Legal Ch 14, 15
• Negative aspects of few shareholders who also serve as officers and directors controlling large publicly held corporations:
Lack of outside directors can lead to scandals Limiting the role of corporate governance to only a few people can lead to massive fraud
Limited Liability Organizations: What was the first state to pass a law permitting this type of organization
1977 Wyoming
• Internal appellate process: get at semi denovo review
: denovo: can have trial at probate court level and if not a lawyer can do all again fresh in front of superior court o Semi donovo: limited to facts presented to ALJ. o Unlike a regular appeal they can look at all facts fresh
Example: SEC regulations on broadcastings: • Can censor what people say. • Inherently sex and excrement are indecent • ALJ found them to be in violation and brought to second circuit then supreme court • Judges should defer to admin ruling unless
Arbitrary or capricious
Administrative agencies are
Boards, bureaus, commissions, and organizations that make up the governmental bureaucracy o Ex: EPA, FAA, FDA, EEOC, etc o Create and enforce the majority of all laws constituting the legal environment of business
T/F Ownership of a sole proprietorship can be transferred
False
Example in class involving hackleman • WOS for Christina aguileras concert. Called wheel of sin and pick some dude from the audience and strap him to the rolling thing with the fireworks going off as she "punishes" him What did the judge decide to do
Judge allowed only bc they changed it to be someone placed in audience but who worked for them
Sold proprietorships are taxed how?
Not taxed as an organization o Individual proprietor must pay the applicable personal tax rate on the income earned by the proprietorship whether the proprietor actually receives any of the income from the organization or not
general partners are
Personally liable for the organization's debts o Running the show
Power of agencies: • Legislative →
Power to create rules and regulation → Administrative agencies
Two types of regulatory authority and what they can do
Quasi-legislative: • Can issue rules (regulations) that have the impact of law Quasi-judicial: • Hear cases and make decisions, administrative law hearings • Can make decisions like a court
Functions of Agencies: (4)
Rulemaking adjudicating advising investigating
S Corp • Shareholders have to account on their individual income tax returns for
Shares of profits or losses
good example of a benefit corporation could be
TOMS
Tamika montogmery is a Georgia grad and in Delaware court of chancery. She was the first and the second....
The first African America and second female to serve on this court
A benefit corp is different from a B corp which is
a private certification rather than a legal business structure
Corporation incorporators apply for a state charter with what
articles of incorporation • Have to apply, has to have specificity Careful with what you include in the name Want them to feel protected and secure and want customers to feel safe so they invest
all partners share what three things
assets, profits, and liability
o Home depot: man who runs now said if had to start the business today he would not be able to because
because of all of the rules and regulations
Sole proprietor is in total control of what involving the business
businesses goals and operations
• Authority of the federal state and local governments to regulate our professional and personal lives is founded in the constitutional principles of the ________ and _________
commerce clause and police powers
Admin agencies allowed to make some of their own procedural rules, but still have to
follow some other rules as well
in every building exits go in what direction and why
go out because of an incident where people panicked and pushed against the doors and they didn't open because opened in so they all got stuck and died
• Due process of law requires that before a rule of regulation may be adopted by an agency what must happen
interested parties must be given notice of the proposed rules and an opportunity to express their views on them
• A written partnership agreement should provide specific language governing
issues of managerial control Divided control, controlling and minority partners etc
Criticism of benefit corps
may be less accountability to shareholders
Criticisms of Administrative Agencies: • Relating to personnel:
o Difficulty in hiring and retaining the best qualified people o Difficult to discharge unsatisfactory employees o Personnel in top positions are selected for political reasons
Limited partnership: • Continuity:
o Dissolved when general partner withdraws o A limited partner may assign his or her interest to another without dissolving the limited partnership
LLC/LLP continuity:
o Dissolved when member withdraws, but may be continued by those remaining o membership in llc is not limited to individuals: can be corporations, partnerships etc
LLC/LLP Control:
o Equal management by members unless manager designated o vested in members equally unless agreed otherwise in articles of organization o make contributions of capital o not personally liable as third party
Limited partnership: • Control:
o General partners have total control o Limited partners have no right to participate in management
Factors to Consider When Selecting a Business's Organizational Form • Cost of creation
o Legal steps necessary to make a business real. o How long will it take to create a particular organization and how much paperwork is required
• Review of Rule Making: _________ in character: meaning
o Legislative in character: can only delegate the authority it is permitted to delegate • Legislatures usually create administrative agencies or quasi-legislative power to the agency. • Administrative agency can only create rules and regulations in confines of authority granted
Limited partnership: • Liability: general partners vs limited partners
o Personal obligation for general partners; limited partners obligated for investment o Limited partners are not personally liable for the partnerships debts, limited partners liability typically does not exceed the amount of their investments
Criticisms of Administrative Agencies: • Relating to substance:
o Rules and regulations overlap and conflict o Actions for illegal conduct end only with consent orders
Forms of Business Organizations • Basic
o Sole proprietorships o Partnerships o Corporations
Factors to Consider When Selecting a Business's Organizational Form • managerial control of decision
o The business can hinge on certain management choices. o Who is managing the business organization?
Factors to Consider When Selecting a Business's Organizational Form • Taxation
o There are specific advantages to creating the organizational forms that are "single taxed" • However, A single tax is not always better than a double tax
Reasons for Agencies • Provide Services how?
o USPS, Social security administration, o The mere existence of most governmental programs automatically creates a new agency or expands the functions of an existing one
• Limited liability partnership (LLP) o Have characteristics of both _______ & ________ o general partners? o All people in llp have _________ liability o Often used by professionals such as ________ o Shields you as a partner for others mistakes. Big pro for _______ issues
o a partnership and a corporation o No o limited liability o doctors lawyers etc o malpractice issues
a partnership will dissolve if
one partner dies, quits, etc.
Ownership cannot be transferred in what type of business organizational form
sole proprietorship
LLC/LLP Control: dissenting members are treated how
treated similarly to minority shareholders or dissenting shareholders in a corporation • a lot harder with llc though to win case vs corporate • Can bring a derivative lawsuit • Dissenting member had the right to sell the membership interests to other members of the LLC
Ownership of a sole proprietor has what kind of liability for the obligations of the business organization
unlimited liability o Personally obligated for any debt of the proprietorship
Review of Rule making: o Will hold as exceeded if shows the agency
went beyond the limitations even if it was going well and in good thought.
