© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. Twomey & Jennings BUSINESS LAW Chapter 39 Types of Business Organizations Chapter 39 Types of Business Organizations

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 2 Forms of Business Organizations The three principal forms of business organizations are: –Sole Proprietorships, –Partnerships, and –Corporations. The three principal forms of business organizations are: –Sole Proprietorships, –Partnerships, and –Corporations.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 3 Forms of Business Organizations Newly created forms of business --the LLC and LLP -- allow for tax treatment as a partnership with some limited liability. The selection of the form of organization is determined by: –Nature of the business, –Tax considerations, –Financial risk involved, –Importance of limited liability, and –The extent of management control desired. Newly created forms of business --the LLC and LLP -- allow for tax treatment as a partnership with some limited liability. The selection of the form of organization is determined by: –Nature of the business, –Tax considerations, –Financial risk involved, –Importance of limited liability, and –The extent of management control desired.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 4 DefinitionsDefinitions In a sole proprietorship one person owns the business, controls all decisions, receives all profits, and has unlimited liability for all obligations. A partnership involves the pooling of capital resources and talents of two or more persons whose goal is making a profit; the partners are subject to unlimited personal liability. A corporation is an entity--an artificial being-- created by a government grant; the corporation itself bears all liability; shareholders elect a board of directors, who are responsible for managing the business. In a sole proprietorship one person owns the business, controls all decisions, receives all profits, and has unlimited liability for all obligations. A partnership involves the pooling of capital resources and talents of two or more persons whose goal is making a profit; the partners are subject to unlimited personal liability. A corporation is an entity--an artificial being-- created by a government grant; the corporation itself bears all liability; shareholders elect a board of directors, who are responsible for managing the business.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 5 Specialized Forms of Business Organizations A joint venture exists when two or more persons combine their labor or property for a single business undertaking and share profits and losses as agreed. An unincorporated association is a combination of two or more persons for the pursuit of a common purpose. A cooperative consists of two or more persons or enterprises, such as farmers, who cooperate to achieve a common objective, such as the distribution of farm products. A joint venture exists when two or more persons combine their labor or property for a single business undertaking and share profits and losses as agreed. An unincorporated association is a combination of two or more persons for the pursuit of a common purpose. A cooperative consists of two or more persons or enterprises, such as farmers, who cooperate to achieve a common objective, such as the distribution of farm products.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 6 FranchisesFranchises By a franchise, the owner of a trademark, trade name, or copyright licenses others to use the mark or copyright in selling goods or services. The Automobile Dealers’ Franchise Act and the Petroleum Marketing Practices Act are federal laws that provide covered franchisees with protection from bad-faith terminations. By a franchise, the owner of a trademark, trade name, or copyright licenses others to use the mark or copyright in selling goods or services. The Automobile Dealers’ Franchise Act and the Petroleum Marketing Practices Act are federal laws that provide covered franchisees with protection from bad-faith terminations. McDonald’s Corp. v CB Management, Inc. (1998) Big Mac Attack.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW Twomey Jennings 1 st Ed. 7 Liability of Franchisors A franchisor is not liable to third persons dealing with its franchisees. Liability of the franchisor may, however, be imposed on the ground of the apparent authority of the franchisee or the latter’s control by the franchisor. Liability of the franchisor may also arise in cases of product liability. A franchisor is not liable to third persons dealing with its franchisees. Liability of the franchisor may, however, be imposed on the ground of the apparent authority of the franchisee or the latter’s control by the franchisor. Liability of the franchisor may also arise in cases of product liability. Henry v Taco Tio, Inc. (1992) Was the Defendant vicariously liable?