1. 31.1 Law for Business, 17e, by Ashcroft and Ashcroft, © 2011 Cengage Learning Law for Business, 17e by Ashcroft and Ashcroft Chapter 31: Introduction to Business Organizations

2. 31.2 Chapter 31 Objectives Discuss the differences in setting up a sole proprietorship, a partnership, and a corporation. Explain the most important disadvantages of sole proprietorships and partnerships. Give two reasons why the corporate form of business organization is important.

3. 31.3 Sole Proprietorship Business owned by one person. Simplest and most common form of organization. Nature Proprietor solely responsible No formal requirements

4. 31.4 Sole Proprietorship Advantages Flexible management Ease of operation Disadvantages Unlimited liability Limited management ability Limited capital

5. 31.5 Partnerships Partnerships must: Be two or more people. Be voluntarily started. Operate the business lawfully for a profit.

6. 31.6 Types of Partners General, or ordinary, partnerships place no limitations upon a partner’s rights, duties, or liabilities. Limited partners are liable up to the amount of their investment. Trading partnerships buy and sell merchandise. Non-trading partnerships provide services.

7. 31.7 Types of Limited Partners Silent SecretNominal Dormant

8. 31.8 Partnership Advantages and Disadvantages Advantages Increased capital and management skill Ratio of expenses per dollar may be decreased Disadvantages Unlimited personal liability Relative instability of the business Divided authority, which may lead to disharmony

9. 31.9 Organizations Similar to Partnerships Other types of combinations: Joint-stock company Joint venture Limited liability company (LLC) Limited liability partnership (LLP)

10. 31.10 Corporations A corporation is created by law, not just individuals who want it created. A corporation may operate for profit or not-for-profit, but must be for legal purposes.

11. 31.11 Features of Corporations Advantages Pooling of capital from many investors. Limited liability (however, the corporate veil can be pierced upon exceptional circumstances). Disadvantages Many voices in management and ownership.

12. 31.12 Do you understand this chapter? Make sure you do before going on to Chapter 32.

13. 31.13 Law for Business, 17e, by Ashcroft and Ashcroft, © 2011 Cengage Learning Law for Business, 17e by Ashcroft and Ashcroft Chapter 32: Creation and Operation of a Partnership

14. 31.14 Chapter 32 Objectives Describe how a partnership is created. Specify the duties the law imposes upon partners. Identify the rights and liabilities every partner has. Explain how partnership profits and losses are shared.

15. 31.15 Partnership Agreement Date Names of partners Nature and duration of the business Name and location of the business Sharing of profits, losses, liabilities

16. 31.16 Partnership Agreement Keeping of accounts Duties of the partners Amounts of money withdrawals Unusual restraints upon partners Provisions for dissolution Signatures of partners

17. 31.17 Implied Agreement If two or more people do business as a partnership and all other elements are present, it is a partnership. If people call themselves “partners,” but requirements aren’t met, they are not partners. Prima facie evidence: in absence of other evidence, a partnership exists.

18. 31.18 Other Aspects of Partnerships Partnership by estoppel In a case of false impression of a partnership, the law holds says apparent partners are stopped from denying that a partnership exists. Firm name Partnerships do not have to have name, but it is recommended.

19. 31.19 Partner’s Interest Tenancy in partnership: each partner owns and can sell only proportional interest in partnership as an entity. Surviving partner does not get full ownership upon death of other partner. Personal creditors of one partner cannot force sale of partnership property to satisfy personal debt.

20. 31.20 Duties of Partners Duty to exercise loyalty and good faith Duty to work for the partnership Duty to abide by majority vote Duty to keep records Duty to inform

21. 31.21 Rights of Partners Right to participate in management Right to participate in management Right of contribution Right of contribution Right to inspect books at all times Right to inspect books at all times Right to withdraw profits Right to withdraw profits Right to withdraw advances Right to withdraw advances

22. 31.22 Liabilities of Partners Liability for contracts A partner who acts beyond authority has personal liability for the contract. Liability for torts The partnership has liability for torts committed by a partner doing partnership business. Liability for crimes The partner must have agreed to commit a crime; individual partners can’t be punished if they are free of personal guilt.

