BUS260-Exam 2Introduction to business associations- The legal environmento See diagram- Agencyo Principal/agent (relationship, can be an employee) Power to create contracts Creates vicarious liability bring liability back to employero Master/servant (employee) No power to create contracts Creates vicarious liability- Vicarious liability: based on concept of respondent superior, state of affairs that hangs over company/employer- Respondent superior the superior (employer) must respond (by paying damages) caused by the employeeo Employees always responsible for intentional torts committed, but no when “on the job”o Cut this liability (fairness) off by finding previous caseso “on the job” employer has vicarious liability because employee causeddamage (within course of employment) on the job. o Frolic- when employee is not on the job Nightclub: gets rough with a guest- “on the job” Bartender: punches guy in face- Not on the job Forest guy: died from CO2 poisoning while having sex in car onforest grounds- On the job Crane driver: went through neighborhood to show gf and ruined electrical pole- Not on the job- Apparent authority: employees authority (given by employer) viewed by customero Bank: fake teller had apparent authority Bank is still liable even though they’re a victim of the crime as well- Who could of best presented this from happening-- Holding out: Have to accept liability of what you claim yourself to be.o i.e. cannot be released from liability as a “fake” partner benefit for employer employee gets screwedComparative Taxation of Business Forms- choose correct entity for each business, each business has different matcho Factors: checklisto Tax- ignore as expense= BAD- Sole proprietorship: one owner (professionalsaccountant, lawyers)o One individual operating businesso No one restricts how large one can beo Same tax everyone has (10/40 individual tax form)o Keep taxes simple- Partnership: do not have to tell government you formed partnershipo Express written agreement is preferable Still no government involved Take 1/3 and put it on tax (if 3 partners)- Pass through entity for taxes- Same as sole proprietorship- One way to form corporationo Any of 50 states can create new corporationo Tax number is given to corporation new taxable entity- Regular corporation/ C corporationo Internal revenue codeo Taxing corpso Subject to corp. income taxo Corp exists independently of stockholdersComparative Liability of Business Forms- Corporation-entityo Separate tax number, separate entity from stockholders, separate liabilities- Partnerships/invdivdualso Liability falls on partners, same tax numbers Partnership= partners= all liability Liability General RegularPartnership CorporationTorts Employee partners Employee directorsContracts Agents AgentsLimits Unlimiteddisadvantage LimitedadvantageCorp limited liability advantage2 reasons: *stockholders limited to what they invested. *No one can come after private property, no personal liability- Limited liability created by congress in order to stimulate business- Limited partnership: can bring in other partners with limited liability, only general partner can lose wealth easier to accumulate investorso Limited partners cannot participate in management by law Ex: drilling oil wells- “S” corporationo internal revenue code, limited liability of corp, pass through tax treatment of a partnershipo no double taxedo restricts stockholders/whether nor not some can participate in management- Limited liability company (LLC)o Invented in Wyomingo Newest entity most new businesses start as thiso No double taxo No one has to be general partner, all limited liabilityo Anybody can participate in management (even employee)o No limit on how many people/stockholders you can bring ino Disadvantage/trade off: NO exchange that trades security will not trade with an LLC Initial public offering must be converted to “C” to go public and be traded- Reg ‘c’ corps=double tax4 factors for an entity: 1) Tax 2) Liability 3) Control 4) ContinuityControl & continuity of business forms- Controlo General partnership= is equal control But could draft a partnership agreement that changes that- Divides up control General rule if not specified= equal controlo Limited partnership General partners are in control Limited partners gave up any control to get limited liability= no controlo Regular corporation- mostly control except… Board of directors By law corps must have annual meeting- Vote and select directors (the stockholders vote)- Makes stockholders in controlo S corp. Rules are the same besides the tax treatment Required annual meeting vote from stockholderso LLC Operates same at regular corp. Required annual meeting/election One distinction: not board of directors but a board of managers (word of art for LLC) Not stockholders in LLC, but members=equity owners- Continuity- how long will a business surviveo Partnership Disadvantage limited continuity, for same reason they get good tax treatment, they are on in the same If one partner dies/leaves/withdraws, that partnership is automatically terminated immediately - Abc partnership: A dies immediately terminatedo Have to liquidate it and do 1/3 split profit- This is what kills most businesseso They want cash, but businesses profit is not worth ALL casho B & C still want to continue business, but they can’t pay off A’s estateo Corporations/LLC Advantage perpetual, not effected by one person A dies, nothing changes because entity is separate from A- Buy/sell agreement (all partnerships should have this separate agreement)o Ethical considerations Can step in when partner dies/withdraws and have a plan that gives logical solutionIntroduction to securities regulation- First step in starting a business is picking your entity- Step 2: raise capitals- Venture capitalists: people who will capitalist (invest in) new ventures professional investors- Angel investors: single individual people who invest in a company- A grade vs. B grade managemento 1st criteria: management more important than ideao 2nd criteria:o startup must convince them that they will bring in gross revenue of over 100 million by year 5 or they’re not interested 1)management 2)product 3)marketo rule of thumb: because 3 out of 5 new businesses will fail in les than 5 years