Sole Proprietorships

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Sole Proprietorships

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-easiest method of business to begin or end
-owned by one individual who makes all business decisions.
-Owner has unlimited liability
-Sole proprietorship is part of the sole proprieotorship's tax return.

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Closely held corporations

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publicly held corporation with few stockholders; few shares are traded due to stock transfer restrictions

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Common Stock

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gives the shareholder voting and dividend rights

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De facto corporation

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corp formed in fact but not formed correctly according to the law.

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De Jure corporation

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corp formed according to the appropriate guidelines fo the incorporation statute.

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Domestic Corporation

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Corporation that conducts business within the state of incorporation.

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Foreign Corporations

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Corporations that conducts business in states outside of the state of incorporation.

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Joint Venture

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partnership for a limited purpose

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Merger

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occurs when two or more companies become a single enterprise; the controlling corporation retains its identity and absorbs the others.

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Horizontal Mergers

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are between companies selling similar products in the same market.

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Vertical Mergers

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between firms at different stages of the production process in the same industry. Pepsi merges with restaurant chains that it supplies beverages with.

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Conglomerate Mergers

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are between firms in unrelated industries.

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Market Multiple Method

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Assigns a multiple determined by the market to an earnings indicator, such as eps or profit.

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Discounted Cash Flow Analysis

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uses capital budgeting methods.

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Subchapter S corporations

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-no double taxation
-profits are not taxed at the corporate level, taxed at the shareholder level.
-S corp is taxed as a partnership, but has the limited liability of a corporation.

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Treasury Stock

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a corp's own outstanding stock that has been re-acquired.

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Par Value

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th stock's minimum issue price.

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Ultra vires act

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the acts of a corporation are ultra vires when they are beyond the power or capacity of the corporation as granted by the state in its charter.

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Shareholders

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have the right to corp information; meaning, if shareholders have a proper purpose they have the right to inspect the corporations books.

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Shareholders must approve the following decisions:

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Dissolution, mergers, charter or bylaw amendments, or sale of assets.

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Board of Directors

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Elected by shareholders. The board of directors is responsible for appointing officers fo the corporation. The officers are responsible for running the daily business of the corporation.

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For a corp to incorporate

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a corporate charter must be acquired in the state of incorporation. Disadvantage of double taxation.

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Corporation profits

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are taxed at the corporate level, as well as the shareholder level.

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Primary advantage of a corporation

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is the limited liability to the owners. Shareholders can lose up to the extent of their initial investment. Shareholders are not responsible personally for corporation liabilities.

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Corps can raise money

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by issuing bonds or selling stock which are available to the general public. A corporation has unlimited life.

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Common characteristics of partnerships:

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-Limtied Duration
-Transfer of ownership requires agreement
-may sue and be sued as legal entities
-unlimited liabilities of partners for partnership debts
-ease of formation, can be informal
-partnership does not pay federal tax

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Limited Partners do not

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take part in management of partnership.

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Silent Partners

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do not help manage partnership, but still have unlimited liability.

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Prima facie evidence

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Shows partnership exists by agreement to share profits. Sharing of gross receipts doesn not establish partnership.

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Oral Partnership Agreement

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is allowed if there is no specified period of time for the partnership.

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Partnership interest

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is considered personal property, even if partnership property is real estate.

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Partnership Property

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includes property acquired with partnership funds.
-property may be assigned upon agreement of all partners.
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Partnership profits and losses

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are shared equally, unless agreement specifies otherwise. Even if contributed capital is not equal.

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If partners agree on unequal profit sharing, but are silent on loss sharing

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losses are shared per the profit-sharing proportions.

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New Partners to a Partnership

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-requires consent of all partners
-profit sharing, and loss allocation are by agreement between all partners.

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Partners have implied authority to buy and sell goods, receive money, and pay debts for partnership

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each partner is agent of partnership to carry out typical business.
-third parties can rely on implied authority even though secret limitation may exist that are unknown to third parties.

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Partnership is liable

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for partner's torts committed in course and scope of business and for partner's breach of trust.

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Unanimous consent of partners is needed

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-admission of a new partner
-amending the partnership agreement
-assignment of partnership property
-making the partnership a surety or guarantor

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New Partners are liable

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for existing partnership debt, but only to the extent of their capital contributions

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Estates of deceased partners

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are liable for partners' debts

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RUPA requires creditors

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to first attempt to collect from partnership before partners unless partnership is bankrupt.

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Partnership Dissolution occurs when

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-prior agreement
-present agreement of partners
-Decree of court
-Assignmen of partnership interest does not cause dissolution.
-Under RUPA death, withdrawal, or bankruptchy does not automatically dissolve partnership.