Chapter 12Business OrganizationsI. Forms of Business Organization Pg. 309A. Sole Proprietorship: Owner is the business 1. Responsibilities: Control, liability, and management, profits are taxed to the owner personally, personally liable for debt and torts. May limit your opportunity for profit 2. guiding principleB. General Partnership:1. Definition: Two or more people carrying on a business as co-owners for profit. Share control of business and profits.2. common law vs. UPA: Union Protection Act: Determines operations of your business3. partnership agreementsa. oral or writtenb. implied: Or explicit c. Zhou Pg. 310d. written – Basic information, names of partners, applicable state law, financial information, management issues, and solution4. duties of partners – fiduciary duty: Each partner must act in goodfaith for the benefit of the partnership, placing the interest of the partnership above their own, no secret profits or rival business Pg. 3115. presumption of equal control: One vote per individual, managingpartner makes daily decisions6. realities of business arrangement: How does the business actuallywork7. termination, dissolution: some event that takes place that prevents the partners from doing new business such as bankruptcy or a passing away, and winding up: completing the unfinished business and distributing the assetsC. Limited Partnership Pg. 3131. Definition: two or more partners who entered in an agreement to start a business for profit, not all partners participate in management2. relationship of parties: a. general vs. limited: Responsible for managing the business and torts and debts of the partnership. Limited partner is an investor, not responsible for debts. Limited partner has a tax deduction. b. Eagles Landing Development3. Termination: The limited partner receives their share of the profits Pg. 314D. Corporations Pg. 3151. Definition: Artificial person created under state law2. charters vs. general incorporation statutes: Charter system has fazed out which lead to monopolies. 3. creationa. articles of incorporation: File with the secretary of state, name and address, registered agent, purpose of creation, and the name and address of incorporators. Send to state secretary b. certificate: Hold first formal meeting in which the incorporators elect the directors, enact the bylaws, and issue stockc. bylaws – Regulate and governor the internal operations of the corporations. Ionite: 4. legal entity status: Protection from search and seizure, free speech, equal protection under law, free religion Pg. 3165. close vs. public corporations: Shares are held by one shareholder and not publicly traded, traded on stock exchange 6. relationships of parties within corporationsa. Shareholders Pg. 317i. rights and responsibilities: Heart of the Corporation, right to buy additional stock beforeissues, right to inspect books and records, not responsible for management ii. elections and proxy voting: Election chose board of directors to change structure, annually, send a proxy to cast a voteiii. resolutions: Presented in resolution formiv. obligation to creditors: Limited by purchasing sharesb. board of directors Pg. 317-318i. selection: Brain, corporate policy by majority voteii. duty of care: Duty of care: Conduct themselves on behalf of the corporation and loyalty: Place interest of corporation ahead of their own interest (Fiduciary) Selected by shareholders. iii. business judgment rule: Immune from liability from honest mistakes and judgment with a reasonable basis a mistake is made. fiduciary duties – Storetrax.comc. managersi. hired by BOD: Hands, run day to day operationii. duties of care and loyalty7. Terminating the Corporation Pg. 320a. dissolution – voluntary vs. involuntary: approval by shareholders and board, or bankruptcy or fraudb. winding up: Completing the affairs of the corporation, liquidating assets to shareholdersE. Limited Liability Companies Pg. 3221. tax advantages: Avoid double taxation2. liability advantages: Shareholders in LLC are not responsible beyond the amount invested in the LLC, 3. creation: File Article of Corporation with the Secretary of State, 4. relationships: Two or more members with equal status 5. termination: Consent of all members or at a fixed time period or AOC – 1545 Ocean Ave. LLC F. Professional Corporations: Corporations with professionals such as lawyers or doctors, limited to their investment in the corporation, others cannot invest Pg. 320II. Organizational Features and Considerations Pg. 325A. Limited Liability1. Advantages: Invest without placing personal wealth at risk and take place in management2. Entities with unlimited liability: Sole proprietorship 3. Entities with limited liability: 4. Piercing the corporate veil: Court holds a shareholder liable for the debts or torts of the corporation because it was operated as a sole p. Court will look for fraud, undercapitalization, failure to follow corporate formalities5. When might a court pierce the corporate veil? Pg. 3266. KC Roofing Center B. Transferability of Ownership Interest Pg. 326-3281. Definition: Ability of an owner to sell or pass interest to somebody else. 2. Non-traded entities3. Publicly traded corporations: Calling the broker and saying sell, simpleC. Duration1. limited life: Businesses ability to operate with the passing away, retirement, or incapacity2. perpetual existenceD. Control: Are you controlling? Then not a publicly traded companyIII. Other Business OrganizationsA. Franchises Pg. 3291. Franchisee-Buyer and franchisor-Seller2. substantial association: Parent company 3. two common characteristics of success: Trademark and uniform product or service. EX: McDonald’s golden arches4. three types of franchise-Product distributorship-sell the product, Trademark License-license to market brands, Business format-follow business plan under standards. Cars-product distributors, Coke-trademark, Cheeseburger-business format5. The FTC franchise rulea. offering circular and its contents- Disclosure document, name of franchise, executives, and franchises going out of business. Seller must give 10 days before you purchase the franchise 6. State regulation: 7. The franchise agreement Pg. 330a. trade name and procedure: Advertising, methods of hiringb. territorial rights: Who picks the sight c. fees and royalties—Upfront payment, continuing royalties d. termination: How will the agreement end? Time or bankruptcy – Dunkin’ Donuts8. Franchise