1. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning Chapter 41 Types of Business Organizations Twomey Jennings Anderson’s Business Law and the Legal Environment, Comprehensive 20e Anderson’s Business Law and the Legal Environment, Standard 20e Business Law: Principles for Today’s Commercial Environment 2e

2. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 2 Forms of Business Organizations The three principal forms of business organizations are: –Sole Proprietorships, –Partnerships, LLP’s and LLC’s and –Corporations.

3. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 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.

4. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 4 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. Definitions

5. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 5 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. Definitions

6. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 6 Specialized Forms of Business Organizations 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.

7. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 7 Franchise Business Format 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.

8. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 8 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.

9. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 9 Protection of Franchisors Special Protections under Federal Laws. –Automobile Dealer’s Day in Court Act. –Petroleum Marketing Practices Act. Disclosure. Vicarious Liability Claims Against Franchisors.