• Alter ego theory: (how corporate veil is pierced)
May also be used to impose personal liability on corporate officers, directors and stock holders • If there is such a unity of ownership and interest that separateness of the corporation has ceased to exist
o Methods to avoid double taxation: • Salaries:
if you can bump up corporate salaries can sometimes avoid reasonable salaries paid to corporate officials may be deducted in computing the taxable income of the business
NERK: expert in nuclear regulation • If company wants some license situation and go to court, court says
go to NERK Must exhaust remedies available at admin agency before court
Criticisms of Administrative Agencies: • Consumer, for whose protections many regulations are adopted, pays both the _____ cost of regulation (in taxes) and the _______ cost (when purchasing products and services.)
direct cost, indirect cost
LLC/LLP Taxation
o All business income subject to personal taxation
Limited partnership: • Creation: What is essential if the limited partners are to be assured of their limited liability
o substantial compliance with all the technical requirements of the limited partnership law
Power of agencies: • Judicial →
power to decide controversies → Administrative agencies
Making the Decision on the Form of Business o If you have a business idea and don't know how to move forward always
seek out professional assistance o Helps for your objectives and goals • Just because you start out as a sole proprietor doesn't mean you cant come back and change that
o Review of Factual Determinations: • If contains material evidence
that is all that is needed even if court decides something otherwise
Limited partnership: • Creation: The terms of the limited partner agreement control what
the governance of the organization
Crucial issue regarding continuity of the organization is
• Dissolution: any change in the ownership of the organization that changes the legal existence of the organization
S Corp has all legal features of a
corporation
o Judicial Review of Agency Decisions Summary • 7) courts are not permitted to substitute their personal views for the agency's findings and conclusions if _________________ • 8) an agency's expertise is entitled to great deference and will not be reversed unless it is clearly _______
7) a reasonable person could reach the same result as the agency 8) erroneous
Advantages and disadvantages of corporate taxation
Advantages: If the corporation makes a profit that is t be retained by the corporation to support growth, no income is allocated to shareholders Disadvantages: If the corporation suffers a loss during the given tax year the loss cannot be distributed to the shareholders in order to reduce personal tax liability • Net operating loss (NOL) could be used only to offset corporate income earned in other years. Can be carries back only for two years and carried forward for 20 Profit is made and corporation wishes to pay a dividend to shareholders • Money would be taxed at corporate and person level then
• Each branch of government has control over the administrative process Executive: Legislative:
Executive branch: • Normally appoints the top officials of an agency with the advice and consent of the legislative branch • Makes budget recommendations to the legislature and has the veto power over its statutes Legislative branch: • Can review and control administrative activity by abolishing the agency, enacting specific legislation contrary to rules adopted by the agency, more explicitly defining limitations to the agency's activities, providing additional procedural requirements for the agency's adjudications, or limiting appropriation of funds
o No easy answer to staying fully informed of _______ at all governmental levels
administrative actions
Differences in creation for a corporation and a LLC
for corporation: • create articles of incorporation and file with secretary of state • organizers of corporation: incorporators • owners of corporation: shareholders for llc: • create articles of organization and file those with secretary of stater • organizers for llc: organizers • owners of llc: members
When was a benefit corp first approves as a corporate form and where
in Maryland in 2010 Variations with similar goals include California's flexible purpose corporation and Washington's special purpose corporation
Do all states recognize benefit corporations
no only about half
Limited partnership: • Taxation:
o All businesses income subject to personal taxation
S corp • Shareholders of certain corporations unanimously elect to have the organization treated like a ______ for income tax purposes
partnership
What type of business organization does not need to get permission from each state in which it does business
partnership
• What type of business organization is this example: o Father owns farm, and works with son to make potatoes. They share profit and loss.
partnership
Standing to Sue: what must you demonstrate
reviewability and aggrieved party
Functions of Agencies: • Hackleman created a box says
they operate inside of it and its hard to get out but if you do it can cause other problems
Sole Proprietor's often have assets that aren't their own, why?
to decrease liability
Nonprofit Corporations: can they have paid employees?
yes payment to whom is considered an expense
Nonprofit Corporations: do they have a tax exempt status
yes, eliminating tax liability, permits donors to deduct contributions from taxes o IRS must approve tax exempt status, yearly filings are required
o Review of Factual Determinations in judicial review of agency decisions. Courts do not do what
• Courts do not reweigh evidence, do not make independent decisions of fact, do not substitute their view of the evidence for that of the agency Is there sufficient evidence that a reasonable person would come to this? If yes don't touch • Only time court can move in if no proof in evidence Agencies decisions must be based on evidence and the record must support the decision
alien corporation
• If you are a corporation who started in Germany and come over to Georgia to do business you are alien • Generally treated as a foreign corporation under the law
foreign corporation
• If you decide to file paperwork in Alabama and start there then you are foreign in alabama
o Closely held corporations: how many people may be able to control
• One shareholder (or a small group of shareholders)
Partnership advantages
1) a partnership is easily formed because it is based on a contract among persons 2) costs of formation are not significant 3) partnerships are not tax paying entities 4) each partner has an equal voice in management unless there is a contrary agreement 5) a partnership may operate in more than one state without obtaining a license to do business 6) partnerships generally are subject to less regulation and less governmental supervision than are corporations
Partnership disadvantages
1) for practical reasons only a limited number of people can be partners 2) a partnership is dissolved anytime a partner ceases to be a partner, regardless of whether the reason was withdrawal or death 3) each partners liability is unlimited, contrasted with the limited liability of the corporate shareholder 4) partnerships are taxed on their share of the partnerships profits, whether the profits are distributed or not. In other words partners often are required to pay income tax on money they do not receive
• Key to a partnerships existence is satisfying the elements of its definition: (3 things)
1) two or more persons 2) a common interest in business 3) sharing profits and losses
Advantage and Disadvantage of taxation on a partnership
Advantage to partners if the organization suffers a net loss: can be used to reduce personal taxable income Disadvantage if the organization retains any profits made by the organization for the purpose of expansion
• Primary Jurisdiction Applies when Ensures uniformity and consistency in dealing with
Applies when a claim is originally filed in the courts and shouldn't have been • Should have been thrown back to admin agency Ensures uniformity and consistency in dealing with matters entrusted to an administrative body
o Sarbanes-oxley act created PCAOB in 2012 • Public company accounting oversight board: they consisted of what and did what
Board consisted of 5 members who were appointed by securities and exchange commissioners. Served 5 year staggered terms but aren't considered government officials. Allowed for recruitment from the private sector bc salaries did not have to follow government limitations Could only be removed for good cause Wanted to be very separate: didn't want to look like puppets Were they inferior to or equal to SEC Regulating public accounting firms
o Closely held corporations: • One shareholder (or a small group of shareholders) can do what
Can own an actual majority of the issues shares Shareholders with the largest amount of stock are often elected to board of directors Can rule with absolute near authority The owners of the minority interest are subject to the decisions of the majority
Criminal Prosecution: Concerns of DPA's
Concern that the overuse of DPA's could lead to an overly lenient environment for addressing corporate malfeasance
• Exhaustion of Remedies Courts refuse to do what and applies when...?
