are the factors of consideration for a partnership entity?

Taxation → pass through

Ease of formation → (too) easy

Liability → Unlimited. Joint and several liability - both parties responsible

Ease of transfer → can be easy OR difficult

Control → loss of full control, split between owners

Perpetual life → dissolves if partner leaves/exits/dies

Ability to raise $ → depends on other partners

What are the factors to consider for an C. Corp?

Taxation → Double (not pass through)

Liability → limited

Control → distributed among CEO, Board of Directors,

Ease of formation → Depends on where (typically more difficult)

Ease of transfer → Easy to transfer shares

Perpetual life → Forever. ex. loss of one owner doesn’t affect

Ability to raise $ → Balanced by securities, regulation by SOX

What are the factors to consider for an S. Corp?

Taxation → Pass through

Liability → limited

Control → CEO, CFO, BOD

Ease of formation → more difficult

Ease of transfer → Depends on control

Perpetual life → Shareholders can buy from each other

Ability to raise $ → various amounts of investment can be contributed from a variety of investors. Limited to >= 100 investors

What are the factors to consider for an LLP?

Liability → limited

Ease of formation → relatively easy to form/operate. min. paperwork

Taxation → pass through

Perpetual life → None

control → 2 partner min, split

What are the factors to consider for an LLC?

Liability → Limited

Ease of formation → easy to form/operate

Taxation → pass through

control → only needs 1 owner. Member; owner

What are the differences between a General partner and Limited Partner?

General: owner, very involved, makes decisions

Limited: Invest money and don’t try to control (or lose limited liability)

What happens if a Limited liability entity goes broke?

Creditors don’t get paid

Who should a product distributor partner with to ensure payment for transactions?

Partnership because they have the most assets/liability to get $. No liability protection.

Which state uses old roman civil code?

Louisiana

Why do companies like to form in Delaware?

More sophisticated, better corp. laws. Special court systems for corp. disputes. votes to change corp. laws, reduced liability for BOD members

What are the elements of the articles of incorporation?

Name of Corp., # of classes of shares of stock, address & name of people authorized to receive service of process

What are the steps to form a corporation?

1. File the articles of incorporation, corporate charter

2. receive certificate of incorporation

3. sell shares to wonders

4. hold Shareholder meeting, elect board of directors

5. Board of directors appoints/hires officers

Who has the burden of proof in a civil lawsuit?

The plaintiff “by preponderance of the evidence”

The one American state, which was settled by the French, that follows old Roman civil code is?

Lousiana

Common law, according to the 12-point discussion paper, refers to law that is:

Created by courts

Which of the following statements is NOT accurate?

State district court judges usually are appointment to the bench for a term of years.

All things being equal, a banker would LEAST prefer to extend credit to a:

Corporation

Which of the following is true of a sole proprietorship?

Creditors can recover claims against the business from the sole proprietor’s personal assets

True or false? With respect to limited liability companies, or LLCs,

members of LLCs are liable for the LLC’s debts, obligations, and liabilities

to the extent of their capital contributions; conversely, partners of limited

liability partnerships, or LLPs, are personally liable for the LLP’s debts,

obligations, and liabilities.

False

Which of the following best describes the meaning of the term “pro se litigant”?

A person who is representing themself in a matter

Which of the following is NOT an advantage of incorporating in Delaware?

Exemption from the federal securities registration

The concept of “piercing the corporate veil” is most closely related to:

The failure to establish a board of directors and officers

Which of the following statement is accurate?

In most corporations, the president acts as the CEO of the corporation

Which of the following is an example of debt (or a debt security) as opposed to equity (or an equity security)?

Bonds, Debentures, and Notes

True or false? The corporate opportunity doctrine requires officers and

members of the board of directors of a corporation to notify the corporation

of any business opportunity that the corporation may be interested in

pursuing.

True

True or False? The sole proprietor is not even required to notify the Internal Revenue Service (IRS) that their business has been formed,

True

True or False? Partners in a partnership can share the ownership in unequal fractions.

True.

What does the Uniform Partnership Act do?

