BLAW EXAM 2

Joint Venture (partnership for a single enterprise or activity)

5 Part test ( for people to determine if they are in a partnership or a joint venture) You can end up in a partnership even if you didn't intend to Ex: guy gave company advice and he thought he was in a partnership and the others thought he was an employee

Common Stock:

A basic ownership interest in the corporation Sometimes called an "equity security" More common in publicly traded corporations

Nonprofit Corporations

Can't make a profit, but can pay salaries

Do I Need to Get a License?

Certainly

Corporate Officers you Micheal Scott

CEO and CFO presidents, ect, who run the day to day operations as agents for the corporation

RMBCA Officers

President→ HAs oversight duties of lower officers VIce President→ manages the lower officers in his area Secretary-->clerk who takes the meeting minutes Treasurer→ manages the funds

Promoters and Incorporators

Promoters don't actually have to exist- If you're making a walmart you'll probably want a promoter, they do the groundwork These guys make contracts and deals for the corporation before it exists They buy land and raise capital They are personally liable for the contracts unless and until Board of Directors lets them off the hook

Get Insured

Property Insurance can protect you assets Liability Insurance helps when you get sued Business interruption insurance keeps the lights on and food in your belly Taper your insurance to meet you needs if you're unique enough

What is a sole proprietorship?

business owned and operated by one person, it's easiest to work with on your own taxes.

Express Authority

only authority for that one thing

Types of Corporations

Owned by shareholders, Over seen by the Board of Directors, Run by Officers

Shareholders:

Owner of the Corporation with limited liability Have annual meetings Elect BoD Make the big decisions Have to have at least one, may have more than one

MultiNational (Alien Corps)

Parent corporations often own subsidiary corporations in the countries they operate in Parent Corporations are safe from their subsidiaries Don't worry-- The government passed laws to make sure our evil corporations aren't evil in other countrie Foreign Corrupt Practices Act Bilateral investment treaties Alien Tort Statute

Incorporation Procedure

Pick a State (he recommends Delaware)

Novation

taking away the liability from the promoter and accepting it for the company, you wouldn't be able to get a promoter if you don't do that, the promoter will most likely be a shareholder.

Partnership

"An association of two ir more persons to carry on as co-owners of a business for profit"

Lloyd's of London

-Protect something that makes you money- protecting assets like Whitney Houstans voice, Julia Roberts legs

What is a Fiduciary Duty?

A special duty you owe to each other-- griffith has a duty to not share our grades with others You must be honest You be open You must be loyal You must act in good faith' You have to care more about the team than yourself

Piercing in Veil

Allowing a plaintiff to sure the shareholders, LLC members The more layers of protection you have, the harder it is to get through and sue you

Franchises

Another entity enters into contractual relationship with an established corporation Franchisor v. Franchisee McDonalds corporate= Franchisor You (the eater of McDonalds)= Franchisee

Owned by shareholders

Articles of Incorporation assign the rights, such as weighted voting Not all corporations are publicly traded

Advantages of a General Partnership

As easy to start as a sole proprietorship Same tax advantages as a sole proprietorship Flexibility in rules if you have a partnership agreement

Debt Securities

As opposed to "equity securities" Holder and Corporation enter an Indenture Agreement Corporation is simply getting a loan that has to be paid off in a period of time (just like any other loan)

Status of Shares

Authorized Shares, Issued Shares, Treasury Shares

Treasury Shares

Authorized Shares- Issued Shares= Treasury Shares

FIduciary Duties

Both officers and Directors have them Duty of Loyalty, Duty of Care

Franchise Regulations

Both the federal and the state governments regulate franchises Thus us both good and bad Good= choking out competition (remember, you've got an ally). Many predictions for franchisees. Bad= regulation impacts markets If the minimum wage goes up- McDonalds corporate will make it, but you, the owner of one McDonalds might not make it.

Types of Debt Securities

Debenture, Bond, Note

Why Delaware?

