What is a sole proprietorship?
single owner, easy to form unlimited liability, the owner is the business
what are two disadvantages of a sole proprietorship?
limited alternatives exist for raising capital. owner is personably liable for all business debt.
what is a general partnership?
two or more persons who carry on a business
Is a partnership treated as a legal entity?
yes. this means you do not have to individually sue each partner.
what kind of liablity does a partner have to the partnership debts?
unlimited liablitiy. meaning one can lose his house if a debt needs to be paid.
ex. if you are partner a and partners b and c are broke and your parternship owes money to a creditor, a is responsible to pay.
Which act provides the laws for partnership?
Uniform Partnership Act
How can a partnership begin or be formed?
Can begin with an oral agreement or an implied agreement.
Can you be a partner without capital contribution?
yes. your contribution can be based on skill
Is a partnership taxable?
no. individuals are taxed.
Who has most control in a partnership?
all have equal control
Can a partner start his own side business?
Generally no, b/c parterners have a fiduciary duty to the partnership
if a partner comes into a partnership and debts already exist, is his liable for those debts?
no, only liable for the captial he puts in
If partner c is bought out or leaves the partership, and there was debts still remaining when he left, is he still liable for that debt?
What is dissolution?
event that prevents partners from doing business
what is winding up of a parternship?
completing unfinished business and collecting and distributing parternship’s assets
What’s teh difference between a limited partnership and a general partnership?
in a limited partnership, not all partners are liable for parternship debts and not all parterners can make management decisions.
limited parternship requires formality to create
requires at least one general partner and one limited partner.
The name of a limited partership will usually have an “L.P.” after their name. ex. real estate investments.
In the winding up of a limited partnership, when is the limited partner paid?
after creditors and before partners
What is the concept of double taxation or corporations?
taxed at corporate level and taxed at the personal income level
What is an LLC?
A business organization treated like a corporation for liabliity purposes but like a parternership for fax purposes. Members have limited liability.
Usually formed by two or more members
Who manages an LLC?
Can be managed by members (owners) or managers.
If A, B and C are members of an LLC and C committs a tort, who is liable?
the LLC is liable b/c A, B and C are agents to the LLC, not to each other.
A and B are only liable to their contributions.
What is a corporation?
legal entity under state law
How do you create a corporation?
Need to file with secretary of state and write up bylaws
What is a close corporation?
one whose shares are held by one or a small group of shareholders. no actively traded stock.
70% of corporations are close corporations.
How is a corporation funded?
Through debt or equity
equity includes common stock and preferred stock.
debt includes bonds
what distinguishes preferred stock from common stock?
preferred stock cannot vote. will be paid first.
What is piercing the corporate veil?
shareholder may have personal liability to a creditor. Cour tmay find corporation is a sham and owners intend to be a partnership or sole proprietorship.
Who are agents of a corporation?
Officers. Liable for negligence.
Who are teh principals of corporations?
Directors. they give authority to officers.
What is a quorum?
more than half of total shares must be represented in a meeting
what is a proxy?
written authorization to vote at a shareholder meeting.
What is the business judgement rule?
directors and managers not liable for honest errors
On test: Is it possible for less than half of shareholders to pass a resolution?
yes. Need over 50% of shareholders to have a quarum and need over 50% of that to pass votes.
what is transferability of interest?
ability to sell your share of a public company. does not apply to close held company.
What is an S corporatoin?
Corporation that elects to be taxed like a partnership.
what is a promoter for a copooration?
person who takes steps to form and organize a corporation. Need to file articles with secretary of state.
what is a stock subscription?
offer to purchase stock in a yet to be formed corporation.
What is a product distributorship? give an example.
Type of franchise such as a car dealership
what is a business format franchising?
franchisor provides tm and business model for franchisee
what is a manufacturing or processing franchise?
franchisor gives ingredients or formula to make product.
What are the three steps to terminate a partnership?
1, dissolution, winding up, liquidation
Note easy to transfer ownership in partnership
can a company unilaterally refuse to do business with another ompany?
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