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FORMS OF BUSINESS ORGANIZATION IN THE UNITED STATES Unit 33.

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1 FORMS OF BUSINESS ORGANIZATION IN THE UNITED STATES Unit 33

2 Preview Sole proprietorshipSole proprietorship PartnershipPartnership CorporationCorporation Attributes of corporationsAttributes of corporations Legal termsLegal terms ExerciseExercise

3 Forms of Business Organization Sole proprietorship (or the individual ownership); sole traderSole proprietorship (or the individual ownership); sole trader PartnershipPartnership CorporationCorporation

4 Factors taken into consideration Financial responsibilityFinancial responsibility Control of operationControl of operation Possibilities of growth and expansionPossibilities of growth and expansion Possibilities of capitalizationPossibilities of capitalization Financial developmentFinancial development

5 Sole proprietorship Business owned by one personBusiness owned by one person Owner has relatively unlimited control over the business and enjoys all the profitsOwner has relatively unlimited control over the business and enjoys all the profits Unlimited personal responsibility for the losses, debts and other liabilitiesUnlimited personal responsibility for the losses, debts and other liabilities Small retail stores, restaurants, farms etc.Small retail stores, restaurants, farms etc.

6 Partnership Association of two or more persons as co- owners to carry on a business for profitAssociation of two or more persons as co- owners to carry on a business for profit Based upon voluntary agreement of partnersBased upon voluntary agreement of partners Profits and losses shared equally unless otherwise agreedProfits and losses shared equally unless otherwise agreed

7 Partnership Every partner liable without limit to creditors for debts of the management with equal authorityEvery partner liable without limit to creditors for debts of the management with equal authority Utilize more capital, labor and skill than sole proprietorshipsUtilize more capital, labor and skill than sole proprietorships

8 Partnership Unlike an incorporated company, a partnership does not have a legal personality of its own; partners are liable for the debts of the firmUnlike an incorporated company, a partnership does not have a legal personality of its own; partners are liable for the debts of the firm

9 Partnership On leaving the firm they remain liable for debts already incurred;On leaving the firm they remain liable for debts already incurred; They cease to be liable for future debts if proper notice of retirement has been publishedThey cease to be liable for future debts if proper notice of retirement has been published

10 Corporation Artificial person created under law and empowered to achieve a specific purposeArtificial person created under law and empowered to achieve a specific purpose Formed upon the issuance of a certificate of incorporation by the appropriate government authorityFormed upon the issuance of a certificate of incorporation by the appropriate government authority

11 Company formation Certificate of incorporation – issued upon the filing of the constitutional documents of the company, together with statutory forms and the payment of a filing feeCertificate of incorporation – issued upon the filing of the constitutional documents of the company, together with statutory forms and the payment of a filing fee

12 The ‘constitution’ of a company Memorandum of associationMemorandum of association Articles of associationArticles of association Certificate of incorporationCertificate of incorporation

13 Memorandum of Association (Br.E.) Memorandum of Incorporation (Am. E.) Name of the company Objects and powers of the company (the sphere of activities and nature of the company) Objects and powers of the company (the sphere of activities and nature of the company) Share capitalShare capital

14 Articles of Association (Br. E.) Bylaws (Am. E.) A set of rules governing the conduct of company members and officers (directors, secretary)A set of rules governing the conduct of company members and officers (directors, secretary) Conduct of shareholder and board meetings, any restriction on transferability of shares, powers of directors, etc.Conduct of shareholder and board meetings, any restriction on transferability of shares, powers of directors, etc.

15 Certificate of incorporation A document certifying that the company is incorporatedA document certifying that the company is incorporated The validity of the incorporation cannot thereafter be challengedThe validity of the incorporation cannot thereafter be challenged

16 Company management Director: appointed to carry out and control the day-to-day affairs of the companyDirector: appointed to carry out and control the day-to-day affairs of the company Manager: supervisory control of the affairs of the companyManager: supervisory control of the affairs of the company

17 Company management SecretarySecretary Auditors: do not owe a duty to the company as a legal entity, but to the shareholders, to whom the auditor’s report is addressedAuditors: do not owe a duty to the company as a legal entity, but to the shareholders, to whom the auditor’s report is addressed

18 Director Duty of care: must exercise the care of an ordinarily prudent and diligent personDuty of care: must exercise the care of an ordinarily prudent and diligent person Fiduciary duty: must act in the best interests of the company and not for any collateral purposeFiduciary duty: must act in the best interests of the company and not for any collateral purpose