Delaware General Corporation Law Friendly to Big Business Legislature and courts move fast to match the law with the changing needs of business, Court of Chancery

Disadvantages of a Corporation

Double taxation--- first in the corporation, then on the individual. This is often better able to manage income and losses though Hippies think they're evil

May have

Duration Purpose- to engage in lawful activities? Ex: a company says they'll sell just shoes then they start selling socks and pants Par value of stock Info in the Board of Directors

General Partnership Rules:

Each Partner has an equal share Each partner can act as an agent for the partnership Partnership ends with the death or withdrawal of one of the partners (kinda). Agreements have to be unanimous- if you have a car dealership and 9 of you agree to sell toyota but one thinks that you should then you are screwed AS ALWAYS, YOU CAN FORM A DIFFERENT AGREEMENT, this only applies if you don't have your own agreement Partners owe a fiduciary to each other Review the Revised Uniform Partnership Ac

Board of Directors

Elected by Shareholders NOT AGENTS OF THE CORPORATION Inside Director Member of the Board and stakeholder Outside Director Member of the Board and that's it

Types of Authority and Agency

Express Authority, Implied Authority, Apparent Authority

What Taxes Do I pay?

Federal, State, Local, Sales...the list goes on. Organize your business in the way that provides the best protection.

How do you Make a Corporation?

File Articles of Incorporation (and get a Certificate) with the Secretary of State: Name Business Registered Agent Business type and stock details Have the shareholders elect a Board of Directors Approve Bylaws and appoint officers

Professional Corporation

For Doctors, lawyers, and other "professionals" Google for more info

Characteristics of Corporation

Free Transferability of Shares Perpetual Existence Centralized Management Limited Liability of Shareholders

So you want to start a business

Get a name Find out what your business organization is going to be Find the state you're going to incorporate/organize File yu Articles of Incorporation/Organization Have you first meeting for LLCs or corporations. You may have to get a license from the city, country, or other governmental bodies Don't forget actual licenses to do the job itself

If You Can Afford It...and maybe even if you can't

Get an Accountant Oftentimes an accountant knows more about taxes, fees, licenses, and bookkeeping than a lawyer Get a lawyer Lawyers generally have a risk-averse personality. They'll help you skyline problems, but don't let them get you down.

Preferred Stock:

Has different "preferred" values from common stock Frequently outline in articles of incorporation More common in privately held corporations

Issued Shares

How many are in people's hands?

Authorized Shares

How many shares you have to sell (in the Articles of Incorporation)

But I'm Just Running a Blog

If it's just information and opinion it's not as important (ut you still may want to) Incorporation does not protect you from all torts Your safest bet is insurance

Disadvantages of a Limited Partnership

If you start acting like a general partner, you might end up treated like one as well. There's a mountain of case law on this. A good lawyer might be able to get you in deeper than you intended. The limited partner always wants a say in the decisions because he is invested in it but once he has a say he turns into a general partner.

Alien Corporation

Incorporated in another country

Foreign Corporation

Incorporated in another state

Domestic Corporation

Incorporated in your home state Common for small business (so you aren't paying Delaware)

Voluntary Dissolution

Initiated by BoD and voted on by shareholders REquires articles of dissolution

Running Your Business on the Internet

It isn't that much different than regular business You still want to decide if you want to organize your business

WHat is Corporation

It's your imaginary friend It's an imaginary businessman created under the rules of the states where you incorporate--->corporation codes Most are based around the Revised Model Business Corporation Act (RMBCA)

Duty of Care

KNow how to do your job Remember the BUsiness Judgement Rules

What is a General Partnerships?

Like a Sole Proprietorship, except with 2 or more people and lot of rules

LLCs

Limited Liability Company (NOT CORPORATION) Similar to corporation, but much simpler Owned and run by members instead of the three heads that run a corporation

Disadvantage of a Franchise

Limited control over how things work Adhesive contracts designed to protect the franchisor sign it or leave E.g. difficulties with renewals Overconfidence in the brand- I know i can't over saturate the mcdonalds because it's so successful, just because it's a mcdonalds, doesn't mean it is going to be successful, you still have to put the work in.

WHy use an LLC?

Limited liability You can write contracts in the LLC's name, just like a corporation Easier to manage than a corporation No double taxation LLCs are not going to pay taxes

Officers Of directors can be liable individually

Limited liability is for the shareholders Must know or should know of the bad act Must participate, authorize, or do nothing to attempt to prevent it They can be indemnified by the corporation is some cases

What goes into choosing which type of business entity you want to have?

