Ch 2: Business Entities

Question 1

What are business entities?

Answer 1

involved in a large portion of economic activities such as manufacturing goods etc.

Question 2

What are the 7 types of business entities?

Answer 2

-Legal person
-sole proprietorship
-partnership
- limited partnership
-limited liability company
-Stock company
-Public corporation

Question 3

What is the objectivity rule?

Answer 3

imposed by national law when it comes to establish a natural person as a merchant; states that it is a trader the person who is engages in activities that are considered comercial by the law.

Question 4

What is the subjectivity rule?

Answer 4

first part same as up; states that it is a trader, the person who makes from business activity their usual profession. Some laws including rom law use both laws. Individuals who want to become traders have to be 18/21 => minors not allowed.

Question 5

What are some rules for a partnership business entity?

Answer 5

Can be created with little to no gov approval, though registration is always necessary.
each partner is fully liable for the obligation of the partnership.
Because a lot is at stake for each member of this there are laws against personal use of business stuff.
termination triggered by: bankruptcy, voluntary winding up of the partnerships operations, change in number or identity of partners aka one leaves.

Question 6

What is a legal person business entity?

Answer 6

can do business, is a group of individuals, has patrimony of its own, separate from one of its founders, organised based on a common agreement (memorandum) of its promoters.

Question 7

What is a sole proprietorship?

Answer 7

single owner business, simplest type of business to organise + operate. It is when 1 person has all management authority. This may be a plus or minus depending on the ability of the owner. In this type, it may be harder to raise capital since only 1 person is responsible. Person needs to know laws of taxation etc, also is fully liable for all debts etc. termination of this kinda business decided by owner, or by owners death or bankruptcy.

Question 8

What is a partnership?

Answer 8

also called a general parternship. Combo of 2 or more ppl organised to carry on a business as co owners and co managers. Each member is liable.

Question 9

What is a limited partnership?

Answer 9

this is basically that an owner is fully liable, starts by if the owner doesn’t have enough money to open a business, he would then bring in partners that either give money or something, these partners are not fully liable to business affairs etc but they do have some agreements to follow such as providing beginning capital, splitting profits and losses, also this type of business is more likely to last.

Question 10

What is a limited liability company?

Answer 10

almost identical to LP for a business organization, except ALL partners have limited liability. Created by submitting articles of incorporation that identify company’s name, location of offices, purpose, capital invested, minimum amount of capital, issuance of approval by responsible gov agency. This type of company means that in only very rare cases can the owners be help liable and it can be closed down by either bankruptcy or voluntarily.

Question 11

What is a stock company?

Answer 11

is a LLC, its shares are freely traceable among public and it requires that its financial statements be disclosed to the public. Key diff between this and LLC is its public nature.

Question 12

What is a public corporation?

Answer 12

like stock company but un common law countries.

Question 13

What are fiduciary duties?

Answer 13

present in LLCs and stock/public corporations, it is a demanding legal duty to handle the affairs of the company with care for the benefit of the company and its owners rather than own personal benefit.

Question 14

What are dividends?

Answer 14

amounts to be paid proportionally to owners out of company’s annual profits. In LLCs.

Question 15

What is a cooperative business entity?

Answer 15

shares some features with both LLCS and stock companies, business owned by “member-owners” they are democratically controlled by these member owners and unlike a traditional business each member gets a voice in how the business is run, services or goods provided by the co-op benefit (lower prices etc) and serve the member owners. This type is prevelant in many countries and very rare in others.

Question 16

What is a government enterprise?

Answer 16

owned mainly or exclusively by government. In some cases they’re designed mainly for profit, in others for public service benefitting the country as a whole. Most important of such enterprises are established by legislation. Example is country’s central bank.

Question 17

What is a multinational enterprise?

Answer 17

carry out business internationally, these types of entities are subject to law of any state in which they operate, rarely to international laws.

Question 18

What is a national multinational enterprise?

Answer 18

organised by a parent firm incorporated in one county that operates through branches and subsidiaries in other countries.

Question 19

What is an international multinational enterprise?

Answer 19

has parent companies in 2 or more countries, operates through branches and subsidiaries.

Question 20

What is a parent company?

Answer 20

acts as the head office for a multi national enterprise; owns and controls the enterprises subsidiary entities.

Question 21

What is a branch?

Answer 21

unit part of a company, not separately.

Question 22

What is an agent?

Answer 22

independent person or company with authority to act on behalf of the enterprise.

Question 23

What is a representative office?

Answer 23

office that interested parties can contact to obtain info about company; its not empowered ți conduct business for the company.

Question 24

What is a holding company?

Answer 24

company owned by a parent company to supervise and coordinate the operations of subsidiary companies.

Question 25

What is a subsidiary?

Answer 25

company owned by a parent or a parents holding company but which, unlike a branch is separately incorporated as a legal entity.

Question 26

What is a joint venture?

Answer 26

association of persons or companies collaborating in a business venture for more than a short or transitionary time period.

Question 27

What is a factual consideration?

Answer 27

one of the type of considerations taken when deciding what type of business is best to open

Question 28

What are the 7 factual considerations?

Answer 28

-Nature of the business: what is the nature of the proposed business? Is it a business that is capital intensive, labour intensive, etc?
-name: what will the name be? Does the name have any special meaning to the business? Are there any legal rules that impose certain conditions when choosing a name for the business?
-participants: is this a family business, like is there unanimity between members? Or are interests diverse in terms of money etc? What will the function of the participants be? Who will contribute to what?
-management: who will manage the business? Who will actively participate? What salaries are to be paid?
-funding: how much money will be needed to get business started? What are the sources of funding? How much money will the business make during its first year? How long will it take for business to start showing profit?
-dividing attributes of ownership: how will th profits be divided? If business fails how will the assets of the business be divided among the participants in the even of liquidation?
-exit strategy: how do participants expect to make money from business (salaries, distributions, sale of all or part of business)? Is a selling/buying agreement necessary/ are there plans to go public sometime in the future?

Question 29

What are the 5 legal considerations to take when opening a company?

Answer 29

-Limited liability
-taxation: double taxation, business pays taxes on income it earns, owners of business pay taxes on income they receive as dividends. Theres also pass through taxation where no tax is payable at business level but only at personal level on dividends.
-management: centralised by representatives or direct management where each owner participates in management.
-capitalisation and financing: capitalisation more flexible in corporations than in partnership of LLCs.
-exit rules: owners freedom to transfer interests in the business, the duration of the existence of the business association, and means bt which owners expect to get their money out of the business (sales, dissolution, dissociation)