Courts refuse to review administrative actions until a complaining party has exhausted all of the administrative remedies and procedures available to him or her for redress Applies when claim first goes to admin agency • Preliminary orders such as a decision to file a complaint are not reviewable
Criminal Prosecution: • Use of DPA's was increased after the governments case against accounting firm Arthur Andersen when what happened
Firm initially convicted for its role in destroying documents related to its client, Enron. Was severely damaged and unable to continue its operations as one of the country's largest accounting firms Believed that if the govt had used DPA's a firm might still be around and the employees who has nothing to do with the alleged crime would not have suffered.
Criminal Prosecution: • DPA has been used in recent cases such as
Gove prosecution of Credit Suisse for aiding a client tax evasion Toyota for concealing safety defects in cars JPMorgan Chase for failing to maintain anti-money laundering controls in the Bernard Madoff scandal
• Articles of incorporation include lots of things including
Include proposed corporations period of duration, purpose for which it was formed, number of authorized shares, information about the initial corporate officials
o Methods to avoid double taxation: • Not to pay dividends and accumulate earnings
Internal revenue service seeks to compel corporations to distribute those profits not needed for business purpose, such as growth
Review of Rule making: Must be limited
Must provide that the agency's power to act is limited to areas that are certain even if these areas are not specifically defined • Broad language can still be limited. • Must be certain, need procedural safeguards o To control arbitrary administrative action and any administrative abuse of discretionary power
Example in class • Melbourne Want to blow off fireworks for kid rocks tour. Have to go to ATF and get fireworks permit. Follow all rules and regulations (use, transport etc) • Go to Georgia and kid rock wants to do it in gwinnett arena Must do what things
Must show ATF license and proof of insurance and then can get proximate audience permit from safety fire commissioner Must now go to county where show will occur to local regulation with probate court and fire marshall • If judge finds meets all local and state requirements will sign
o Methods to avoid double taxation: • Expense accounts for employees: ways they got more strict
Sometimes could give you perks, writing off trips, gas, etc counts as compensation Got strict about it saying only a certain percent of meals can be reimbursed • Must have agenda, be reasonable, etc (lots of rules) • Law limits deductions for business meals and entertainment to 50% of the cost • Only deductible if directly related to or associated with the active conduct of a trade or business • Not deductible if meal is "lavish or extravagant" • Business must be discussed directly before, during or directly after
Example Holly farms: Operate poultry facilities, have hatcheries, feed mills, processing plant, hatch broiler chicks and deliver chicks to farms with independent farmers. Holly keeps title for birds. When reach 7 weeks old they reclaim birds to go to processing plant Live haul crew catch chickens, put cages on, driver returns truck to processing plant with all chickens, birds are killed and prepared to chip out NLRB: live haul employees, holly farm objected because didn't want to deal with union process Ruled live haul workers were employees rather than agricultural laborers which were excluded from the act NLRB takes to court. Fourth circuit enforces boards order. Rested on reasonable interpretation Went to supreme court Supreme court said
Supreme court also said reasonable Court must respect judgment of agency in order to apply the laws as long as it is reasonable
• Termination vs dissolution
Termination involves the winding up or liquidating of a business Dissolution means the legal form of the organization no longer exists
501C3 is what and what must you do to keep it up
helpful to those who provide contributions because you can have deductions for donating to them must continue to renew the 501C3 status student organizations are hard to get this status so most of time don't have it. A lot of people will want to give 501C3 tax receipt and cant so they wont give
3 trends in management of the organization
1) benefit corporations 2) Idea that corporation is a person 3) Criminal Prosecutions
o Judicial Review of Agency Decisions Summary • 1) regardless of whether a party is challenging an agency's rule making or adjudication, that party must have _________ • 2) to establish standing to sue, the challenger must _________
1) standing to sue 2) show the reviewing court that the agency's decision is subject to review and that the challenger is personally affected by the agencies decision
o Judicial Review of Agency Decisions Summary • 3) when the decision challenged involves the agency's rule making function, the court must ___________ • 4) if the delegation of authority is definite and limited the court will decide if the agency has __________ . If the answer is no, the agency's rule will _________
3) must determine if the agency's authority was validly delegated 4) exceeded its authority. be upheld
o Judicial Review of Agency Decisions Summary • 5) when the decision challenged involves the agency's adjudicatory function, the law requires the challenger to ______________ and the court to __________ • 6) the factual findings of an agency are presumed to be ______
5) must determine if the agency's authority was validly delegated, determine whether an agency should have primary jurisdiction 6) correct
What percent of fortune 500 companies incorporate in Delaware and why?