19 Corporation The formation of an association that has corporate personality, i.e. a legal personality distinct from those of its membersThe formation of an association that has corporate personality, i.e. a legal personality distinct from those of its members Such a body can own property and incur debtsSuch a body can own property and incur debts

20 Corporation Company members have no liability to company creditorsCompany members have no liability to company creditors Incorporated company has its own rights and liabilities and legal proceedingsIncorporated company has its own rights and liabilities and legal proceedings

21 Attributes of corporations Perpetual life (“perpetual succession”)Perpetual life (“perpetual succession”) Limited liabilityLimited liability Transferability of sharesTransferability of shares Access to capitalAccess to capital Professional managementProfessional management

22 Perpetual succession Any corporate body has a legal existence distinct from the person or persons of whom it is composedAny corporate body has a legal existence distinct from the person or persons of whom it is composed

23 Perpetual succession Its lifespan is not limited by that of its members and it is therefore said to have perpetual successionIts lifespan is not limited by that of its members and it is therefore said to have perpetual succession It continues to exist until wound up in the manner prescribed by lawIt continues to exist until wound up in the manner prescribed by law

24 Limited liability Members of companies providing the share capital cannot be asked to contribute more than the nominal value of the shares registered in their namesMembers of companies providing the share capital cannot be asked to contribute more than the nominal value of the shares registered in their names

25 Limited liability The nominal value of the shares or the amount of the guarantee will appear in the Memorandum of Association and in the Annual AccountsThe nominal value of the shares or the amount of the guarantee will appear in the Memorandum of Association and in the Annual Accounts

26 Transfer of shares A transaction resulting in a change of share ownership. It traditionally involved:A transaction resulting in a change of share ownership. It traditionally involved: 1. a contract to sell the shares1. a contract to sell the shares 2. their transfer2. their transfer 3. entry of the transferee’s name on the registrar of members of the company3. entry of the transferee’s name on the registrar of members of the company

27 Corporate veil In cases when the company is used to perpetrate fraud or acts ultra vires, the court may ‘lift’ the corporate veil and subject the shareholders to personal liabilityIn cases when the company is used to perpetrate fraud or acts ultra vires, the court may ‘lift’ the corporate veil and subject the shareholders to personal liability

28 Legal terms Sole proprietorshipSole proprietorship Isključivo vlasništvo; poduzeće s jednim vlasnikomIsključivo vlasništvo; poduzeće s jednim vlasnikom PartnershipPartnership Partnerstvo, ortaštvoPartnerstvo, ortaštvo CorporationCorporation Trgovačko društvo, dioničko društvo, društvo kapitalaTrgovačko društvo, dioničko društvo, društvo kapitala

29 Legal terms RetailRetail MaloprodajaMaloprodaja LiabilityLiability Obveza (financijska), odgovornostObveza (financijska), odgovornost CreditorCreditor Vjerovnik, zajmodavacVjerovnik, zajmodavac DebtorDebtor Dužnik, zajmoprimacDužnik, zajmoprimac

30 Legal terms Artificial person (Br. E.), legal person, legal entityArtificial person (Br. E.), legal person, legal entity Pravna osobaPravna osoba Limited liabilityLimited liability Ograničena odgovornostOgraničena odgovornost Transferability of sharesTransferability of shares Prenosivost dionicaPrenosivost dionica

31 Introduction to Company Law: Exercise Complete the text by using the following words: agreements, borrow, corporations, court, debts, dividends, employees, legal, legislation, liability, limited, objectives, partnership, profits, property, registered (x2), shareholders, sole trader, sueComplete the text by using the following words: agreements, borrow, corporations, court, debts, dividends, employees, legal, legislation, liability, limited, objectives, partnership, profits, property, registered (x2), shareholders, sole trader, sue

32 agreements, borrow, corporations, court, debts, dividends, employees, legal, legislation, liability, limited, objectives, partnership, profits, property, registered (x2), shareholders, sole trader, sue A company is a ___entity, allowed by ___, which permits a group of people, as___, to create an organization, which can then focus on pursuing set____. It is empowered with legal rights which are usually only reserved for individuals, such as the right to____and be sued, own____, hire____ or loan and ____money.A company is a ___entity, allowed by ___, which permits a group of people, as___, to create an organization, which can then focus on pursuing set____. It is empowered with legal rights which are usually only reserved for individuals, such as the right to____and be sued, own____, hire____ or loan and ____money.

