BASIC BUSINESS LAW Understand the Types of Ownership “The business of America is business,” said Calvin Coolidge

Essential Questions? What is the definition of a sole proprietorship. What is the definition of a partnership. What is the definition of a corporation.

Principal Form of Business Organization-Sole Proprietorship Characteristics of Sole Proprietorship Requirements for Organizing - none Legal Status – owner is the business and it is not a separate entity. Liability - unlimited Management – owner makes the decisions

Principal Form of Business Organization-Sole Proprietorship, continued Characteristics of Sole Proprietorship Dissolution – owner decides and the business terminates upon the owner ’ s death Ease of formation – just do it! Duration – death or disinterest of owner Ability to attract professional managers - poor

Sole Proprietorship I am conducted out of my home. I am conducted in my basement. I am conducted in my car. I need three or four employees. I must have a computer. I have to purchase inventory with cash. I don ’ t need a charter. I don ’ t need a license. I must have a permit to collect sales tax. Is the statement (T)rue or (F)alse DIRECTIONS: Please label your paper and write the statements below. If the answer is “ false, ” what word or words would make it ‘ true? ”

Sole Proprietorship True-I can set up in my home. True-My basement is a good place. True-My car is used for selling products and services. False-I don ’ t have to (can) hire employees. False-I don ’ t have (need) to buy a computer. False-I can (cannot) purchase goods/services on credit. True-I don ’ t need a charter. False-I (don ’ t) need to obtain a local business license. False-I may (not) need a permit to collect sales tax in my state. Answer Key to Activity

Principal Form of Business Organization-Partnership Requirements for Organizing – agreement of the parties. Legal Status – not a separate entity in many states Liability – unlimited liability (except limited partnership Management – partners have equal say in management unless otherwise specified in agreement.

Principal Form of Business Organization-Partnership, continued Dissolution – terminates by agreement of partners or upon a partner ’ s death, withdrawal, bankruptcy. Ease of Formation – moderately difficult Duration – death, bankruptcy, or withdrawal of any partner Ability to attract professional managers – moderate.

Types of Partners Kinds of Partner Participation in the Business Relationship to the Public Degree of Liability GeneralActiveKnownUnlimited SecretActiveUnknownUnlimited SilentNot activeKnownUnlimited DormantNot activeUnknownUnlimited LimitedNot activeKnownLimited

Partnership Agreement There are more than 42 inclusions for a partnership Agreement. Make certain that it includes the following information: Parties to the agreement Specific nature, scope, and limits of the business Planned duration of the business Amount of each partner ’ s original investment and procedures for future investments Provisions regarding salaries, withdrawal of funds, and the division of profits; and Terms under which a partner may withdraw from the partnership. Articles of Partnership are not always legally required but is desirable.

Legal Issues 1. Do business people have to check zoning laws before opening a business? 2. Is it always necessary to sign papers for a partnership to exist. 3. Can a secret partner participate in the management of the partnership? 4. Does tenancy in partnership mean partners are co- owners of partnership property? 5. Does joint liability extend to all partners? 6. How are the assets of a partnership divided when partnership dissolve? Student Activity

Legal Issues-Answer Key 1. Yes, business people must check zoning laws before opening a business. 2. No, an agreement is desirable but is not a requirement. 3. Yes, they are general partners. They have active roles in management, but their connections are kept secret from the public. 4. Yes, partners are co-owners of all partnership property. They can use partnership property for partnership business only unless they receive permission for personal use from the partners. 5. Yes, joint liability means that, in the event of a lawsuit, all the partners must be sued together. 6. The firm ’ s assets are distributed in the following order: (a) creditors other than partners, (b) loans made by partners to the firm, (c) the original money paid into the partnership, and (d) surplus owed to the partners.

I.Q. Checkup! Sole Proprietorship/Partnership 1. In general, sole proprietors must have what type of liability for the debts of the business and for the negligent acts of all employees 2. How many formal requirements are there in in setting up a sole proprietorship. Is a partnership agreement is express or implied? Explain. Can Partnership property be used for personal business? Justify your answer. 3. Is each partner’s voice in management proportional to his or her investment. 4.Can a partner be held financially responsible for the wrongdoing of the other partners? 5. Who gets paid first when a partnership dissolves? 6. What is limited partnership? Directions: Provide the correct answer for the questions below.

I.Q. Checkup! Sole Proprietorship/Partnership-ANSWER KEY 1. In general, sole proprietors have unlimited liability for the debts of the business and for the negligent acts of all employees. 2. There are a few formal requirements in setting up a sole proprietorship. 3. Although a partnership agreement is usually express, it can be implied. 4. Partnership property can be used for partnership business without permission from the other partners. 5. Unless the partnership agreement says otherwise, each partner’s voice in management is equal to his or her investment. 6. A partner can be held financially responsible for the wrongdoing of the other partners. 7. The creditors are the first people to get paid when a partnership dissolves. 8. Persons who invest in a business, share in the profits, have little voice in management, and have restricted liability are involved in a limited partnership. Directions: Mark true statements TRUE. If the statement is false, change the underlined word or phrase to make the state true.

Principal Form of Business Organization - Corporation Requirements for Organizing – state charter, organizational fees Legal Status – separate entity from owners Liability – limited liability of shareholders Management – directors (elected by shareholders) set policy and appoint officers Dissolution – ends when charter terminated Ease of Formation – assistance of legal counsel required Duration – can be perpetual Ability to attract professional managers - excellent

Types of Corporations Domestic-chartered in a specific state Foreign-chartered in one state but doing business in another state Alien-chartered in another nation but doing business in a state

Classification of Corporations Public-established for a governmental purpose. Private-established by individuals for business or charitable purposes.

Eight Elements of a Corporation 1. Name of corporation 2. Duration 3. Purpose for which the corporation is organized 4. Number and kinds of shares of capital stock to be authorized for issuance 5. Location of the principal office and name of its agent 6. Number or names and addresses of initial directors 7. Name and addresses of each incorporator 8. Any other provision consistent with the law