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International Business Law for IB > Part 2a - Company Law > Flashcards

Part 2a - Company Law Flashcards

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1
Q

What are the 4 types of business forms:

A
  1. Sole trader
  2. Partnership
  3. Corporation/ Capital Company
  4. Limited liability company (LLC)
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2
Q

Unincorporated business forms (natural persons)

A
  • Sole trader
  • Partnership
    ○ General partnership
    ○ Limited partnership
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3
Q

Incorporated business form (legal persons)

A
  • Limited liability Partnership
  • Capital company
    - Public limited company (NV)
    - Private limited company (BV)
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4
Q

Characteristics of incorporated business forms: (5)

A
  • They exist as their own legal entity, you can sue them
  • With the incorporation process there are shares
  • Internal legislation
    - Statutes
  • Made by law, delegation of authority
  • Stakeholders can only make a loss as high as the investment
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5
Q

Sole trader (3)

A
  • Owned and run by someone for their own benefit.
  • Existence is entirely dependent on the owner’s decisions.
  • Owner dies?–> So does the business
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6
Q

Advantages of a sole trader (4)

A
  • All profits are subject to the owner
  • There is very little regulation for proprietorships
  • Owners have total flexibility when running the business
  • Very few requirements for starting- often only a business license.
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7
Q

Disadvantages of a sole trader (4)

A
  • Owner is 100% liable for business debts
  • Equity is limited to the owner’s personal resources
  • Ownership of proprietorship is difficult to transfer
    - It can be very difficult to sell or end that business
  • No distinction between personal and business income
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8
Q

Partnerships

A
  • At least a business set up between two partners with a view to make profit.
  • Also unincorporated so NO separate legal entity
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9
Q

There are 2 types of partnerships:

A
  1. General
    - Both owners invest their money, property, labor, etc… and are both 100% liable of the business debts
    - Do not need a formal agreement
  2. Limited
    - DO need a formal agreement between partners
    - File a certificate of partnership with the state
    Partners can limit their own liability for business debts according to their portion of ownership or investment.
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10
Q

Advantages of Partnerships (5)

A
  • Shared resources means there is more capital for the business
    • Each partner shares the total profits of the company
    • Similar flexibility and simple design of proprietorship
    • Inexpensive to establish a business partnership, formal or informal
    • Share the work of the business and share the liabilities
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11
Q

Disadvantages of Partnerships

A
  • Each partner is 100% responsible for debts and losses, personal assets may be at risk for debts/losses.
  • Selling the business is difficult- requires finding a new partner.
  • Partnership ends when any partner decides to end it.
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12
Q

Capital company characteristics (3)

A
  • Incorporated (legal person) –> Separate entities
  • Limits liability of the shareholders
  • The company gets its capital by issuing shares.
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13
Q

Describe the taxation of a capital company

A
  • The profits generated by a company are taxed as the “personal income” of the company
  • Any income distributed to the shareholders as dividends or profits are taxed again as the personal income of the owners.
    - Double taxation
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14
Q

Starting a Public v Private Limited Company

A
  1. Private limited company (BV)
    - Notarial deed + Statutes
    - Issued share capital (0,1 cent)
    - Registration Chamber of Commerce
    - Closed flow of share transactions
  2. Public limited company (NV)
    - The same but an issued share capital of $45000
    - Free flow of shares
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15
Q

Salomon v Salomon (Principles, Facts)

A

Principles it created:
- Separate legal person
- Limited liability
Facts:
- Sole-trader sold shares to family members
- Company ran into problems and could not pay creditors
- The case concerned claims of certain unsecured creditors in the liquidation process.
- Salomon was held personally liable
- But the decision was reverted

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16
Q

Corporate Veil (CV)

A
  • The veil protects the members of the company from the liability for the company’s debts.
17
Q

Piercing the corporate veil

A
  • This refers to a situation where the courts but the limited liability of the corporation aside and hold its shareholders or directors personally liable (lifitng the protection).
    • This does not happen often, courts are reluctant.
    • Only in cases of severely aggravated acts will courts pierce the veil
      § Gilford Motor Co ltd v Home (fraud-exception)
      § Single economic unit theory
18
Q

What is a company body?

A
  • Company’s bodies are the general meeting of the shareholders and the board of directors
19
Q

Who appoints the board of directors?

A
  • The GMS can appoint the board of directors
20
Q

Executive Directors

A
  • They focus on the day-to-day operations
21
Q

Non-Executive Directors

A
  • They are more focused on the big picture/long term goals.
22
Q

Director’s liability

A
  • Directors committing wrongful acts can be held personally liable (torts)
  • Courts are working towards a compromise approach between maintaining the corporate protection and enforcing personal liability.
23
Q

Different forms of liability

A
  1. Liability towards the company
  2. Liability towards individual shareholders
  3. Liability towards creditors
24
Q

Advantages of a capital company (5)

A
  • Limits liability of the owner toward debts or losses
    • Profits and losses belong to the corporation
    • Can be transferred to new owners fairly easily, dies when formally wound up
    • Personal assets cannot be seized to pay for business debts.
    • Tax benefits are available
25
Q

Disadvantages of a capital company (4)

A
  • Corporate operations are costly
    • Establishing a corporation is costly
    • Starting a corporate business requires a lot of paperwork
    • With some exceptions, corporate income is taxed twice
26
Q

Limited liabilities company (4)

A
  • LLC provides owners with limited liability while providing while providing some of the income advantages of a partnership.
  • Combination between a Capital Company and partnership.
  • No share capital as there are no shareholders
  • Liability is limited to such an amount as they’ve agreed on
27
Q

Advantages of an LLC (2)

A
  • Limits liability to the company owners for debts or losses
  • The profits of the LLC are shared by the owners without double-taxation
28
Q

Disadvantages of LLC (3)

A
  • Ownership is limited by certain state laws
  • Agreements must be comprehensive and complex
  • Beginning an LLC has high costs due to legal and filing fees

International Business Law for IB (10 decks)

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