33 agreements, borrow, corporations, court, debts, dividends, employees, legal, legislation, liability, limited, objectives, partnership, profits, property, registered (x2), shareholders, sole trader, sue The primary advantage of a company structure is that it provides the shareholders with a right to participate in the_____, a proportionate distribution of profits made in the form of a money payment to shareholders, without any personal____.The primary advantage of a company structure is that it provides the shareholders with a right to participate in the_____, a proportionate distribution of profits made in the form of a money payment to shareholders, without any personal____.

34 agreements, borrow, corporations, court, debts, dividends, employees, legal, legislation, liability, limited, objectives, partnership, profits, property, registered (x2), shareholders, sole trader, sue There are various forms of legal business entities ranging from the____, who alone bears the risk and responsibility of running a business, taking the profits, but as such not forming any association in law and thus not regulated by special rules of law, to the____company with ___liability and to multinational ____.There are various forms of legal business entities ranging from the____, who alone bears the risk and responsibility of running a business, taking the profits, but as such not forming any association in law and thus not regulated by special rules of law, to the____company with ___liability and to multinational ____.

35 agreements, borrow, corporations, court, debts, dividends, employees, legal, legislation, liability, limited, objectives, partnership, profits, property, registered (x2), shareholders, sole trader, sue In a ____, members ‘associate’, forming collectively an association in which they all participate in management and sharing____, bearing the liability for the firm’s _____and being sued jointly and severally in relation to the firm’s contracts or tortious acts.In a ____, members ‘associate’, forming collectively an association in which they all participate in management and sharing____, bearing the liability for the firm’s _____and being sued jointly and severally in relation to the firm’s contracts or tortious acts.

36 agreements, borrow, corporations, court, debts, dividends, employees, legal, legislation, liability, limited, objectives, partnership, profits, property, registered (x2), shareholders, sole trader, sue Limited-liability companies, or corporations, unlike partnerships, are formed not simply by____entered into between their first members; they must also be_____at a public office or _____designated by law or otherwise obtain official acknowledgement of their existence.Limited-liability companies, or corporations, unlike partnerships, are formed not simply by____entered into between their first members; they must also be_____at a public office or _____designated by law or otherwise obtain official acknowledgement of their existence.

37 Key A company is a legal entity, allowed by legislation, which permits a group of people, as shareholders, to create an organization, which can then focus on pursuing set objectives. It is empowered with legal rights which are usually only reserved for individuals, such as the right to sue and be sued, own property, hire emoloyees or loan and borrow money.A company is a legal entity, allowed by legislation, which permits a group of people, as shareholders, to create an organization, which can then focus on pursuing set objectives. It is empowered with legal rights which are usually only reserved for individuals, such as the right to sue and be sued, own property, hire emoloyees or loan and borrow money.

38 Key The primary advantage of a company structure is that it provides the shareholders with a right to participate in the dividends, a proportionate distribution of profits made in the form of a money payment to shareholders, without any personal liability.The primary advantage of a company structure is that it provides the shareholders with a right to participate in the dividends, a proportionate distribution of profits made in the form of a money payment to shareholders, without any personal liability.

39 Key There are various forms of legal business entities ranging from the sole trader, who alone bears the risk and responsibility of running a business, taking the profits, but as such not forming any association in law and thus not regulated by special rules of law, to the registered company with limited liability and to multinational corporations.There are various forms of legal business entities ranging from the sole trader, who alone bears the risk and responsibility of running a business, taking the profits, but as such not forming any association in law and thus not regulated by special rules of law, to the registered company with limited liability and to multinational corporations.

40 Key In a partnership, members ‘associate’, forming collectively an association in which they all participate in management and sharing profits, bearing the liability for the firm’s debts and being sued jointly and severally in relation to the firm’s contracts or tortious acts.In a partnership, members ‘associate’, forming collectively an association in which they all participate in management and sharing profits, bearing the liability for the firm’s debts and being sued jointly and severally in relation to the firm’s contracts or tortious acts.

41 Key Limited-liability companies, or corporations, unlike partnerships, are formed not simply by agreements entered into between their first members; they must also be registered at a public office or court designated by law or otherwise obtain official acknowledgement of their existence.Limited-liability companies, or corporations, unlike partnerships, are formed not simply by agreements entered into between their first members; they must also be registered at a public office or court designated by law or otherwise obtain official acknowledgement of their existence.

