Chapter 14: Business Organizations

Factors to Consider when Selecting a Business's Organizational Form

-Creation: legal steps necessary to form a particular business organization -Continuity: Stability and Durability of the organization -Managerial Control: Who is managing the business organization -Liability: How liable is the owner/owners for debt and other things that happen? -Taxation: How is the business income taxed?

The Forms of Hybrid Business Organizations:

-Limited Partnerships -S Corporations -Limited Liability Companies -Limited Liability Partnerships

The Forms of Basic business organization:

-Sole-Proprietorship -Partnership -Corporations

CASE: Federal Communications Commission vs. AT&T

AT&T provided services to libraries and schools for the government. ATT said they accidentally overcharged the government. So they reached a settlement. FOYA requested documents from ATT. ATT realized their competitors could get valuable info from these documents requested so they tried to find an exemption in FOYA. Exemption 7C: said if it invades personal privacy, ATT wouldn't have to give it over. KEY: can a corporation claim personal privacy based on exemption 7C in FOYA? Court said no PERSON and PERSONAL are not the same thing. Court determined that they don't have personal property rights under exemption 7C as its used in that specific exemption.

Proxy:

An agent appointed by a shareholder for the purpose of voting the shares.

Dissolution

Any change in the ownership that changes its legal existence.

Coporation

Artificial and intangible entity created under the authority of a states law.

Closely Held Organizations

Business owned by only a few people

Benefit Corporation

Combines non profit and profit which allows the business to make money while pursuing social goals.

Factors to Consider for Partnerships

Creation: 2nd easiest to form. Automatic based on business conduct and modified by agreement. If what they do satisfies the definition, it is a partnership regardless of what they call themselves. Continuity: Dissolved whenever one partner withdraws Control: Each partner has an equal voice, and can be modified by agreement. It is smart (but not required) to have a partnership agreement (articles of partnership) Liability: Partners are jointly and severally liable for the partnerships obligations Tax: All business income is subject to personal taxation. Equally divided partners pay taxes.

Factors to consider for S-Corporations

Creation: Apply for state charter through articles of incorporation Continuity: Perpetual, as long as the number of shareholders is limited (to under 100) Control: Shareholders elect BOD, who appoint.hire officers, who hire employees Liability: Liable to investment, absent other commitments Tax: treated as if they were a partnership. Subject to personal tax *Shareholders are limited to individuals

Factors to consider for an LLC and LLP

Creation: File articles of organization. "organizers" is used Continuity: owners are called members and members are not limited to individuals, Dissolved when a member withdraws, but is not exactly impacted and maybe continued by those remaining. Control: Equal management unless manager is designated. Liability: Members act as agents and are only liable for investment Tax: Recognized as non taxable entities/all business income is subject to personal tax.

Factors to Consider for Sole Proprietorships

Creation: No formal documentation-only a business license Continuity: Tied directly to the will of the owner, but there are no transfers Control: SP is in total control of the businesses goals and operations Liability: Personal/unlimited liability for obligations of the business. Tax: Not taxed as an organization. All business income is subject to personal taxation.

Factors to consider for a Corporation

Creation: To create, apply for state charter with articles of incorporation (filed in the secretary of states office) Continuity: perpetual existence, as long as it doesn't affect business Control: Shareholders elect Board of Directors, who then appoint/hire officers, who then hire employees Liability: Limited to investment, absent other commitments. Tax: Corporate income is taxed, only taxed on the income that is distributed.

Factors to consider for Limited Partnerhsips

Creation: partnership agreement and certificate must be filed in a public office Continuity: dissolved when general partner withdraws. Limited partners can assign their position to another person without the business dissolving Control: General partners have total control Liability: Personal liable for general partners, limited partners obligated for investment Tax: All business income subject to tax

Types of corporations

Domestic: in your state Foreign: In another state Alien: out of the country

CASE: Ali. Vs. U.S. Case

Dr. Ali and wife own housing units that house poor people (BSA). BSA stops getting payed from HUD. . Ali sues HUD. HUD countersues because housing was unlivable. Key: The Ali's breached BSA. The HUD said they wanted the court to pierce the veil and they didn't keep things separate.

Limited Partnership

Has all the attributes of a partnership , except limited partners are not responsible for debt and general partners have unlimited liability

Buyout Clause

Helps prevent problems when a partner dies or withdraws from the partnership. Provides compensation for the interests of the withdrawn or decease owner. If not, the business will have to dissolve.

States Assumed Name Statute

If a corporations name is a name that is other than that of the partners, the partners must give notice of their actual identity under the state's Assumed Name Statute.

A corporation is treated as

Its own artificial and intangible entity: a person under law.

Court of Chancery

Located in Delaware. Stable legal environment because of chancery. 1 chancellor, 4 vice chancellors, 12 year terms. Popular place for corporations. 50%, 64%?

Limited partners lose their limited liability by

Making managerial decisions.

Publicly Held

Owned by hundreds and thousands of people

Functions of Shareholders, BOD, and Officers?

Shareholders: elect members of board BOD: set goals and objectives and appoint/hire officers Officers: strive to meet goals of directors and hires employees.

Can only pick your form of business if you are what?

Small

More than 75% of businesses are what form of business?

Sole Propreietorships

What is the least expensive and easiest organization to create?

Sole Proprietorship

Partnerships have to register through

The secretary of state

How do S-corporations avoid double taxation?

The shareholders elect to have the organization treated like a partnership for income tax purposes. Shareholders then have to account on their individual income tax returns for profits and losses. This is how shareholders avoid having a taxed assessed on their corporate income.

Termination

The whole business is cancelled and winds down.

B corp is different than a business corporation. True or False?

True

Question she asked in class: Each Partner is Liable in a partnership. True or False? True

True

True or False: A partnership cannot use any word in the name such as "company" because it implies the existence of a corporation.

True

True or False: In an S corporation, each of the 100 shareholders must have their must elect to have the corporate income allocated to the shareholders annually in computing their income for tax purposes.

True

Question Tricia asked in class: What is not a basic form of a business organization?

Union

What is specific to GA for Articles of Incorporation?

You have to list a registered agent (doesn't have to be a lawyer)

Partnership

an agreement between two or more persons to share a common interest in a commercial endeavor and to share profits and loses.

Piercing the corporate veil/Alter ego theory

when personal assets can become personal liability. Limited liability goes away