Legal - Chap 11

Front 1

one who initiates and assumes the financial risks of a new enterprise and undertakes to provide or control its management.

Back 1

Entrepreneur

Front 2

anyone who conducts business without creating a separate business organization.

Back 2

Sole proprietorships

Front 3

Advantages of Sole Proprietorships

Back 3

easy to start, low cost, flexible, proprietor receives all profits, proprietor pays personal income tax

Front 4

Disadvantages of sole proprietorships

Back 4

unlimited liability, responsible for all debts, difficult to raise money for growth, lacks continuity

Front 5

an agreement, express or implied, by two or more people to have a business for profit.

Back 5

General partnerships

Front 6

Advantage of General Partnerships

Back 6

profits (whether distributed or not) are taxed as personal income on each partner’s personal tax return

Front 7

Disadvantage of general partnerships

Back 7

partners are personally liable for obligations

Front 8

a type of partnership with at least one general partner (responsible for management and all debts) and one or more limited partners (can only lose money contributed, cannot manage).

Back 8

Limited partnerships

Front 9

separate legal entity, perpetual.

Back 9

Corporations

Front 10

Advantages of Corporations

Back 10

shareholders liability limited to investment, can raise capital by selling stock.

Front 11

Disadvantages of Corporations

Back 11

any distributed corporate income is taxed twice. (once by corporation and once by personal income tax)

Front 12

type of corporation in which only taxed once, at the personal level.

Back 12

S Corporations

Front 13

Qualification requirements for s corporations

Back 13

Along with other requirements, can only have max 100 shareholders, one class of stock, no non-resident aliens.

Front 14

T or F. A corporation can be held accountable for criminal acts committed by its agents, including negligent operation of a motor vehicle causing the death of another, if the individual committed a criminal act, during corporate business or project, and the corporation vested the individual with the authority to act for it

Back 14

T

Front 15

owners are “members”, use articles of organization

Back 15

Formation of a Limited Liability Companies

Front 16

LLC advantages

Back 16

flexible, has limited liability of a corporation, member can choose to be taxed as a corporation or as a partnership

Front 17

LLC disadvantages

Back 17

state statutes are not uniform

Front 18

optional and may be in writing, provisions relate to management, decision-making, profits, transfers and dissolution

Back 18

The LLC operating agreement

Front 19

(normally for professional services such as law or accounting firms or family businesses where all partners are related)

Back 19

Limited Liability Partnerships - LLP

Front 20

Advantages of Limited Liability Partnerships

Back 20

- limits personal liability of partners for malpractice, etc. of other partners, can be taxed as a partnership on personal return

Front 21

- an arrangement in which the owner (franchisor) of a trade mark, trade name or copyright allows another (independent franchisee) to use the license to selling goods or services.

Back 21

Private franchise

Front 22

Types of franchises

Back 22

1. Distributorship
2. Chain-style business operation
3. Manufacturing

Front 23

bylaws state the rules

Back 23

Corporate Formation

Front 24

T or F. The corporation is owned by “shareholders” who elect a Board of Directors (who manage the business) who elect officers (who oversee the daily operations).

Back 24

T

Front 25

profits passed on to shareholders

Back 25

Dividends

Front 26

profits not distributed to the shareholders (are retained by the corporation).

Back 26

Retained earnings

Front 27

a corporation is responsible for the torts committed by its agents and officers within the course and scope of their employment “ Doctrine of Respondeat Superior.” Corporation can be fined or dissolved, directors and officers can be jailed.

Back 27

Torts and criminal acts

Front 28

corporation is a citizen of the state where formed

Back 28

Domestic corporation

Front 29

formed in one state but doing business in another state

Back 29

Foreign corporation

Front 30

formed in another country doing business in the U.S.

Back 30

Alien corporation

Front 31

when the directors of a corporation fail to sue on behalf of the company for a wrong to the company, the shareholders may sue and recover for the company.

Back 31

Shareholder’s derivative suit

Front 32

when there is fraud, undercapitalization, careless corporate formalities, there may be a “piercing of the corporate veil” and shareholders may be individually liable.

Back 32

Liability of shareholders

Front 33

share that have a specific face value

Back 33

Par-value shares

Front 34

shares that have no face value.

Back 34

No-par shares

Front 35

shareholders own the corporation, have an equitable interest in the firm, do not have legal title to the property

Back 35

Corporate management

Front 36

can amend bylaws, elect and remove directors.

Back 36

Shareholders’ powers

Front 37

must occur annually

Back 37

Shareholders’ meetings

Front 38

minority voters to elect directors

Back 38

Cumulative voting

Front 39

usually for one year, can be staggered

Back 39

Election of directors

Front 40

must be in writing to be paid

Back 40

Directors’ qualifications and compensation

Front 41

needs a quorum, cannot be by proxy, may be by conference.

Back 41

Board of directors’ meetings

Front 42

declare and pay dividends, appoint and remove officers, make financial decisions.

Back 42

Directors’ management responsibilities

Front 43

Officers act as agents, fiduciary duty of care, loyalty, honest, prudent decision making, no personal advantage without disclosure.

Back 43

Role of officers and directors

Front 44

may be allowed if full disclosure

Back 44

Conflicts of interest

Front 45

officers and directors must use their best judgment and exercise due care and will not be liable for honest mistakes of judgment or poor decision making.

Back 45

Business Judgment Rule

Front 46

intangible personal property that evidences specified number of shares of ownership.

Back 46

Stock certificates

Front 47

the right of current shareholders to purchase shares of a new issue of stock in proportion to the percentage owned.

Back 47

Preemptive rights

Front 48

can be paid in cash, property or stock.

Back 48

Dividends

Front 49

paid when corporation is insolvent, shareholder may need to return to corporation or creditor

Back 49

Illegal dividends