Limited liability- ability to have your personal self protected by the business if the business goes down Taxation Formalities Financing Management- do you want a separate group of people? Your self? Life of business- Last forever? Die with you? How easy do you want the access to be? Liquidity of investment

Close Corporation

Limits how you dispose of shares Ex: someone wants to be apart of your vegan store, they can start selling turkey, you need to set down rules if you do this.

Bond

Long-term, secured

Debenture

Long-term, unsecured

Piercing the Corporate Veil

Make shareholders liable to plaintiffs Primary reasons are: Undercapitalization→ not having enough capital ri support the business (if it rises to fraud you may end up with treble damages in many cases Use as an Alter Ego→ mixing personal and corporate business

Why Beware of the person you have a partnership with?

Make sure you choose a good partener, a bad partner can cost you everything, joint liability for everything

Corporate Bylaws

More detailed rules adopted during the Organizational Meeting of the Board of the Board of Directors This is when there is shareholder meetings, or if you want to hire an officer, or decide numbers, or dividends

Types of Corporations

Municipal Corporation Non-profit Corporation Publicly Held Many shares, often sold on the stock market Closely (privately held) Can be a sub-S or standard Corporation Limits on how you get rid of your stoc

Articles of Incorporation Must have:

Name that mentions its a corporation Amount of stock Registered office and agent (to accept service) (this guy just checks his PO box everyday and sees if you got sued or not, you just pay him $50 bucks a month or something)

Closely Held Corporations

Not sold publicly Restrictions of Share ownership- similar to having full custody of a kid and asking the parent to watch them first before you ask a rando baby sitter Rights of first refusal Buy and sell agreements--->binds the estate Consent restraint- allows the corporation to Veto any sale?

Municipal Corporation

Not subject to shareholders/BoD/ Officers Local governments or entities given law making power by the state They can tax and possibly jail you!

Disadvantages of an LLC

Oh look, more rules If you run afoul of the rkes, it's easy to pierce the corporate veil Smaller LLCs sometimes appear to provide more protection than they really do. Super easy to pierce my sing LLC because its mostly your accounts and what not, you aren't treating it like a seperate entity

Business Judgement Rule

Protects the board of directors from lawsuits by shareholders if: There was an informed decision- not drunk, didn't just flip a coin There's no conflict of interest- the guy who is a part of nike but also a part of adidas and wanted adidas to do better There was a rational basis for the decision- articulate, use big boy words to say what they did or decided what they did

Limited Liability Companies (LLCs)

Provides corporate protections without having the complexities of a corporation States have their own rules. Where do I incorporate?Run by members instead of shareholders. Advantages of an LLCMembers have limited liability Perpetual life (don't listen to the book) Can be taxed like a partnership Easier to construct than a corporation, you could get it done in an hour File the Articles of Organization with the Secretary of State If you get cheated on a business call the secretary of the state'

Money from dividends:

Q1: Common stock $10, prefered stock $10 Q2: Common stock$0, prefered stock $0 Q3: Common stock$0, prefered stock $0 Q4: Common stock$10, prefered stock $30

Administrative Dissolution

Secretary of State does it when toy donl;t comply ith the corporate rules Certificate of Dissolution issued

The 2 Rules of a Shareholder

Shareholders are the owners of the corporation Officers and the Board of Directors are answerable to them Shareholders finance the corporation Sales of stock provide working capital Common stick Preferred Stock

Note

Short-term, either secured or not

Limited Partnership

Similar to a General Partnership, but with better protections for investors You need this to be in writing Requires a General Partner has a fiduciary duty to the Limited Partners Terminates just like a general partnership Someone who is invested in a business Entirely limited partners, no one can do anything, you need to have some of each Limited partner has no duty to anyone, they just invest and get the rewards

sub-S Corporation

Special rues let it work like a partnership to prevent double taxation 100 shareholder limit

Court of Chancery

Speciality courts that know business well- the judge knows all the nuances of law and knows business really well No juries These are all bench trials, you won't have the randomness you would have with juries

You invested $1000, part ownership? What are you?

