Overview & Context Flashcards
Agency
EXPLANATION OF CORPORATE LAWS/overview
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
Partnership
EXPLANATION OF CORPORATE LAWS/overview
- 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)
Corporations
EXPLANATION OF CORPORATE LAWS/overview
= a legal person created by state action, possession the following critical attributes
- Legal personality
- Limited liability
- Separation of ownership and control
- Liquidity
- Flexible Capital Structure
outline
AGENCY /overview
- Establishment and liability
* Franchises
outline
PARTNERSHIPS /overview
• Establishment and Liability
outline
CORPORATIONS /overview
- Structure & Formation
- Liability and Purpose
- Shareholder Derivative Action
outline
LLC’s /overview
- Structure & Formation
- Liability and Purpose
- Piercing the LLC Veil
outline
DIRECTORS & OFFICERS /overview
- Duty of Care
- Duty of Loyalty
- Duty of Good Faith
- Disclosure; Fairness (Including securities laws)
outline
ROLE OF SHAREHOLDERS /overview
- Proxies and voting
* Control
Balance sheet
BALANCE SHEET /financial statements
Compares and balances assets and debts to determine owner’s equity at a particular date
Assets
BALANCE SHEET /financial statements
What a business owns
Debts
BALANCE SHEET /financial statements
What a business owes
Owner’s equity
BALANCE SHEET /financial statements
The book value of the business on a particular date
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
Bubba’s Burritos’ owner equity will be 400
Income statement INCOME STATEMENT (AKA earning statement) /financial statements
- Lists the business’s earnings and expenses
- Tells you a business’s profits or losses over a specific period of time (usually a year)
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
Bubba’s Burritos’ income was 20
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
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.
Similarity to income statement
CASH FLOW STATEMENT /financial statements
Both look at a business’s financial performance over a specific time period—usually a year.
Distinction from income statement
CASH FLOW STATEMENT /financial statements
- Cash flow statement focus = cash
- Not all earnings but instead only cash earned
- Not all expenses but only cash expended
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
Income statement
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
As 30 less cash
3 key takeaways
SOLE PROPRIETORSHIP /business associations
- Most businesses are sole proprietorships.
- A business that is a sole proprietorship is not a business association or organization.
- There is not a body of “sole proprietorship law.”
When is a business a sole proprietorship
SOLE PROPRIETORSHIP /business associations
A business is a sole proprietorship if
- the business has only one owner (a sole proprietorship can have multiple employees but only one owner)
- the business is not a corporation or a limited liability company.
4 key types of business associations
FORMS OF BUSINESS ASSOCIATIONS /business associations
- Corporations
- Limited liability companies
- Partnerships
- Limited partnerships
# of owners FORMS OF BUSINESS ASSOCIATIONS /business associations
- 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