65% • Partially because of stability of legal environment • Court of chancery: decides corporate law issues (highly regarded court)
Alli vs US • Dr and ms Alli have business called BSA • Corporation and shareholders • Have apartment complexes and BSA does business with the dep of housing and HUD (govt agency) • Residents contract with BSA and HUD puts people in it and pay BSA for housing people • Alli's unhappy because HUD stops paying them under the contract. Goes to court of claims. 2008. • HUD says they violated health and safety rules and counterclaim against Said didn't provide habitable space • HUD counterclaimed for a lot. • Court found BSA had breached contract but had to decide where money would come from. • Allis said go ahead sue us but we have limited liability. But court wanted to pierce the corporate veil: three part test
But court wanted to pierce the corporate veil: three part test Mere instrumentality: cant treat it like own personal self • Determined ali's had treated it like their own, did not act independently Must be used to commit a fraud or wrong: uninhabitable Unjust loss: (to tax payers) • Said US would suffer great loss if veil not pierced • Allowed piercing of veil and alis had around 2 million
Limited partnership: • Liability: Revised Uniform Limited Partnership Act (RULPA) says what
a limited partner who participates in the organizations management becomes liable as a general partner if a third party had knowledge of the limited partners actions • if the limited partners name is used in the firm's name, that partner will become personally liable to unsuspecting creditors
Limited partnership: • Creation: If there is a change in the information in the certificate what must happen
a new one must be prepared and recorded
o Publically held corporations: • Management is maintained with
a small percentage of stock ownership through the use of corporate records and funds to solicit proxies • Proxy: an agent appointed by a shareholder for the purpose of voting the shares
Publicly held corporation • Management of a large corporation usually can maintain control with only a small minority of
actual stock ownership
o In a closely held corporation it can be difficult to obtain credit based on its own net worth. Shareholders usually required to
add their own individual liability as security for borrowing • Shareholders have limited liability for contract like obligations that are imposed as a matter of law (such as taxes) • When corporate obligation results from torts committed by company employees while doing company business
Functions of Agencies: Rule making guidelines
administrative interpretations of the statutes that an agency is responsible for enforcing. • Do not have same force of law that rules and regulations do
o Members of the agency board or commission head only appeals from the decisions of the
administrative law judges. • use prior decisions or precedent • must follow procedural rules of the agency along with its policy directives
o Review of Factual Determinations in judicial review of agency decisions is trying to see if
agencies conclusions are supported by evidence • Analyzing records from agencies proceedings • Do not rehear case or testimony
Courts cannot substitute their judgment for that of the _______
agency
Review of Rule making: • Power delegated to the agency is to the _____ not the _______
agency, not the judiciary Agency been authorized to make rules, courts cannot interfere, courts cannot substitute their judgment for that of the agency practice of deference further emphasizes why a businessperson's influence on the rule making process is greater in the administrative process than through appellate procedures
Example • Food and drug admin v brown: 2000 case. FDA has authority based on act called FDCA FDA insisted had no power over nicotine and tobacco for a long time and in 1996 change direction and say they do have authority over nicotine now. Focused rules and regulations on children and adolescence to steer them away • Said was dangerous, caused illness etc Cant give out samples, cant advertise within so many feet of a school/playground, packs cant be less than 20 etc. • Tobacco industry did not like this and said rules and regulations were outside of the FDA's authority. • Court said?
agreed and said had exceeded authority given by congress o Have to look at unambiguous intent of congress. o "here's an exception for tobacco because financial success hangs on its success" • said again 6 times since said in 1965 o plain in this case that congress did not authorize FDA to do this.
• Partnership is
an agreement between two or more persons to share a common interest in a commercial endeavor and to share profits and losses o Persons is interpreted broadly enough to allow business organizations as well as individuals to form a partnership
S corp taxation policy
avoids double taxation o corporation that has the benefits of a corporation but for tax purposes it is not its own tax entity and goes to share holders • even though S corps don't pay taxes they still must file an information return with the IRS o if project losses can write losses off on income statements
Advisory opinions are unique because
bc they help businesses out by being able to ask with this rule if we had this situation how would you handle it ^^ in book form: give businesses an indication of the view an agency would take if the practice in question were challenged formally Not as binding as formal opinions
Functions of Agencies: Rule making: o by allowing time periods for public comments on proposed regulations interested parties have an opportunity to
be heard on the desirability and legality of proposals
Partnership example o Volkman contacted David. Needed advice. David also works with Carol. Volkman sues David and Carol. Carol says he is not in this with David. Carol is also liable why?
because it looked like a partnership
Example: AT&T • Personal privacy under a particular law • AT&T overcharged the govt for phone services and self reported the overcharge • Govt started an investigation and asked AT&T for a number of documents which they provided. Govt Settled for 500,000. • Some of competitors said through freedom of information act they wanted to see the documents. AT&T said invasion of privacy because they were a person but court said ______. AT&T responded by
but court said yes you are a person as a corporation but when has any business ever said we take this personally • AT&T looks through exemptions and found they were a person so personal privacy went all the way to supreme court. o Argument was can a corporation qualify under a personal privacy exemption o AT&T made big mistake by saying grammar and usage. Said was basic and clear. Kiss of death when saying to the bench o John Roberts wrote the opinion saying said adjectives typically follow the nouns but not always and goes on to give word with other meaning. Most naturally meaning of personal is for just the person. o Scalia says: personal privacy would be a very strange phrase to describe a company such as att o Court decision: some rights only individuals can possess under FOIA 7C do not include the phrase personal privacy o Roberts ended by saying we hope AT&T wont take this personally
What happens if a shareholder leaves a S corp
company then they can continue doing business relatively undisturbed
• Other costs the public must absorb from agency regulations that inhibit
competition and innovation, and cost of paperwork
Benefit corporations: • When you invest you know that they have goals to be
conscious of societies needs in a certain area
o Piercing the corporate veil:
corporate entity can be disregarded when corporate organization is misused • When the veil is pierced shareholders are treated like partners who have unlimited liability for their organizational debts
o Shareholders death or sale of his or her stock doesn't change legal status of a
corporation • Corporations ownership distinct from owners status as shareholders
• US code says interpreting US law the words "person and whoever" include
corporations, companies, associations, firms, partnerships, societies, ad joint stock companies as well as individuals
Factors to Consider When Selecting a Business's Organizational Form
cost of creation, continuity of the organization, managerial control of decision, owner liability, taxation
Example: National credit union admin: • ATT family members limited to but the agency said would open it up to a variety of companies. • Couple of banks came together to challenge the amendments o Didn't like because more competition • ATT said you don't have standing, court said
court said they did because aggrieved party. • Court said exceeded authority
Example At state level court of appeals in ohio • When you get appeal you look at statement of facts by ALJ and conclusions of law, if not arbitrary and not capricious must affirm it and send it out • Even if one doctor says I think this person can work and all others say no, but the ALJ uses it as proof then
courts can't change it
o administrative law judges have been accused of being biased in favor of their employer (the agency) • to reduce likelihood of accusation several states have
created an Office of Administrative Hearings provides impartial administrative law judges for hearings involving all agencies in the state government
what type of suit is this? contracts between the corporation and an interested officer may be challenged. If the suit is brought, the burden is on the director or officer to prove good faith and inherent fairness in such transactions
derivative suit
Example: NEIL • Filed law suit against US for harm done to him in prison. • Goes back to admin agency and files a claim • Admin agency hears it and denies the claim • Lawsuit filed is dismissed because
dismissed because they filed there first and not at admin agency • Admin must be exhausted before filed with courts
different types of corporations
domestic, foreign, alien
partnership agreements must be strong in order to
eliminate future issues
Example in class involving Hackleman • kid rock turned in paperwork and had diagram and saw boxes in the back and she asked fire marshall who had to figure it out like to visit establishments in the city they are preforming and select dancers to participate in the show circles were poles and had dancers on poles and while performing they would let off fireworks. What did they decide to do?
