Lecture 2 Flashcards
Sole proprietorship
A sole proprietorship, also known as the sole trader or simply a proprietorship, is a type of business entity that is owned and run by one natural person and in which there is no legal distinction between the owner and the business. The owner is in direct control of all elements and is legally accountable for the finances of such business and this may include debts, loans, loss etc.
The owner receives all profits (subject to taxation specific to the business) and has unlimited responsibility for all losses and debts. Every asset of the business is owned by the proprietor and all debts of the business are the proprietor’s. It is a “sole” proprietorship in contrast with partnerships (which have at least two owners).
A sole proprietor may use a trade name or business name other than his, her or its legal name. They will have to legally trademark their business name, the process being different depending upon country of residence
Partnership RCW 25.05
A partnership is an arrangement where parties, known as partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations organizations may partner together to increase the likelihood of each achieving their mission and to amplify their reach. In what is usually called an alliance, governments may partner to achieve their national interests, sometimes against allied governments holding contrary interests, as occurred during World War II and the Cold War. In education, accrediting agencies increasingly evaluate schools by the level and quality of their partnerships with other schools and a variety of other entities across societal sectors. Some partnerships occur at personal levels, such as when two or more individuals agree to domicile together, while other partnerships are not only personal, but private, known only to the involved parties.
Partnerships present the involved parties with special challenges that must be navigated unto agreement. Overarching goals, levels of give-and-take, areas of responsibility, lines of authority and succession, how success is evaluated and distributed, and often a variety of other factors must all be negotiated. Once agreement is reached, the partnership is typically enforceable by civil law, especially if well documented. Partners who wish to make their agreement affirmatively explicit and enforceable typically draw up Articles of Partnership. It is common for information about formally partnered entities to be made public, such as through a press release, a newspaper ad, or public records laws.
While partnerships stand to amplify mutual interests and success, some are considered ethically problematic. When a politician, for example, partners with a corporation to advance the latter’s interest in exchange for some benefit, a conflict of interest results; consequentially, the public good may suffer. While technically legal in some jurisdictions, such practice is broadly viewed negatively or as corruption.
Governmentally recognized partnerships may enjoy special benefits in tax policies. Among developed countries, for example, business partnerships are often favored over corporations in taxation policy, since dividend taxes only occur on profits before they are distributed to the partners. However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as shareholders of a corporation. In such countries, partnerships are often regulated via anti-trust laws, so as to inhibit monopolistic practices and foster free market competition. Enforcement of the laws, however, varies considerably. Domestic partnerships recognized by governments typically enjoy tax benefits, as well.
Limited liability partnership
A limited liability partnership (LLP) is a partnership in which some or all partners (depending on the jurisdiction) have limited liabilities. It therefore exhibits elements of partnerships and corporations.[1] In an LLP, one partner is not responsible or liable for another partner’s misconduct or negligence. This is an important difference from the traditional unlimited partnership under the Partnership Act 1890, in which each partner has joint and several liability. In an LLP, some partners have a form of limited liability similar to that of the shareholders of a corporation.[2] In some countries, an LLP must also have at least one thing called as a “general partner” with unlimited liability. Unlike corporate shareholders, the partners have the right to manage the business directly. In contrast, corporate shareholders have to elect a board of directors under the laws of various state charters. The board organizes itself (also under the laws of the various state charters) and hires corporate officers who then have as “corporate” individuals the legal responsibility to manage the corporation in the corporation’s best interest. An LLP also contains a different level of tax liability from that of a corporation.
Limited liability partnerships are distinct from limited partnerships in some countries, which may allow all LLP partners to have limited liability, while a limited partnership may require at least one unlimited partner and allow others to assume the role of a passive and limited liability investor. As a result, in these countries, the LLP is more suited for businesses in which all investors wish to take an active role in management.
There is considerable confusion between LLPs as constituted in the U.S. and those introduced in the UK in 2001 and adopted elsewhere (see below) as the UK LLP is, despite its name, specifically legislated as a corporate body rather than as a partnership. In Nigeria, limited liability partnerships have legal personality. However, one must register a partnership first before it can gain the status of limited liability partnership.
Corporation
A corporation is a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law. Early incorporated entities were established by charter (i.e. by an ad hoc act granted by a monarch or passed by a parliament or legislature). Most jurisdictions now allow the creation of new corporations through registration.
Corporations come in many different types but are usually divided by the law of the jurisdiction where they are chartered into two kinds: by whether or not they can issue stock, or by whether or not they are for profit.