Stockholder

Mergers and Acquisitions

The Board of Directors carries it out. May be voted on by shareholders Theres the surviving corporation and the merged corporation The surviving corporation must honor the contracts of the merged corporation The new landlord comes if purchases everything;assets AND liabilities

Run by Officers

The CEO, the CFO, ect

Disadvantages of a General Partnership

The RUPA applies (except in LA) if you don't have an agreement in place SO MANY RULES Winding up a partnership can be very complex How to pay outgoing partners How to value the partnership assets Ex: you spent a lot of money on this car and you got in a car accident and you think you're okay because you have insurance and in the bluebook they can only give you 4,00 no matter what so now you don't have the money to get back to how you were. If a partner screws up, you're each potentially fully liable If a partner violates his fiduciary duty, you're still liable They don't care how you com up with the money, you just need to come up with the money

Advantages of a Franchise

The franchise has an established reputation It generally has a lower startup cost You don't need as much expertise in the field- if you can cook a mcdonalds burger you'll probably be fine because mcdonalds corporate wants you to succeed A large ally who wants you to succeed

Advantages of a Limited Partnership

The limited Partner is not liable for a debts or other liability beyond their initial investment Shark tank- giving someone a bunch of money to run a business

Over seen by the Board of Directors

These guys vote to make the big decisions They appoint the Officers They have fiduciary duty to the shareholders Protected by the Business Judgment Rule

Advantages of Corporations

They don't dissolve with the leaving of a partner. The shareholders all have limited liability Unless you can "pierce the corporate veil"

So what do they do?

They follow rules in the bylaws They follow the rules of the RMBCA Make decisions "resolutions" during regular and special meetings Initiate actions that will require shareholder approval Declaring dividends Putting prices on their stocks Hiring and firing officers Selling, leasing, mortgaging major assets of the corporation Actions require a quorum (there has to be a certain number on average majority for it to pass, a quorum is 11, you need at least 6 to let it pass, unless you have a number in your bylaws that state how many people need to be there or agree)for a vote and a majority of that to pass

What makes preferred stocks so special?

They get dividends first They get paid out before the common stockholders when winding up the corporation They can get paid back dividends You can convert it to common stock Whatever else you've agreed to when you bought it- whatever rules you want, maybe he has to buy you a milkshake every week

Limited Liability Partnerships

Thus generally only works with professionals State statutes are in place like with LLCs that provide limited liability protections Requires adequate insurance so as to avoid "piercing the veil" as a concern

Corporate Liability Types

Torts, Officers Of directors can be liable individually, They can be indemnified by the corporation is some cases

Torts

Under doctrine of respondeat superior the corporation is liable for act of its employees while in the scope of their employment

Dissolution

Voluntary Dissolution, Administrative Dissolution, Judicial Dissolution

Sarbanes Oxley

We talked about how it impacts business ethics A response to corporate scandal CEOs and CFOs have to personally confirm certain reports for accuracy Whistleblower protections Criminal penalties for tampering with evidence, Disallows the company to make personal loans

Duty of Loyalty

You have to put the advantage of the business in front of your own business dealings Ex: your have ownership of adidas and nike but your still have to be unbiased and make decisions that could hurt either

Disatvantages of a sole proprietorship

You might be stuck with debts and liabilities, States have different laws, but you can still gave a business name "doing business A's" Debts and Liabilities are on you personally Thus includes fines if you run afoul of the law Ex: You have to buy a license to go out of business, you can't just go out of business, this is out of your personal assets Ex:to be an interior designer you have to have a license, or to be a computer repair person you also have to have a license, if you do it from your house, good luck.

Winding Up

Yup, there are rules for quitting. Most revolve around paying people out in the right order (creditors, preferred stock, common stock) If voluntary The Board of Directors does it If involuntary or voluntary with idiots The court appoints someone

Apparent Authority

its like implied authoirty, but its about the third party, the personl tyoyu entered the contract with, their authority on the business, if your partner goes and spends a bunch of money on stupid things they do NOT have apparent authority

Implied Authority

kind of the default, every partner has authority for whatever the business is, it HAS to do with the business (running an ice cream shop and buying sugar and cream)

Alternate Corporate Types

sub-S Corporation, Close Corporation, Professional Corporation

Judicial Dissolution

they issue out orders Secretary of state starts it in more ambiguous situations A judge makes the decision in the decree of dissolution