eliminated the strippers from the pole and got rid of the fireworks
o At the federal level all agencies are required to publish guidelines and rules in their proposed and final versions in the
federal registrar • There is nothing like a state or local registrar • The cost of keeping up is balanced against the cost of being out of compliance
o An llc created in a state other than the one where is it conducting business is called a
foreign LLC
Free enterprise fund vs public company accounting oversight board: • Board released a negative report about beckstead and watts llp Lawsuit was filed by beckstead and watts and the free enterprise fund and challenged the constitutionality of the Sarbanes oxley act regarding the creation and operation of the PCAOB Main challenge was that the board members are not subject to the appointed powers of the president of the united states Separation of powers Appointments clause • SEC has tenure and can only be removed for cause • Problem; PCAOB has tenure and can only be removed for good cause but can only be removed by SEC US govt joined the suit to defend the Sarbanes oxley act • District judge granted
granted summary judgment in favor of the US DC court of appeals affirmed Certiorari was granted to review the issue • Presidents ability to remove SEC meant no problem • Roberts wrote the opinion Said yes violates separation of powers Deprives president to hold board members accountable Said the acts restrictions were incompatible with the constitutions separation of powers Said the free enterprise funds argument was too broad and that they agreed with the government that the unconstitutional tenure provisions were severable from the remainder of the statute Now can be at will to be removed by the president
This case was decided because of what trend in managing the organization? Burwell vs Hobby Lobby Stores in 2014: • Court said closely held corporations (not publically traded) have the rights of a person to the free exercise of religion. • Didn't have to give birth control to employees
idea that corporation is a person
• Derivative suit
if the majority is acting illegally or oppresses the rights of the minority shareholders a derivative suit may be brought by minority shareholders on behalf of the corporation May seek to enjoin the unlawful activity or to collect damages for the corporation
o A greater cost to each of us occurs when the regulatory process causes
inefficiencies
Because corporations are there own taxable entity, what issue arrises
leads to double taxation issue • Corporation makes money and taxed on its money • Delivers shareholders their share, and that income is taxed at their income rate
• Federal administrative agencies are required to work with the small business administrations office of advocacy as it attempts to
lessen the burden of regulation on small businesses
• Function of courts in reviewing agency decisions is
limited
when bad things happen people cry out to govt, govt responds by
making laws and assigns them to agencies who are either created or to existing ones
Functions of Agencies: • Advising: May be accomplished by
making reports to congress or the president • May propose new legislation to congress • Also report information to the general public that should be known in the public interest and publish advisory opinions
Functions of Agencies: Rule making o rules and regulations may apply to a business practice irrespective of the industry involved or
may only apply to one industry
Functions of Agencies: • Investigating: bigger function... may use subpoena powers and
may use subpoena powers and require reports, examine a witness under oath, examine and copy documents, obtain info from other governmental offices • Obstruction of justice is illegal, also applies to these admin hearings agencies • If basically testifying and you obstruct justice is still criminal activity
LLC/LLP Control: o equal rights to share in the LLC's profit and losses unless
members have agreed otherwise
• FOIA: Freedom Of Information Act
most things produced can be subject to information being turned over if doesn't fall under an exemption
LLC/LLP continuity: If have a member that dies when that LLC/P must
must come back with new member • sometimes allowed to move forward without if leeway in state law and the business is not necessarily adversely impacted if remaining members decide to stay in business
o Cost benefit analysis becomes ethically awkward when there is an attempt to place a dollar value on things like
not usually bought or sold, such as life, health, or mobility
o Federal register is federal, state and local is how comparable
nothing comparable
Functions of Agencies: • Investigating: agencies can do what?
o Agencies can gather and compile information concerning the organization and business practices of any corporation or industry engaged in commerce to determine whether there has been a violation of any law
Reasons for Agencies • Provide Expertise how?
o Also provide expertise to congress, president, (state or local comparable figures) • Examples: federal reserve board (FRB) nuclear regulatory commission (NRC) food and drug administration (FDA) o Often provide needed continuity and consistency in the formulation application and enforcement of rules and regulations governing business
Reasons for Agencies • Provide Specificity how?
o Congress throw out broad law and give to admin agencies to provide specificity and accomplish the goals that congress had broadly stated o Congress and courts cannot enact laws that cover every possible issue that may arise. • Therefore delegates certain agencies to make each law more specific to avoid the generalization of laws.