Where local law distinguishes corporations by ability to issue stock, corporations allowed to do so are referred to as “stock corporations”, ownership of the corporation is through stock, and owners of stock are referred to as “stockholders.” Corporations not allowed to issue stock are referred to as “non-stock” corporations, those who are considered the owners of the corporation are those who have obtained membership in the corporation, and are referred to as a “member” of the corporation.
Corporations chartered in regions where they are distinguished by whether they are allowed to be for profit or not are referred to as “for profit” and “not-for-profit” corporations, respectively.
There is some overlap between stock/non-stock and for profit/not-for-profit in that not-for-profit corporations are always non-stock as well. A for profit corporation is almost always a stock corporation, but some for profit corporations may choose to be non-stock. To simplify the explanation, whenever “stockholder” is used in the rest of this article to refer to a stock corporation, it is presumed to mean the same as “member” for a non-profit corporation or for profit, non-stock corporation.
Registered corporations have legal personality and are owned by shareholders[1][2] whose liability is limited to their investment. Shareholders do not typically actively manage a corporation; shareholders instead elect or appoint a board of directors to control the corporation in a fiduciary capacity.
In American English the word corporation is most often used to describe large business corporations.[3] In British English and in the Commonwealth countries, the term company is more widely used to describe the same sort of entity while the word corporation encompasses all incorporated entities. In American English, the word company can include entities such as partnerships that would not be referred to as companies in British English as they are not a separate legal entity.
Despite not being human beings, corporations, as far as the law is concerned, are legal persons, and have many of the same rights and responsibilities as natural persons do. Corporations can exercise human rights against real individuals and the state,[4][5] and they can themselves be responsible for human rights violations.[6] Corporations can be “dissolved” either by statutory operation, order of court, or voluntary action on the part of shareholders. Insolvency may result in a form of corporate failure, when creditors force the liquidation and dissolution of the corporation under court order,[7] but it most often results in a restructuring of corporate holdings. Corporations can even be convicted of criminal offenses, such as fraud and manslaughter. However corporations are not considered living entities in the way that humans are.[8]
Non profit corporation
A nonprofit organization (NPO, also known as a non-business entity[1]) is an organization that uses its surplus revenues to further achieve its purpose or mission, rather than distributing its surplus income to the organization’s shareholders (or equivalents) as profit or dividends. This is known as the distribution constraint.[2] The decision to adopt a non profit legal structure is one that will often have taxation implications, particularly where the nonprofit seeks income tax exemption, charitable status and so on.
The nonprofit landscape is highly varied, although many people have come to associate NPOs with charitable organizations. Although charities do comprise an often high profile or visible aspect of the sector, there are many other types of nonprofits. Overall, they tend to be either member-serving or community-serving. Member-serving organizations include mutual societies, cooperatives, trade unions, credit unions, industry associations, sports clubs, retired serviceman’s clubs and peak bodies – organizations that benefit a particular group of people ie. the members of the organization. Typically, community-serving organizations are focused on providing services to the community in general, either globally or locally: organizations delivering human services programs or projects, aid and development programs, medical research, education and health services, and so on. It could be argued many nonprofits sit across both camps, at least in terms of the impact they make.[3] For example, the grassroots support group that provides a lifeline to those with a particular condition or disease could be deemed to be serving both its members (by directly supporting them) and the broader community (through the provision of a helping service for fellow citizens).
Many NPOs use the model of a double bottom line in that furthering their cause is more important than making a profit, though both are needed to ensure the organization’s sustainability.[4][5]
Although NPOs are permitted to generate surplus revenues, they must be retained by the organization for its self-preservation, expansion, or plans.[6] NPOs have controlling members or a board of directors. Many have paid staff including management, whereas others employ unpaid volunteers and even executives who work with or without compensation (occasionally nominal).[7] In some countries, where there is a token fee, in general it is used to meet legal requirements for establishing a contract between the executive and the organization.
Designation as a nonprofit does not mean that the organization does not intend to make a profit, but rather that the organization has no ‘owners’ and that the funds realized in the operation of the organization will not be used to benefit any owners. The extent to which an NPO can generate surplus revenues may be constrained or use of surplus revenues may be restricted.