Provides the "default" rules for operating a partnership if the partners do not have their own partnership agreement

Who runs a corporation?

Shareholders elect→ Board of Directors appoint → CEO

What’s held for board of directors selection?

Election

What’s it called when BOD fires the CEO?

Terminate

Who’s responsible for running day-to-day of a Corporation?

CEO and Board of Directors

What are the fiduciary duties of a Corporation?

• Care - expected to exercise common sense - apply skill and knowledge possessed - review materials provided in advanced - make inquiry to understand and ask questions

• Loyalty - Director refrains from pursuing opportunities in conflict with Corp. - disclose conflict and abstain from voting

What are the points of the discussion points?

1. Nothing created by humans is perfect

2. Laws are usually imprecise

3. Laws are similar around the world

4. American law comes from 3 primary sources

5. Law is politics

6. Lawyers are expensive

7. Civil lawsuits differ from criminal lawsuits

8. American law generally doesn’t follow the “loser pay” rule

9. America’s judicial systems are similar at the state and federal levels

10. Key steps in a civil lawsuit

11. “Out of court settlements'“

12. Nothing created by humans is perfect

What is the ULPA and what does it do?

The Uniform Limited Partnership Act (ULPA) is the law that governs limited partnerships

What’s the difference between an S. corp and C. corp?

An S. Corp can only have 100 or less members, any more than that and it becomes an C. corp

Who makes final decision regarding what the laws mean?

Courts

The world seeks legal compatibility while attempting to retain unique legal identity

True or False? an advanced legal system adds a degree of predictability to the legal aspect of doing business

True

What is common law?

Law created by courts

What does “precedent” mean?

Judges are expected to follow legal concepts established in similar prior cases

True or False? Judges must always follow precedent.

False. “Judges are not always strictly bound by precedent but give it a strong consideration when deciding cases” -12 pt discussion

Where is American common law traced back to?

Local courts in England

What does Louisiana have instead of usually common law?

“Civil code system”, Louisiana settled by the French.

What is a civil code system?

Legal system in which courts have very limited power to create law. Relies on statutes and gives broad discretion and authority to bureaucrats

Why is there a lack of corruption with a common law system?

It places relatively more power in the hands of the courts and less power/direction in the hands of the bureaucrats

What is statutory law?

laws that originate in a legislative body.

Federal legislature can adopt statues that have priority over state laws

True

What are laws from congress and state legislatures referred to as?

Statutes

What are laws from city legislatures referred to as?

Ordinances

What is administrative law?

the body of rules and regulations created by government agencies. ex. EPA, OSHA

Administrative law is only allowed where the agency has received permission from the legislature

True

True or False? The law never changes or evolves

False. “The law is constantly changing and evolving” -12 pt discussion

What’s the major distinction between the federal and state legal systems?

The courts.

How long do federal judges serve? How do they become fed. judge?

Serve for life, appointed by the President and confirmed by US senate.

What are the views of the Republican Party according to the 12 point discussion paper?

• favor less government

• appoint originalist judges

• “party to improve economy, bring world peace”

What is an originalist judge?

defer to a statute’s wording and legislative intent

What are the views of the democratic party according to the 12pt discussion paper?

• Favor more governmental regulation of business

• appoint activist judges

• “party to improve economy, bring world peace”

What is an activist judge?

Tend to interpret statutes in a way that results what judges consider to be fair

What does a lawyer need to be licensed?

Undergrad degree in any discipline, complete three years of law school, pass a state bar exam

What is the rule lawyers have to follow? Who creates it?

Code of ethics. Administered by highest court in the individual state. Usually called State’s Supreme Court

What is a lawyer who only represents plaintiffs called?

Trial lawyer

What is a lawyer who only represents defendants called?

Defense lawyer

How much does an attorney cost?

$200/hr

What does contingent fee mean?

Lawyer receives a negotiated share of the recovery of the case

True or False? Defense lawyers will work on a contingent fee

False.

True or False? Lawyers cannot represent a party in small claims courts

True.

What is the burden of proof in a criminal trial?

Beyond a reasonable doubt. 95% certainty of the verdict.