© 2011 South-Western | Cengage Learning GOALS LESSON 5.1 SOLE PROPRIETORSHIPS Distinguish the...

© 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


BUSINESS LAW, 2e LESSON

SLIDE 2

5.1

Basic Forms of Business Organization

Three basic formsSole proprietorshipPartnershipCorporation

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.



SLIDE 3

5.1

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.



SLIDE 4

5.1

Sole Proprietorship Basics

Business licensesTax numberEmployer Identification Number



SLIDE 5

5.1

Advantages and Disadvantages ofSole 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.


GOALS

LESSON 5.2

PARTNERSHIPS

Explain how to form a partnershipDescribe legalities involved in the operation

and termination of a partnership



SLIDE 7

5.2

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.



SLIDE 8

5.2

Uniform Partnership Act

Enacted in every state except LouisianaDefines rights and duties of the partners

in relation to the partnership



SLIDE 9

5.2

Types of Partners

General partnersSilent partnersSecret partnersNominal partnersDormant partners



SLIDE 10

5.2

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.



SLIDE 11

5.2

Creation of a General Partnership

By agreementBy court acknowledgment



SLIDE 12

5.2

Operation of a Partnership

Management of partnershipsProfits, losses, and property rightsLiability for business operationsFiduciary duty above all



SLIDE 13

5.2

How Are Partnerships Ended?

By the intentional act of a partnerBy action of lawBy court judgmentWinding up


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



SLIDE 15

5.3

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.



SLIDE 16

5.3

Advantages of Corporations

Perpetual lifeLimited liabilityTransferability of ownership interestsAbility to attract large sums of capitalProfessional management



SLIDE 17

5.3

Disadvantages of the Corporate Form

Double taxationMore costly and more troublesome to

organizeGovernment regulations



SLIDE 18

5.3

Types of Corporations

Domestic corporationForeign corporationAlien corporationPublic corporationPrivate corporation Profit-making corporationNonprofit corporationPublic service corporation



SLIDE 19

5.3

Creation of a Corporation

Articles of incorporationCharterShares of stock



SLIDE 20

5.3

Types of Stock

Common stockPreferred stock



SLIDE 21

5.3

Corporate Management

Board of directorsFiduciariesModel Business Corporation Act



SLIDE 22

5.3

Corporate Powers

Make contractsBorrow money and incur other liabilitiesLend money and acquire assets, including all

forms of real and personal propertyMake, indorse, and accept commercial paper,

or orders or promises to pay moneyIssue various types of stock and bondsMortgage, pledge, lease, sell, or assign

property (Continued on next slide)



SLIDE 23

5.3

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)



SLIDE 24

5.3

Corporate Powers

Hire and fire agents, independent contractors, and ordinary employees

Establish pension, profit sharing, and other incentive plans for employees

Sue and be suedUtilize other implied powers

(Continued from previous slide)



SLIDE 25

5.3

Termination of Corporations

Incorporator specification or shareholder agreement

Loss of charterConsolidation or mergerBankruptcyCourt order



SLIDE 26

5.3

Alternatives to the Full Corporate Form

S corporationsLimited liability corporations (LLC)Limited liability partnerships (LLP)



SLIDE 27

5.3

S Corporations

Timely filingDomestic corporationIdentity of shareholdersNumber of shareholdersClasses of stock



SLIDE 28

5.3

Limited Liability Corporations (LLC)

Limited liability protection and taxation as a partnership

No limitation on the number of membersNo limitations as to whom or what can be

a stockholderMembers are allowed to participate

completely in managing the business



SLIDE 29

5.3

Limited Liability Partnerships (LLP)

Similar to LLCsUsed mostly by existing partnerships who

find it difficult to convert to the LLC form

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