© 2011 South-Western | Cengage Learning GOALS LESSON 5.1 SOLE PROPRIETORSHIPS Distinguish the fundamental differences in the basic business forms Explain why someone might choose to become a sole proprietor

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Basic Forms of Business Organization Three basic forms Sole proprietorship Partnership Corporation These are listed in order of low to high ease and cost of entry, as well as degree of complexity, longevity, intrusiveness of governmental regulation, and the ability to attract professional management.

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Sole Proprietorship A sole proprietorship is defined as a business owned by one person. It is the simplest and most fundamental of all the forms of business organization. A single owner is personally liable for the obligations of the business.

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Sole Proprietorship Basics Business licenses Tax number Employer Identification Number

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Advantages and Disadvantages of Sole Proprietorships Sole proprietorships are more flexible and responsive to change than the other business forms. Success or failure depends on interest, desire, finances, and physical health of the owner. If a sole proprietorship fails, its obligations are enforceable not only against the assets of the business but also the possessions of its sole proprietor.

© 2011 South-Western | Cengage Learning GOALS LESSON 5.2 PARTNERSHIPS Explain how to form a partnership Describe legalities involved in the operation and termination of a partnership

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Partnership Basics A general partnership is an association of two or more persons to carry on a business for profit as co-owners. Each of the partners is individually liable for the obligations of the firm.

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Uniform Partnership Act Enacted in every state except Louisiana Defines rights and duties of the partners in relation to the partnership

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Types of Partners General partners Silent partners Secret partners Nominal partners Dormant partners

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Limited Partnership A limited partnership is made up of one or more general partners with full personal liability and one or more limited partners whose liability for partnership obligations extends only to the amount of their investment in the business. To retain their limited liability, limited partners must not participate in the general management of the business.

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Creation of a General Partnership By agreement By court acknowledgment

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Operation of a Partnership Management of partnerships Profits, losses, and property rights Liability for business operations Fiduciary duty above all

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE How Are Partnerships Ended? By the intentional act of a partner By action of law By court judgment Winding up

© 2011 South-Western | Cengage Learning GOALS LESSON 5.3 CORPORATIONS Discuss the nature of corporations, including their advantages and disadvantages Explain how corporations are created, owned, managed, and terminated List and describe different types of corporations, including alternatives to the full corporate form

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Corporation Basics A corporation is defined as a legal entity or artificial person created through the authority of federal or state law. It can be owned by one or more persons, other corporations, a government body, or a combination of all of these. It can sue or be sued without its investors being exposed to the risk of losing personal assets to pay any corporate debts that result. It continues in existence beyond the withdrawal or death of its owners due to the free transferability of ownership in the form of certificates of ownership called shares of stock.

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Advantages of Corporations Perpetual life Limited liability Transferability of ownership interests Ability to attract large sums of capital Professional management

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Disadvantages of the Corporate Form Double taxation More costly and more troublesome to organize Government regulations

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Types of Corporations Domestic corporation Foreign corporation Alien corporation Public corporation Private corporation Profit-making corporation Nonprofit corporation Public service corporation

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Creation of a Corporation Articles of incorporation Charter Shares of stock

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Types of Stock Common stock Preferred stock

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Corporate Management Board of directors Fiduciaries Model Business Corporation Act

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Corporate Powers Make contracts Borrow money and incur other liabilities Lend money and acquire assets, including all forms of real and personal property Make, indorse, and accept commercial paper, or orders or promises to pay money Issue various types of stock and bonds Mortgage, pledge, lease, sell, or assign property (Continued on next slide)

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Corporate Powers Buy back its own stock, unless this would make it impossible for the corporation to pay its debts or to pay off any superior class of stock Acquire and hold stock in other corporations provided the result would not violate antitrust laws Make reasonable donations or gifts for civic or charitable purposes to promote goodwill in accord with corporate social responsibility (Continued on next slide) (Continued from previous slide)

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Corporate Powers Hire and fire agents, independent contractors, and ordinary employees Establish pension, profit sharing, and other incentive plans for employees Sue and be sued Utilize other implied powers (Continued from previous slide)

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Termination of Corporations Incorporator specification or shareholder agreement Loss of charter Consolidation or merger Bankruptcy Court order

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Alternatives to the Full Corporate Form S corporations Limited liability corporations (LLC) Limited liability partnerships (LLP)

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE S Corporations Timely filing Domestic corporation Identity of shareholders Number of shareholders Classes of stock

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Limited Liability Corporations (LLC) Limited liability protection and taxation as a partnership No limitation on the number of members No limitations as to whom or what can be a stockholder Members are allowed to participate completely in managing the business

© 2011 South-Western | Cengage Learning BUSINESS LAW, 2eLESSON SLIDE Limited Liability Partnerships (LLP) Similar to LLCs Used mostly by existing partnerships who find it difficult to convert to the LLC form