Business Organizations Sole Proprietorship Partnerships Corporations

Sole Proprietorship Owner is the business Generally small Owner gets all the profits Taxes paid on personal income tax form Unlimited liability No continuity upon death Owner personally liable for all debts

Partnership Partnership agreement taxed at individual level -- partnership pays no federal taxes unlimited liability for partnership One or more general partners – responsible to manage partnership – Unlimited liability One or more limited partners – certificate of partnership – no liability for debts beyond amount contr. – Cannot manage bus. General Limited

Corporation Formal legal structure Shareholders Board of Directors Officers Shareholder liability limited to amount invested Can exist in perpetuity double taxation (corp. tax and dividends)

S Corporations Corporations can further be divided based on their tax status. S Corporations C Corporations

S corp Avoids double taxation Allows Limited Liability Requirements – domestic – not a member of affiliated group – shareholder criteria – 75 or less shareholders – one class of stock – no nonresident alien shareholders General Corp is a “C” Corp

Limited Liability Company Hybrid of corp and partnership Tax benefits of partnership Limited liability of corp. shareholders Eliminates restrictions on number and type of shareholders Unlike limited partners, LLC members participate in management. MN New Name Look UP Name look up Organize new company Domain Name Search mains/ mains/

Private Franchises Franchise Defined. – Any arrangement in which the owner of a trademark, trade name, or copyright licenses another to use that trademark, trade name, or copyright, under specified conditions or limitations, in the selling of goods and services. The Franchise Contract – Payment for the Franchise – Location and Business Organization of the franchise – Price and Quality Controls – Termination

Types of Franchises Distributorship (e.g. automobile dealerships) Chain-style operations (e.g. fast-food chains) Manufacturing/processing plant arrangement (e.g. soft-drink bottling companies, such as Coca-Cola)

Franchising Contracts Contract. A franchising relationship is based on a contract. Special Laws. But the government has enacted laws to protect franchisees from the consequences of contracts into which they have voluntarily entered. Are lengthy franchise contracts necessarily disadvantageous to franchisees? Explain.

Corporation Formalities Articles of Incorporation Bylaws Corporate Veil (piercing the corp. veil) Bullington v. Palangio (2001). Personal liability because of revoked corporate charter

Corporate Taxation Double-taxation – corporations pay income tax on net profits; – shareholders pay income tax on the disbursed dividends that they receive from the corporation.

Shareholders Own company – no right to use or take property – no right to manage – Inspection Rights Elect Directors (remove for cause) Approve fundamental corporate changes – amend bylaws – approve a merger – sale of all assets Voting – Proxy voting – Quorum – resolutions – majority or super majority vote – cumulative voting Other Rights – Stock Certificates lost certificates – Preemptive Rights – Dividends – Shareholder’s Derivative Suit – Liability of Shareholders

Shareholders’ Meetings Meeting – Shareholders’ meetings must occur at least annually – Notice of the date, time, and place of the meeting must be sent to the shareholders. Voting – Quorum – Cumulative voting – Proxy voting

Corporate Management - Directors First board appointed Election - majority vote of shareholders Generally serve one-year terms Board meetings One vote per director Directors’ Duties (delegated to committees) – declare dividends – Authorize major change – appoint and remove corporate offices – Key Financial Decisions

Directors’ Qualifications and Compensation Few qualifications are required; a director can be a shareholder but is not required to be. Compensation is usually specified in the corporate articles or bylaws.

Officers and Directors Fiduciaries to company – Loyalty – duty of care Conflict of Interest Business Judgment Rule – good faith – best interests – care of a ordinary prudent person