Business Organizations Flashcards
Factors to consider when choosing business structure
Ownership
Formation Process
Liability
Taxation
Operation/MGMT
Property Ownership
Profits/Losses (who bears them)
Dissolution
Sole Proprietorships Advantages
Simple, inexpensive, complete control, keep all profits, taxation is simple
Sole Proprietorships Disadvantages
Business and owner are joined (liability), take on all liability and losses, limited access to capital
How to terminate a sole proprietorship
stop running business
Partnerships
2 or more people conduct and own a business for profit, contribute labor, skills, and funds, partners are both principals and agents
Elements of General Partnership
Assumed under law, share profits and losses, joint ownership, shared MGMT
Elements of Limited Partnerships
Written agreement and filing with secretary of state
General Partners: manage, liable for debts
Limited Partners: no MGMT rights, liability limited to amount of investment (investor)
Limited Liability Partnerships (LLP)
Limites partner’s liability for the wrongful act of the other partners (not responsible for their wrongdoing), liable for the LLP’s debts and obligations, all partners manage
Common for doctors and lawers (protects against their malpractice)
Limited Liability Company (LLC)
Hybrid, separate legal entity, form by filing articles of organization, could be just one person, may be limited to a certain duration, members can manage, liable only for their capital contribution, requires operating agreement, no double taxation, allows investors, members have voting rights
Corporations
Independent legal entity, owners only liable for capital investment, form by filing articles of incorporation, bylaws, and corporate name, ownership is shareholders, MGMT is board of directors (elected by shareholders), double taxation
Types of Corporations
Public, private, closely held
Nonprofit
Mission driven, tax exempt, reporting requirements
Officers
Appointed by board of directors, oversee day to day operations, C-Suite
What is double taxation?
Company is taxed on profits and then shareholders are taxed on dividends
Corporation Formation
Articles of incorporation filed with the secretary of state (shares, registered agent, board of directors, corporate purpose) along with corporate name and bylaws
Must choose where business is incorporated (which state, Deleware is popular)
Shareholder Power
Elect directors, approve fundamental changes, amend articles and bylaws with quorum vote
Director Powers
Supervisors, formulate policy, appoint/remove officers, hold meetings with quorum and committees
Officer Powers
Adminiter daily operations, supervised by the board, agents of the corporation
Closely Held Corporations
5 or less people own 50% or more of the business, incorporated in principal state
Co-signing
Personally liable for what is being signed for, makes shareholder personally liable
When are shareholders personally liable?
Co-signing, comingling of personal and corporate interests (intermixing cards), signing contract without listing your title, tort/fraud, shell corporation
Pierces the Corporate Veil
Shows you are actually a sole proprietorship
Corporate Dissolution Options
1) File article of dissolution
2) Agreement of shareholders and board
3) Expiration of time period stated in incorporation (LLC)
4) Court order or other state action
Voluntary Dissolution
It is your choice to end business
Involuntary Dissolution
Court ordered, fraudulent, failure of admin. requirements, failure to commence operations, criminal acts
Liquidation
Sale of business assets and the distribution of proceeds to creditors and shareholders based on seniority
