Overview & Context

Question 1

Agency

EXPLANATION OF CORPORATE LAWS/overview

Answer 1

Exists where
1. one person (principal) consents that another (agent) shall act on P’s behalf and subject to P’s control and
2. The agent consents to act
Ubiquitous: sole proprietor with one employee; GM with CEO

Question 2

Partnership

EXPLANATION OF CORPORATE LAWS/overview

Answer 2

• UPA § 6(1); a partnership is an association of two or more persons to carry on as co-owners of a business for profit
• Statutory body of law: UPA (1914); UPA (1997)

Question 3

Corporations

EXPLANATION OF CORPORATE LAWS/overview

Answer 3

= a legal person created by state action, possession the following critical attributes

1. Legal personality
2. Limited liability
3. Separation of ownership and control
4. Liquidity
5. Flexible Capital Structure

Question 4

outline

AGENCY /overview

Answer 4

• Establishment and liability

* Franchises

Question 5

outline

PARTNERSHIPS /overview

Answer 5

• Establishment and Liability

Question 6

outline

CORPORATIONS /overview

Answer 6

• Structure & Formation
• Liability and Purpose
• Shareholder Derivative Action

Question 7

outline

LLC’s /overview

Answer 7

• Structure & Formation
• Liability and Purpose
• Piercing the LLC Veil

Question 8

outline

DIRECTORS & OFFICERS /overview

Answer 8

• Duty of Care
• Duty of Loyalty
• Duty of Good Faith
• Disclosure; Fairness (Including securities laws)

Question 9

outline

ROLE OF SHAREHOLDERS /overview

Answer 9

• Proxies and voting

* Control

Question 10

Balance sheet

BALANCE SHEET /financial statements

Answer 10

Compares and balances assets and debts to determine owner’s equity at a particular date

Question 11

Assets

BALANCE SHEET /financial statements

Answer 11

What a business owns

Question 12

Debts

BALANCE SHEET /financial statements

Answer 12

What a business owes

Question 13

Owner’s equity

BALANCE SHEET /financial statements

Answer 13

The book value of the business on a particular date

Question 14

HYPO: If, on April 5, 2016, Bubba’s Burritos has assets of 1,000 and debts of 600, what is Bubba’s Burritos’ owner equity?
BALANCE SHEET /financial statements

Answer 14

Bubba’s Burritos’ owner equity will be 400

Question 15

Income statement
INCOME STATEMENT (AKA earning statement) /financial statements

Answer 15

• Lists the business’s earnings and expenses

- Tells you a business’s profits or losses over a specific period of time (usually a year)

Question 16

HYPO: If, during 2015, Bubba’s Burritos was paid in 100 and paid out expenses of 80, what is its income?
INCOME STATEMENT (AKA earning statement) /financial statements

Answer 16

Bubba’s Burritos’ income was 20

Question 17

KEY FACT PATTERN: Bubba’s Burritos spent 30 in 2015 for equipment that it will be able to use for 6 years. Then 5 (30/6) can be considered the 2015 expense.
INCOME STATEMENT (AKA earning statement) /financial statements

Answer 17

While the balance sheet speaks to a business’s assets and liabilities at a particular date such as April 5, 2016, an income statement covers its business activities for a specific period of time—usually a year. The income statement tells you a business’s profits or losses over that period by listing the business’s earnings and business’s expenses.

Question 18

Similarity to income statement

CASH FLOW STATEMENT /financial statements

Answer 18

Both look at a business’s financial performance over a specific time period—usually a year.

Question 19

Distinction from income statement

CASH FLOW STATEMENT /financial statements

Answer 19

• Cash flow statement focus = cash
• Not all earnings but instead only cash earned
• Not all expenses but only cash expended

Question 20

HYPO: Would a 100 credit sale on December 30, 2015, be included in the income statement or in the cash flow statement?
CASH FLOW STATEMENT /financial statements

Answer 20

Income statement

Question 21

HYPO: How would a payment of $30 for equipment with a 6-year useful life be reflected in the cash flow statement?
CASH FLOW STATEMENT /financial statements

Answer 21

As 30 less cash

Question 22

3 key takeaways

SOLE PROPRIETORSHIP /business associations

Answer 22

1. Most businesses are sole proprietorships.
2. A business that is a sole proprietorship is not a business association or organization.
3. There is not a body of “sole proprietorship law.”

Question 23

When is a business a sole proprietorship

SOLE PROPRIETORSHIP /business associations

Answer 23

A business is a sole proprietorship if

1. the business has only one owner (a sole proprietorship can have multiple employees but only one owner)
2. the business is not a corporation or a limited liability company.

Question 24

4 key types of business associations

FORMS OF BUSINESS ASSOCIATIONS /business associations

Answer 24

1. Corporations
2. Limited liability companies
3. Partnerships
4. Limited partnerships

Question 25

# of owners
FORMS OF BUSINESS ASSOCIATIONS /business associations

Answer 25

• Corporations and limited liability companies can exist with only one owner (usually have multiple owners though)
• Partnerships and limited partnerships must have more than one owner