42 Roles in company management Match the roles with definitions: auditor, company secretary, director, managing director, shareholder Company director responsible for the day-to-day operation of the companyCompany director responsible for the day-to-day operation of the company Person elected by the shareholders to manage the company and decide its general policyPerson elected by the shareholders to manage the company and decide its general policy Person appointed by the company to examine the company’s accounts and to report to the shareholders annually on the accountsPerson appointed by the company to examine the company’s accounts and to report to the shareholders annually on the accounts

43 Key Company director responsible for the day-to-day operation of the company: managing directorCompany director responsible for the day-to-day operation of the company: managing director Person elected by the shareholders to manage the company and decide its general policy: directorPerson elected by the shareholders to manage the company and decide its general policy: director Person appointed by the company to examine the company’s accounts and to report to the shareholders annually on the accounts: auditorPerson appointed by the company to examine the company’s accounts and to report to the shareholders annually on the accounts: auditor

44 Match the roles with definitions: auditor, company secretary, director, managing director, shareholder Member of the company by virtue of an acquisition of shares in a companyMember of the company by virtue of an acquisition of shares in a company Company’s chief administrative officer, whose responsibilities include accounting and finance duties, personnel administration and compliance with employment legislation, security of documentation, insurance and intellectual property rightsCompany’s chief administrative officer, whose responsibilities include accounting and finance duties, personnel administration and compliance with employment legislation, security of documentation, insurance and intellectual property rights

45 Key Member of the company by virtue of an acquisition of shares in a company: shareholderMember of the company by virtue of an acquisition of shares in a company: shareholder Company’s chief administrative officer, whose responsibilities include accounting and finance duties, personnel administration and compliance with employment legislation, security of documentation, insurance and intellectual property rights: company secretaryCompany’s chief administrative officer, whose responsibilities include accounting and finance duties, personnel administration and compliance with employment legislation, security of documentation, insurance and intellectual property rights: company secretary

46 Choose the correct word or phrase: 1. The constitution of a company comprises/consists/contains of two documents.1. The constitution of a company comprises/consists/contains of two documents. 2. The memorandum of association states /provides for / sets up the objects of the company and details its authorised capital.2. The memorandum of association states /provides for / sets up the objects of the company and details its authorised capital. 3. The articles of association contain arguments / provisions / directives for the internal management of a company3. The articles of association contain arguments / provisions / directives for the internal management of a company

47 Key 1. The constitution of a company comprises/consists/contains of two documents.1. The constitution of a company comprises/consists/contains of two documents. 2. The memorandum of association states /provides for / sets up the objects of the company and details its authorised capital.2. The memorandum of association states /provides for / sets up the objects of the company and details its authorised capital. 3. The articles of association contain arguments / provisions / directives for the internal management of a company3. The articles of association contain arguments / provisions / directives for the internal management of a company

48 Choose the correct word or phrase 4. The company is governed by the board of directors, whilst the day-to-day management is delegated upon / to / for the managing director.4. The company is governed by the board of directors, whilst the day-to-day management is delegated upon / to / for the managing director. 5. In some companies, the articles of association make /give / allow provision for rotation of directors, whereby only a certain portion of the board must retire and present itself for re- election before the AGM.5. In some companies, the articles of association make /give / allow provision for rotation of directors, whereby only a certain portion of the board must retire and present itself for re- election before the AGM.

49 Key 4. The company is governed by the board of directors, whilst the day-to-day management is delegated upon / to / for the managing director.4. The company is governed by the board of directors, whilst the day-to-day management is delegated upon / to / for the managing director. 5. In some companies, the articles of association make /give / allow provision for rotation of directors, whereby only a certain portion of the board must retire and present itself for re- election before the AGM.5. In some companies, the articles of association make /give / allow provision for rotation of directors, whereby only a certain portion of the board must retire and present itself for re- election before the AGM.

50 Choose the correct word or phrase 6. Many small shareholders do not bother to attend shareholders’ meetings and will often receive proxy circulars from the board, seeking authorisation to vote on the basis of / in respect of / on behalf of the shareholder.6. Many small shareholders do not bother to attend shareholders’ meetings and will often receive proxy circulars from the board, seeking authorisation to vote on the basis of / in respect of / on behalf of the shareholder.