23. 31.23 Nature of Partnership Liabilities Partners have joint and several liability on all tort liabilities. Upon inadequate assets, general partners have full liability. Withdrawing partners have liability for all partnership debt incurred up to the time they withdraw.

24. 31.24 Customary or Implied Authority To release a claim against a third party. To receive payments and give receipts in the name of the firm. To employ or to discharge agents and employees. (continued on next slide)

25. 31.25 Customary or Implied Authority To draw and indorse checks, to make notes, and to accept drafts. To insure the property of the partnership, to cancel insurance policies and give proof of loss, and to collect the proceeds. To buy goods on credit and sell goods.

26. 31.26 Law for Business, 17e, by Ashcroft and Ashcroft, © 2011 Cengage Learning Do you have any questions?

27. 31.27 Law for Business, 17e, by Ashcroft and Ashcroft, © 2011 Cengage Learning Law for Business, 17e by Ashcroft and Ashcroft Chapter 34: Nature of a Corporation

28. 31.28 Chapter 34 Objectives List the different classifications and kinds of corporations. Discuss how a corporation is formed and potential promoter liability. Name the types of powers a corporation has and the significance of ultra vires contracts.

29. 31.29 Corporations  Discuss the differences between a public corporation and a private corporation.  Can a corporation be formed for purposes other than making profit? Can a partnership?  What is a stock corporation?  How many people own stock in a closely held corporation?  What are domestic, foreign, and alien corporations? Activity

30. 31.30 Formation of a Corporation A promoter does preliminary organization and paperwork such as Filing with the SEC Filing with state officials Deciding how many initial stocks to issue The corporation may adopt the promoter's contracts, which will bind the corporation. The promoter gets reimbursed for expenses. A subscriber will purchase stock in advance.

31. 31.31 Articles of Incorporation A written document spells out facts as prescribed by law and issues the certificate or charter of incorporation. Once approved by the state, the articles of incorporation determine the authority of the corporation.

32. 31.32 Articles of Incorporation A contract is formed between the corporation and the state. Usual information includes name, names of incorporators, type and amount of stock, and other pertinent information.

33. 31.33 Powers of a Corporation Express powers Whatever state statutes and the articles of incorporation indicate. Incidental powers To have corporate name. To have continuous existence. To have property rights. To make bylaws and regulations. To engage in legal actions. To have a corporate seal.

34. 31.34 Ultra Vires Contracts Any contract entered into that goes beyond its power. Binds parties of contract, corporation, and third person. But stockholder can bring action to keep corporation from entering into such a contract.

35. 31.35

36. 31.36 Law for Business, 17e, by Ashcroft and Ashcroft, © 2011 Cengage Learning Law for Business, 17e by Ashcroft and Ashcroft Chapter 35: Ownership of a Corporation

37. 31.37 Chapter 35 Objectives Define capital stock. List the various types of stock and stock rights. Explain what dividends are and how they may be paid. Name the various laws regulating the sale of securities, exchanges, and brokers.

38. 31.38 Some definitions to know: Capital stock Declared money value of a corporations’ outstanding stock. Shares Individual units of capital stock. Shareholder or stockholder Person who owns shares of stock. Stock certificate Written evidence of stock ownership. Corporations

39. 31.39 Classes of Stock Common stock Simplest and most common stock issued Owners may vote in stockholders’ meeting Have no voice in running of the corporation beyond annual vote Preferred stock Receives preference to certain rights However, owners give up rights

40. 31.40 Preferred Stock Preferred as to assets - an advantage only in liquidation Preferred as to dividends - preferred stockholders receive dividend before any common stockholders Cumulative Noncumulative

41. 31.41 Preferred Stock Participating Shareholders are entitled to share equally with common shareholders in any dividend distribution. Nonparticipating Maximum dividend is the percentage stated on the stock.

42. 31.42 Par-value stock No-par-value stock Treasury stock Watered stock Stock options Kinds of Stock

43. 31.43 Laws Regulating Sales of Stock 2. Securities Act of 1933 2. Securities Act of 1933 1. Blue-Sky Laws 4. Securities Investor Protection Act of 1970 4. Securities Investor Protection Act of 1970 3. Securities Exchange Act of 1934 3. Securities Exchange Act of 1934

44. 31.44 THE END Make sure you understand the material in this chapter before you continue on.