Functions of Agencies: Rule making does what and what is the trend
o Create rules and regulations congress has asked them to make o Exponentially increasing every year. • "Little army" of lawyers needed to watch for rules being added
Limited partnership: • Creation:
o Created by an agreement and state law requires that the contents of a certificate must be recorded in a public office so that everyone may be fully advised as to the details of the organization
• Partnership: o Creation: o Continuity: o Control: o Liability: o Taxation:
o Creation: Automatic based on business conduct; modified by agreement o Continuity: Dissolved whenever one partner withdraws (or change in partners) o Control: Each partner has equal voice; modified by agreement o Liability: Personal obligation for all debts and liabilities. Joint and severable liability o Taxation: All business income subject to personal taxation, divided equally
• Sole Proprietorship: o Creation: o Continuity: o Control: o Liability: o Taxation:
o Creation: No formal documentation - business licenses only o Continuity: So long as proprietor desires, but no transfer to others o Control: Total control by proprietor o Liability: Personal obligation for all debts and liabilities o Taxation: All business income subject to personal taxation
Criticisms of Administrative Agencies: • Relating to procedures:
o Delay in decision making process o Administrative process is overwhelmed with paperwork and meetings o Rules and regulations are written in complex legal language o Dictatorial in nature
Reasons for Agencies • Provide Protection how?
o Idea to protect the public from "bad businesses" o Tell businesses "stay in line or else" o Americans tend to turn to a governmental agency for assistance whenever a business or business practice may injure significant numbers of the general public
• In 2009 congress and Obama passed the Family Smoking and Tobacco Control Act which did what
o Increased the FDA's authority beyond discussed in the previous case, but still cannot totally ban nicotine
Forms of Business Organizations • Hybrid
o Limited partnerships o S corporations o Limited liability companies o Limited liability partnerships
Liability of a corporation
o Limited personal liability to shareholders, owners are liable for the debts of the corporation
LLC/LLP Liability
o Members are agents but liable only for investment • Not personally liable to third parties
Limited Liability Company or Partnership: • Creation:
o Organizers file articles of organization with state official
Factors to Consider When Selecting a Business's Organizational Form • Continuity of the organization
o What happens to the business if ownership changes? o The business can end if the owner(s) dissolve or quit. o "If event happens, how will it affect business?" o how does an organizations existence relate to his owners? • With this question the meaning of continuity becomes associated with the stability or durability of the organization
Factors to Consider When Selecting a Business's Organizational Form • Owner liability: ask yourself what two questions
o What will the owners be liable for? o Ask yourself two questions: • To what degree is the owner of a business personally liable for the debts of the business organization? • When is the owner liable under the law for harm caused by the business organization
Reasons for Agencies • Provide Regulation how?
o When a company is given monopoly power they lose individual rights to contract (how much what areas etc) • It loses its freedom of contract and a governmental body is given the power to determine the provisions of its contracts o Regulation is often a substitute for competition
Functions of Agencies: • Adjudicating: o Admin law judges can do o If violations of the law are found _______ may be imposed
o fact finding and issue an order (lots of cease and desist) o sanctions, such as a fine or penalty
• Limited liability company (LLC): o Treated as ______ o Owners have more flexibility compared with _______ o Combines the pass through income for taxation of _______ with limited liability of __________
o nontaxable entities o S corporation o corporation o not a corporation
• Admin agencies develop their own rules of procedure unless mandated otherwise by an act of legislature Far less formal than the judicial process b
one of the functions is to decide issues expeditiously • Usually means admin agencies are not restricted by the strict rules of evidence used by courts • Must remain alert to observe accepted standards of fairness
o It is not unusual for the growth in a business to be reflected in changes in
organizational forms as a part of a life cycle
• FOIA: Freedom Of Information Act: ohio state example
overdose on GHB and brought it from home on spring break. In fraternity house, got sick, no one called an ambulance, he died, his sister was there, and press went crazy. As administrator you try not to put things in writing bc once you do the press can have access to it and wants family to keep privacy
Forms of Business Organizations • Publicly held
owned by hundreds, if not thousands of persons o Includes those whose stock is traded on a public exchange o Usually a corporation because shareholders can transfer ownership without interfering with the organizations management
Forms of Business Organizations • Closely held
owned by only a few persons o Family owned and family operated
Benefit corporation combines the aspects of a nonprofit and profit organization in a way intended to
permit the business to make a profit while pursuing explicit, socially oriented goals
personal agent:
person who receives notice on behalf of the corporation
if you sue coke you must provide them
personal service
your behavior can impact your limited liability in a corporation by doing what
piercing the corporate veil
Power of agencies: • Executive →
power to investigate, prosecute, advise and supervise → Administrative agencies
• Primary Jurisdiction Doctrine is invoked when referral to the agency is
preferable because of its specialized knowledge or expertise in dealing with the matter in controversy.
Appointees of agencies can only be removed by ______ bc they are acting on his behalf o Only 3 reasons to remove: o _______ is a key aspect when getting into admin agencies
president o Inefficiency, neglect of duty, or malfeasance in office o Power to remove
• Judges are organizationally separate from the rest of the agency so that the
quasi judicial function will be preformed impartially.
partnerships are easily formed and costs are
relatively minimal
o Just the threat of a proceeding is often sufficient to cause a
review of administrative policy • Investigations may result in budget cutbacks or increases
Criminal Prosecution: DPA used to encourage Avoids some of the
self reporting and remediation of illegal acts before a criminal case is commenced Avoids some of the harsh consequences that can accompany prosecutions while still addressing the crime itself
What is the least expensive business organization to create
sole proprietorship legally no formal documentation is needed
• S corporations called so because of
sub chapter S of IRS code o 1958
• In the reviewing procedures of admin agencies, courts lack the authority to Judicial responsibility is limited to
substitute their judgment or their own procedures for those of the agency ensuring consistency with the statutes and compliance with the demands of the constitution for a fair hearing • Due process clause usually requires a hearing by an agency, but on occasion sanctions may be imposed prior to hearing
• Legislatures have delegated authority to agencies because of their expertise and knowledge and courts usually exercise restraint and resolve doubtful issues in favor of
the agency
o When businesses have to pay more to keep up with all rules and regulations the money aspect is passed to
the consumer. • Some say should be part of it and they shouldn't have to pay • Some say they understand why they have to pay
• Because agencies have quasi legislative and quasi judicial functions as well as the usual executive ones, the organizational chart of agency usually embraces
the full range of governmental duties
Criminal prosecution: • Criminal prosecutions for corporate wrongdoing may be declined due to
the increased use of "deferred prosecution agreements" (DPA) by the federal govt.