Limited liability company (LLC)
A limited liability company (LLC) is the United States-specific form of a private limited company. It is a business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.[1] An LLC is not a corporation; it is a legal form of a company that provides limited liability to its owners in many jurisdictions. LLCs do not need to be organized for profit.[2] In certain U.S. states (for example, Texas), businesses that provide professional services requiring a state professional license, such as legal or medical services, may not be allowed to form an LLC but may be required to form a very similar entity called a Professional Limited Liability Company (PLLC).[3]
Professional Corporation
Professional corporations (abbreviated as PC or P.C.) are those corporate entities for which many corporation statutes make special provision, regulating the use of the corporate form by licensed professionals such as attorneys, architects, engineers, public accountants and physicians. Legal regulations applying to professional corporations typically differ in important ways from those applying to other corporations.[1] Professional corporations, which may have a single director or multiple directors, do not usually afford that person or persons the same degree of limitation of liability as ordinary business corporations (cf. LLP).[1] Such corporations must identify themselves as professional corporations by including “PC” or “P.C.” after the firm’s name.[2] Professional corporations often exist as part of a larger, more complicated, legal entity; for example, a law firm or medical practice might be organized as a partnership of several or many professional corporations.
Joint venture
A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares.
In European law, the term ‘joint venture’ (or joint undertaking) is an elusive legal concept, better defined under the rules of company law. In France, the term ‘joint venture’ is variously translated ‘association d’entreprises’, ‘entreprise conjointe’, ‘coentreprise’ or ‘entreprise commune’. In Germany, ‘joint venture’ is better represented as a ‘combination of companies’ (Konzern).[1]
With individuals, when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular project, such partnership can also be called a joint venture where the parties are “co-venturers”.
The venture can be for one specific project only - when the JV is referred to more correctly as a consortium (as the building of the Channel Tunnel) - or a continuing business relationship. The consortium JV (also known as a cooperative agreement) is formed where one party seeks technological expertise or technical service arrangements, franchise and brand use agreements, management contracts, rental agreements, for one-time contracts. The JV is dissolved when that goal is reached.
Some major joint ventures include Dow Corning, MillerCoors, Sony Ericsson, Penske Truck Leasing, and Owens-Corning.
A joint venture takes place when two parties come together to take on one project. In a joint venture, both parties are equally invested in the project in terms of money, time, and effort to build on the original concept. While joint ventures are generally small projects, major corporations also use this method in order to diversify. A joint venture can ensure the success of smaller projects for those that are just starting in the business world or for established corporations. Since the cost of starting new projects is generally high, a joint venture allows both parties to share the burden of the project, as well as the resulting profits.
Since money is involved in a joint venture, it is necessary to have a strategic plan in place. In short, both parties must be committed to focusing on the future of the partnership, rather than just the immediate returns. Ultimately, short term and long term successes are both important. In order to achieve this success, honesty, integrity, and communication within the joint venture are necessary.
Unincorporated association
A voluntary group or union (also sometimes called a voluntary organization, unincorporated association, common-interest association,[1]:266 or just an association) is a group of individuals who enter into an agreement as volunteers to form a body (or organization) to accomplish a purpose.[2] Common examples include trade associations, trade unions, learned societies and professional associations, environmental groups, and various other types of groups. Membership is not necessarily voluntary, as it may be effectively required in order to work, which has led to a preference for the term common-interest association to describe groups which form out of a common interest.[1] Associations may also be incorporated rather than unincorporated; for example, in the United States associations gained additional powers by incorporating.[3]
Strictly speaking, in many jurisdictions no formalities are necessary to start an association. In some jurisdictions, there is a minimum for the number of persons starting an association. Some jurisdictions require that the association register with the police or other official body to inform the public of the association’s existence. This could be a tool of political control, and also a way of protecting the economy from fraud. In many such jurisdictions, only a registered association is a juristic person whose membership is not responsible for the financial acts of the association. Any group of persons may, of course, work as an association but in such case, the persons making a transaction in the name of the association all take responsibility for it.
Authority
Permission, power, or legal right to act. Class 1 Class 2
Apparent Authority
Apparent authority exists only to the extent that it is reasonable for the third person dealing with the agent to believe that the agent is authorized. Further, the third person must believe the agent to be authorized. In this respect apparent authority differs from [actual] authority since an agent who is authorized can bind the principal to a transaction with a third person who does not believe the agent to be authorized.
Contract
An agreement, written or oral, between two or more parties creating legal rights and duties that something shall, or shall not, be done. A contract requires “consideration” (a bargained-for benefit) to be legally binding.
Offer
To make a proposal; to present for acceptance or rejection
Acceptance
Agreeing to an offer and thereby forming a contract.
Fraud
Knowing falsehood or trickery used by one person to mislead another
Misrepresentation
A false statement: innocent, negligent, or fraudulent.
Duress
Unlawful pressure (e.g., force, threats, physical restraint) on a person to do what he or she would not otherwise have done.
Mistake
An unintentional error or act. A contract may be voidable if there was mutual mistake by the parties.
Unconscionability
Against public policy. Less about legislation and more about what is for the public good.
Unjust enrichment
A legal concept that prevents a party from a monetary benefit to which he or she is not entitled.