51 Key

52 Complete the following using: in terms of, in the course of, by way of, in response to 1. _____choosing the name of the company, a number of matters must be considered.1. _____choosing the name of the company, a number of matters must be considered. 2. Confidential information acquired_____one’s directorship shall not be used for personal advantage.2. Confidential information acquired_____one’s directorship shall not be used for personal advantage. 3. I would advise that members of your project group formalise your relationship ____a partnership agreement, incorporation or limited liability company.3. I would advise that members of your project group formalise your relationship ____a partnership agreement, incorporation or limited liability company.

53 Key 1. In the course of choosing the name of the company, a number of matters must be considered.1. In the course of choosing the name of the company, a number of matters must be considered. 2. Confidential information acquired by way of/in the course of one’s directorship shall not be used for personal advantage.2. Confidential information acquired by way of/in the course of one’s directorship shall not be used for personal advantage. 3. I would advise that members of your project group formalise your relationship by way of a partnership agreement, incorporation or limited liability company.3. I would advise that members of your project group formalise your relationship by way of a partnership agreement, incorporation or limited liability company.

54 Complete the following using: in terms of, in the course of, by way of, in response to 4. This form of corporation is often considered to be the most flexible body ____corporate structure.4. This form of corporation is often considered to be the most flexible body ____corporate structure. 5. Our company formations expert is unable to provide advice____your query, as there are a number of factors which need to be taken into account which do not relate directly to his area of expertise.5. Our company formations expert is unable to provide advice____your query, as there are a number of factors which need to be taken into account which do not relate directly to his area of expertise.

55 Key 4. This form of corporation is often considered to be the most flexible body in terms of corporate structure.4. This form of corporation is often considered to be the most flexible body in terms of corporate structure. 5. Our company formations expert is unable to provide advice in response to your query, as there are a number of factors which need to be taken into account which do not relate directly to his area of expertise5. Our company formations expert is unable to provide advice in response to your query, as there are a number of factors which need to be taken into account which do not relate directly to his area of expertise

56 Complete the following using: in terms of, in the course of, by way of, in response to 6. The relationship between management and boards of directors at US multinational companies has been changed dramatically through a series of corporate governance initiatives begun_____corporate scandals, the Sarbanes-Oxley Act and other requirements.6. The relationship between management and boards of directors at US multinational companies has been changed dramatically through a series of corporate governance initiatives begun_____corporate scandals, the Sarbanes-Oxley Act and other requirements.

57 Key The relationship between management and boards of directors at US multinational companies has been changed dramatically through a series of corporate governance initiatives begun in response to corporate scandals, the Sarbanes-Oxley Act and other requirements.The relationship between management and boards of directors at US multinational companies has been changed dramatically through a series of corporate governance initiatives begun in response to corporate scandals, the Sarbanes-Oxley Act and other requirements.

58 Complete the following using: in terms of, in the course of, by way of, in response to 7. Shareholders and other investors in corporations tend to view corporate governance_____the corporation’s increasing value over time.7. Shareholders and other investors in corporations tend to view corporate governance_____the corporation’s increasing value over time. 8. Regular and extraordinary board meetings may be held by telephone, video-telephone and_____written resolutions.8. Regular and extraordinary board meetings may be held by telephone, video-telephone and_____written resolutions.

59 Key 7. Shareholders and other investors in corporations tend to view corporate governance in terms of the corporation’s increasing value over time.7. Shareholders and other investors in corporations tend to view corporate governance in terms of the corporation’s increasing value over time. 8. Regular and extraordinary board meetings may be held by telephone, video-telephone and by way of written resolutions.8. Regular and extraordinary board meetings may be held by telephone, video-telephone and by way of written resolutions.

60 Which of the following can go the verb to file? An action, an appeal, an amendment, a breach, a brief, charges, a claim, a complaint, a debt, a defence, a dispute, a document, a fee, an injunction, a motion, provisions, a suitAn action, an appeal, an amendment, a breach, a brief, charges, a claim, a complaint, a debt, a defence, a dispute, a document, a fee, an injunction, a motion, provisions, a suit

61 To file To send a document to courtTo send a document to court To register something officiallyTo register something officially Podnijeti (prijavu, tužbu, zahtjev), podići (optužnicu), dostaviti, evidentirati, pokrenuti postupak, urudžbirati, arhiviratiPodnijeti (prijavu, tužbu, zahtjev), podići (optužnicu), dostaviti, evidentirati, pokrenuti postupak, urudžbirati, arhivirati

62 Key An action, an appeal, an amendment, a brief, charges, an injunction, a motion, a suitAn action, an appeal, an amendment, a brief, charges, an injunction, a motion, a suit


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