o the name of any LLC must acknowledge the special nature of this organizational form by including
the phrase limited liability company, or limited company
Sole Proprietorships • Proprietorship's continuity is tied directly to
the will of the owner o May dissolve his or her organization at any time by changing the organization or terminating business activity
• Difficulty of owning a minority interest in a closely held corporation is the fact that
there is no ready market for the stock if the shareholder wants to sell it. If there is a valid buy and sell agreement then there is market for the stock. As with partnerships, buy and sell agreements are absolutely essential in closely held corporations
o If not registered as a foreign corporation in another state courts will not see cases bc
they do not recognize you. • Usually requires payments of license fees and franchise taxes above and beyond those paid during the initial incorporation process
o Interested parties are allowed to present evidence in support of, or in opposition to, a proposed rule or regulation. if you want to influence an agency what is vitally important
time • If you want to influence an agency do not wait. Need to get onto it immediately. If you like it throw support, if not attack with evidence and information. If you wait until its been adopted it is too late. o Best way to influence is to watch and get involved while being proposed
o The issues when considering methods of creating business organizations are usually _____ and ________
time and money
Benefit Corp: • Idea came from the perception that
traditional corporate forms place too much emphasis on profit maximization Yield less profit but achieve a social goal such as preserving environment etc
For a LLC or a LLP you must apply to the state to be authorized to
transact business legally
Review of Rule making: Must be definite
will violate due process clause if not Clarity so that courts can see what extent authority is Means that the delegation must be set forth with sufficient clarity so that all concerned, and especially reviewing courts, will be able to determine the extent of the agencies authority • Broad language has been held sufficient
• Administrative agency can only create rules and regulations in confines of authority granted Once courts decide that congress, the act of legislature is good (constitutional) and rule of agency is authorized, courts will not inquire into _______ or _______
wisdom or effectiveness of the rule
Corporate tax rates
• 0-50,000 = 15% • 50,000 - 75,000 = 25% • 75,000 - 10,000,000 = 34% • over 10,000,000 = 35%
Influencing agencies steps
• Agencies give public notice of proposed rules and hold public hearings • Interested parties present evidence in support or opposition to the regulation • Agencies react to the force of public opinion
Standing to Sue: Aggrieved party
• Aggrieved party must show financial damage, or non economic interest (violation of constitutional right)
corporations are
• Artificial and intangible entity created under the authority of a state's law
Administrative law judges: o When you have an issue pop up they commonly hear about the problem because the public will complain and bring attention to an agency or the agency can gather info themselves. Steps to doing this include
• Begin their investigation, request info, documents, decide whether to go forward with allegations, file a complaint, company can respond to allegations, file an answer, case assigned to ALJ, hearing in front of ALJ, lawyers make cases for agency and responding company, ALJ responsible for ruling on motions, statement of facts, conclusion of law, operate primarily in rules of procedure, however, seen as knowing industry more than anyone else, rule on issue, give view and appropriate sanction, order becomes final if no appeal within 30 days. Review done by board. The board who took complaint in or initiated fact finding process themselves. Decide whether to file the complaint. Agency's boss is the board.
Limited Liability Organizations: came into being when?
• Came into being in late 80's and very popular when IRS allowed to be treated as nontaxable entities (1988)
Limited partnership: • Creation: Certificate contains
• Certificate contains: name of partnership, character of the business, its location, name and place of residence of each member, general vs limited partners, length of time to exist, amount of cash or agreed value of property to be contributed by each partner, share of profit or compensation each limited partner shall receive
Nonprofit Corporations: examples
• Charities, religious organizations, museums and universities
Organizational Chart of Typical Agency, Board, or Commission o General Council: • Chief _____ and ______ • Requires _____ approval • Large impact on policy seen as powerful as _______ or ______ • Represents the agency in _____ and often makes ________
• Chief law officer and legal advisor • senate • commissioner or board member • court and often makes the final decision to file suit or pursue other remedies
exceptions to exhaustion of remedies when used in the judicial review of agency decision
• Constitutional issues • If plaintiff can sow will be exceedingly harmed and extreme expense that could not be remedied later by courts • Fraud
corporations creation are a lot more expensive. what kind of costs make this happen
• Costs of incorporation, filing fees, license fees, franchise taxes, attorney fees, costs of supplies, annual costs of continuing operations
Administrative agencies do what
• Create and enforce laws constituting the legal environment of business
S Corporation: • Creation: • Continuity: • Control: • Liability: • Taxation:
• Creation: Incorporators apply for state charter with articles of incorporation • Continuity: Perpetual, so long as number of shareholders is limited • Control: Managed by officers, appointed by directors who are elected by shareholders • Liability: Shareholder obligations limited to investment, absent from other commitments • Taxation: All business income subject to personal taxation
Nonprofit Corporations: What must happen to profits
• Does not return profit to owners, must return any profits made to the organization to be used for future operations.
• 2 doctrines guide courts in the judicial review of agency adjudications
• Exhaustion of Remedies • Primary Jurisdiction
Standing to Sue: reviewability
• Federal Administrative Procedure Act provides for judicial review except where 1) statutes preclude judicial review 2) agency action is committed to agency discretion by law • preclusions of judicial review by inference is rare ex: prison inmates asking FDA to ban the use of lethal injection to carry out the death penalty, it refused to do so. Supreme court held that the decision was not subject to judicial review
Reasons why exhaustion of remedies is used in the judicial review of agency decision
• Hope admin agency will fix any problems and get it right • Supposed to be experts in this field and courts don't want to interrupt the process
Domestic corporation
• If you incorporate in Georgia then you are a domestic corporation in georgia
Idea that corporation is a person means
• Law treats corporations like a person in many instances • Undertake activities like individuals and corporations incur liability for their actions like individuals
Limited Liability Organizations: 2 types
• Limited liability company (LLC) • Limited liability partnership (LLP)
Limited Partnerships • Includes all the attributes of a partnership but
• Limited partners: Not responsible for the debts of the business organization o Basically investors o Not permitted to be involved in the control or operations of the limited partnership
Review of Rule Making: Is the delegation valid? must be what two things
• Must be definite: • Must be limited:
Nonprofit Corporations: Must do what with articles of incorporation
• Must file articles of incorporation with the state and it is run by a board of directors and has limited liability, just like the traditional corporation
Steps for creating a corporation
• Name corporation within some requirements so people know it's a company (company, corporation, incorporated, limited) • Articles of incorporation include lots of things including officials etc In Georgia must include a registered agent • Once completed articles of incorporation send to state official Secretary of state, they review it and if everything is in order they approve and give legal charter Notice of incorporation usually has to be published in the local newspaper to inform the public After this process the corporation becomes operational
influencing agencies: elected or appointed? quickest way to change things?
