Ch 14 Flashcards
Publicly held
Have hundreds or thousands of owners
Ex. Business whose stock is traded on public exchange
Closely held
Organizations owned by few people
Ex. Family owned and operated businesses
5 factors to consider when selecting business organizations form
1 creation cost 2 continuity (stability) 3 managerial control of decisions 4 owner's personal liability 5 taxation/distribution of earnings
Creation
2 Examples of issues with creation
Legal steps necessary to form particular business organization
Ex. Issues, cost and length of time to create
Continuity
Durability, how can the organization continue to operate
Dissolution
Any change in ownership that changes legal existence of
Organization
Managerial control, important issue
Have mechanisms in place to solve disputes about who
Has control over decisions in the company
Sole proprietorship: creation
No formal documentation, business licenses only
Sole proprietorship: continuity
As long as proprietor desires, but no transfer to others
Sole proprietorship: control
Total control by proprietor
Sole proprietorship: liability
Personal obligation for all debts and laibilities
Sole proprietorship: taxation
All business income subject to personal taxation
Partnership: creation
Automatic based on business conduct
Modified by agreement
Partnership: continuity
Dissolved when 1 partner withdraws
Partnership: control
Each partner has equal voice, though can be modified
By agreement
Partnership: liability
Personal obligations for all debts and liabilities
Joint and several liability
Partnerships: taxation
All business income subject to personal taxation divided
equally
Corporation: creation
Incorporators apply for state charter with articles of
Incorporation
Corporation: continuity
Perpetual, as long as it can conduct business
Corporation: control
Managed by officers, appointed by directors, who are
Elected by shareholders
Corporation: liability
Shareholder obligations limited to investment, absent
Other commitments
Corporation: taxation
Corporate income taxed
Shareholders taxed on income distributed
Limited partnership: Creation
Partnership agreement and certificate filed in public
Office where business is conducted
Limited partnership: continuity
Dissolved when general partner withdraws
Limited partnership: control
General partners have total control
Limited partnership: liability
Personal obligation for general partners
Limited partners obligated for investment
Limited partnership: taxation
All business income subject to personal taxation
S Corporation: Creation
Incorporators apply for state charter with articles of
incorporation
S Corporation: continuity
Perpetual, so long ad number of shareholder limited
S Corporations: control
Managed by officers, appointed by directors, who are
Elected by shareholders
S Corporation: liability
Shareholder obligations limited to investment, absent
Other commitments
S Corporation: taxation
All business income subject to personal taxation
Limited liability company or partnership: Creation
Organizers file articles of organization with state official
Limited liability company or partnership: continuity
Dissolved when member withdraws, but may be continued
By those remaining
Limited liability company or partnership: control
Equal management by members unless manager designated
Limited liability company or partnership: liability
Members are agents, but liable only for investment
Limited liability company or partnership: taxation
All business income subject to personal taxation
Articles of partnership
Formal agreement drafted among parties to form partnership
State assumed name statute
If name of partnership is other than name of partners,
The partners must give notice of their actual identity
Partnership: Buy and sell agreement
Agreement provides for amount and manner of compensation
for deceased or withdrawing owner of partnership
Domestic corporation
Name for Corporation within state it is incorporated in
Foreign corporation
Name for corporation when it is in all other states that
It’s not incorporated in
Alien corporation
Corporation created under the authority of a foreign country
Charter of incorporation AKA Articles of incorporation
Application to set up corporation
Incorporators
Individuals who founded the corporation
Corporations outside of state they are incorporated in must be…
Licensed in any outside state it operates in
Board of directors, 2 functions? How are they elected?
Set goals for corporation and appoint officers
Elected by shareholders
Why are a lot of corporations incorporated in Delaware? 2 reasons
1 Respected judiciary deciding issues related to general
Corporation law
2 no income tax
Proxy
Agent appointed by shareholder for purpose of voting the
shares
Derivative suit
Lawsuit brought on when board of directors (majority
Shareholders) act illegally oppressing the rights of minority
Shareholders
The alter ego theory: Piercing the corporate veil
Situations where corporate organization is being misused
And shareholders face unlimited liability
Methods for avoiding double taxation 3 things
1 Deduct reasonable salaries, interest from debt and meals
2 Not pay dividends (but IRS then makes company pay tax)
3 Elect to file subchapter s of internal revenue code
Which eliminates corporate tax
4 advantages of being organized as a corporation
1 transferring ownership
2 limited shareholder liability
3 control held by those of minority investment
4 perpetual existence
4 Disadvantages of forming corporation
1 high costs of formation (license, franchise fees, procedural)
2 must be qualified in all states where business is conducted
3 subject to more gov. Regulation
4 corporate income subject to double taxes
6 Advantages of partnerships
1 easily formed
2 low costs
3 not a tax paying entity
4 each partner has equal voice in management
5 may operate in more than 1 state without liscences
6 less gov regulation
4 disadvantages of partnerships
1 only limited # of people can be partners
2 partnership dissolved when any partner leaves
3 unlimited liability
4 partners taxed on share of profits whether distributed
Or not
Limited partner
Partner not personally responsible for debts of business
Organization
General partners of limited partnership
Managers of limited partnership
Personally liable for organization’s debts
Articles of Organization
Filings to create a limited liability company
Organizers
Creators of limited liability company
Members
Owners of LLC’s
LLC’S: managerial control
Unanimous consent by all members or managers is
Necessary to make a binding decision
What has the Dodd Frank Act given Shareholder’s the right to do?
1 non binding periodic shareholder votes to whether
Executives are overpaid
2 shareholders can include own board of director candidates
In their proxy