• Not elected all appointed. Even though not elected by public can be influenced by the public o Quickest way go to congress and complain about what they are doing o Can sometimes lead to budget increase if saying they are too slow and don't have enough people.
o Cease and desist order:
• Order that the violator stop (cease) the objectionable activity and refrain (desist) from any further similar violations. • Violations of cease and desist are punishable by fines which can be as much as $10,000 a day
Reasons for agencies (5)
• Provide Specificity • Provide Expertise • Provide Protection • Provide Regulation • Provide Services
Organizational Chart of Typical Agency, Board, or Commission o Administrative law judges: • _______ authority • Preform _________ • Have immunity if ________ why?
• Quasi judicial authority • Preform adjudicative fact finding functions • Have immunity if acting within scope of responsibilities Bc must exercise independent judgment on the evidence presented, have to have to be free from pressures possibly asserted by parties involved
Organizational Chart of Typical Agency, Board, or Commission o Secretary: responsible for... signs orders and arranges for....
• Responsible for minutes of agency meetings and is legal custodian of records • Sign orders and arrange for publication of all agency actions in the federal register Federal register: All proposed rules and regulation and adopted rules and regulations are placed by the secretary Published daily: businesses need to keep up with this • Also coordinates the activities of the agency with others involved in the regulatory process
Functions of Agencies: • Adjudicating: o Many at administrative hearing level are settled by agreement before final decision which results in
• Results in issuance of a consent order which requires that the organization or individual accused admit to the jurisdiction of the agency and waive all rights to seek a judicial review. • No admission that the business is guilty of a violation of law, but there is an agreement not to engage in the business activities that were subject to the complaint
o Methods to avoid double taxation of a corporation:
• Salaries: • Expense accounts for employees: • Issuing stock not in full amount • Getting a loan from a particular investor • Not to pay dividends and accumulate earnings: • Issuing stock not in full amount • Getting a loan from a particular investor
Organizational Chart of Typical Agency, Board, or Commission o Advisory Councils: selected because of.... employed by agency...? provides interaction between...
• Selected because of area of expertise • Not employed by the agency typically but interested in its mission • Provide interaction between regulators in box and people in the industry/public • Advise agency in particular matters
Control of corporations is split up how?
• Shareholders elect the members of the board of directors. • directors set the objectives or goals of the corporation and appoint officers. • Officers (vp, president, secretary, treasurer) are charged with managing the daily operations of the corporation in an attempt to achieve the stated organizational objectives or goals
Making the Decision on the Form o Needs to be reviewed periodically. this includes
• Should be done in consultation with close advisors (attorneys, accountants, bankers, insurers) • Balances advantages vs disadvantages • Decisions is often to choose the least objectionable form of the organization
Organizational Chart of Typical Agency, Board, or Commission o Director of operations: • Varies depending on _______ • Regional offices, usually ALJ's special legal council, lots of authority, goal to _______ • Usually have an ______ function • Many regional offices have their own ________ & __________
• Varies depending on agency. • speed up process • educational function • their own administrative law judges and special legal counsel
Organizational Chart of Typical Agency, Board, or Commission o Executive director for administration: • Supervises usual administrative functions such as _____________ • also serves as _________: want congress to increase their budget, get their power from ______ and want them to give more power
• accounting, budgeting, and personnel Research and planning usually also supervised • Legislative liaison: lobbyist congress and want them to give more power
o limited partners do not lose the benefit of limited personal liability in what types of situations
• acting as an agent or employee of the partnership • consulting with or advising a general partner • acting as a guarantor of the partnerships obligations • inspecting and copying any of the partnerships financial records • demanding true and full information about the partnership whenever circumstances render it reasonable • receiving any share of the profits or compensation by way of income • approving or disapproving an amendment to the partnership certificate • voting on matters of fundamental importance such as dissolution, sale of assets, or change of the partnerships name • having contribution returned upon dissolution
Organizational Chart of Typical Agency, Board, or Commission o members 5-7: chairperson
• appointed by president and is presiding officer at agency meetings • equal vote as other agency members, but is somewhat more important bc of visibility and power to appoint • typically belong to same political party as president
Limitations to S Corps: specific requirements that must be met
• domestic corporation • only allowable shareholders (must be individuals): no other forms of business organizations (partnerships, limited partnerships, or corporations) • alien shareholders not allowed • s corp can only have 100 shareholders no more: each must elect to have corporate income allocated to the shareholders annually in computing their income for tax purposes, whether actually paid out or not • only one class of stock • some corporations that are not eligible even if meet other requirements: insurance companies, finance, etc
Organization of Agencies • Consist of _____ members o One member is appointed as ______ o No more than a ________ from each political party • Appointments require _____ confirmation • Appointees are not permitted to engage in ________ • Can only be removed by ______ bc they are acting on his behalf • Agencies have distinctive _________ to meet its responsibilities
• five to seven o chairperson (get more attention in press more) o simple majority (three of five or four of seven) • Senate • other employment during the terms (exclusively for that agency) • president • organizational structure
Disadvantages of an S Corp (taxation)
• if net profits must be retained in the business income tax is paid on earnings not yet received, and there is a danger of double taxation to the individual because undistributed earnings that have been taxed once are taxed again in the event of the death of a shareholder
Advantages of an S corp (taxation)
• if operating at a loss the loss is shared and immediately deductible on the returns of the shareholders • business capable of paying out net profits as earned: corporate tax is avoided
• articles of partnership: formal agreement to enter: two limitations in selecting a name:
• may not use any word in the name such as "company" that would imply they were a corporation • if name is used other than that of the partners, the partners must give notice as to their actual identity under the states "assumed name statute"
Limited partnership: • Creation: Certificate must be recorded where?
• must be recorded in the county where the partnership has its principal place of business and in every community where the partnership conducts business or has an office
Example in class Fire started at concert venue 5 minutes until the fire trucks arrived occurred In rhode island, caused by fireworks set off by the tour manager flammable soundboard material above caught fire called jerbs? Usually very safe but used inappropriately which was the main cause of fire when people first saw flames thought it was part of the concert everyone left from same door they came in ignoring the other four exits (cant see with the smoke) What happened?
• trapped people in • over 100 people killed • had over 500 people and only 400 were supposed to be allowed in • half of survivors seriously injured • fourth deadliest night club fires in us history
