Mr. Valanzano
Business Law
Types of Business Organizations
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_____________________________
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_____________________
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_____________________
Basic Attributes of a Sole Proprietorship

Sole Proprietorship – ___________________________________________

The _________, most flexible, and ____________ type of business to start.

The owner basically has ________________ control over the business and
keeps _______________________. However, the owner also has unlimited
responsibility for ___________________________.
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If the owner of a sole proprietor breaches a contract, their personal property
may be seized to pay damages.
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__________________________ – insurance which limits the risks of a sole
proprietor and makes the risks more tolerable

In some cases, a ________________________________ and/or permit to
__________________________________ may be required.

Some types are subject to government regulations such as ones that _____
_______________________________.
Famous Companies that Started
as a Sole Proprietorship
• Started in 1995 as
Auction Web
• Went public in 1998
• Made $11.65B of
revenue in 2011
• Founded in 1970
• Bought by FedEx
in 2004 for $2.4B
• Established in
1989
• Filed for an IPO
in December 2011
for $100M
Basic Attributes of a Partnership

________________ – an association of ___________________
that operate as co-owners of a business for profit
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Owners are usually called
______________________________.

Uniform Partnership Act (UPA) – ________________________
_________________________
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General partners ____________________________________.

The ____________________________ of a partnership makes
them an unattractive option for aspiring entrepreneurs.

Owners are able to combine ____________________________
________________________ to strengthen the business.

Public liability insurance is also available to partnerships to
__________________________________.
Basic Attributes of a Corporation

Corporation – ___________________________
______________________________

A corporation’s existence is _________________
from the people who organize, _____, and run it.

Corporations ________________ and also have
the ability to ____________________________.

Investors in a corporation are only at risk to ____
__________________________________.

This is an attractive form of business because of
the __________________________.
Requirements for
Organizing
State charter &
organization fees
Owner is the business
Ability to attract
professional
managers
Not a separate entity
Unlimited or limited
(depending on type)
Limited liability of
shareholders
Partners have equal say
unless otherwise
specified
Elected directors set
policy and appoint
officers
Owner decides;
terminated upon owner’s
death
Terminates by
agreement or upon a
partner’s death,
withdrawal, or
bankruptcy
Doesn’t necessarily
end
Goes until death or
disinterest of owner
Goes until death,
bankruptcy, withdrawal
of any partner
Creating a Partnership

________________________ – the terms and conditions
the partners agree on to guide them in managing the
partnership

A partnership agreement _______________ have to be in
writing unless required by the _____________________.

Under the UPA, a partnership is treated as both a
________________ and as a _____________________.

As a ________________, a partnership:
 __________________________________________________
 Is regarded as a principal where each partner may act as an
agent who makes contacts in the company’s name
 Must use its own assets to pay its creditors before any
individual partner’s assets may be seized
________________ of the Partners

Each partner must pay ___________________________
____________ even if they are retained by the business.

The business can _____________________ in the name
of all the partners.

All debts of the business not paid out of the assets are
chargeable to every partner (_____________________).

When any partner drops out of the partnership for any
reason, the partnership _________. (Prior arrangements
can be made to continue business operations without
interruption)

The business cannot attract large sums of new capital
___________________________________________.
Parts of a Partnership Agreement

Date, identity of partners, and purpose of partnership
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__________________________________________
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Duration and termination procedure
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_________________________________
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Forming a reserve fund
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______________________________________________
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Account location and withdrawal procedure
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______________________________________
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Non-routine decision making procedure

________________________________
Types of Partnerships and Partners
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Classified by _________________
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Trading Partnership – _______________________________________________
____________________ – provides professional and noncommercial assistance
Special Partnership – ____________________________________
_____________________ – 2 or more firms combining their resources and skills
for 1 project
Classified by _____________________
 ___________________________ – all partners assume full personal liability for
debts of the business
 _______________________ – at least 1 partner must be a general partner while
the others are limited partners who are liable to the extent of their investment
 Revised Uniform Limited Partnership Act (RULPA) – law which states a limited
partner does not participate in the managerial control of the business on their
own

Classification of Partners
 Silent – __________________________________________________________
 _______________ – not known to the public as a partner and does participate in
management
 Dormant – _______________________________________________________
Duties, Rights, and Liabilities of Partners
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________________________
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_______________________
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Comply with partnership agreement and decisions
Use reasonable care
Act with integrity and good faith
Not conduct a competing business
Keep accurate records
Pay income taxes
Participate in management
Collect profits
Use of partnership property
Extra compensation
Make contracts for the business
Receive money owed and settle claims against the business
Borrow money in the business’ name
Buy and/or sell with cash or credit any property within the scope of the business
Hire and fire employees
Receive notice of any matter affecting the partnership
_________________________
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General partners are equally liable
Limited partners are only liable to the extent of their investment
The partnership and all partners are liable when any partner commits a tort
Liability for criminal crimes are limited to whoever commits the crime; other partners could be
liable for civil crimes
Quick Review

Answer the following questions on your handout:
 1) Which form of business organization does not terminate
upon the death of its owners?
A) Sole Proprietorship B) Partnership C) Corporation
 2) The UPA governs ___________________.
 3) True or False: If a partner dies the partnership is
dissolved.
 4) True or False: A partner may engage in other businesses,
even if they compete with the partnership.
 5) Which form of business has the greatest potential to bring
together large sums of capital?
A) Sole Proprietorship B) Partnership C) Corporation
Advantages & Disadvantages of a
Corporation
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Advantages
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Can continue to function after any owner or manager dies
___________________________
______________________________________
_______________________________________
_______________________________________
______________________
 The federal government taxes net income when it is
brought in and again when it is distributed to shareholders
 _____________________________________________
 Larger corporations are subject to extensive regulation of
the sale of their stocks and bonds to the public
Types of Corporations

Corporations are classified according to their ___________________
____________________________________.

_______________ – chartered and does business in a particular state
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Foreign – _______________________________________________
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________ – chartered in another nation but does business in the U.S.
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Public – ________________________________________________
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Private – ________________________________________________
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____________________ – a private corporation organized to produce
a financial profit for its owners

Nonprofit – ______________________________________________
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____________________ – usually a private corporation that provides
essential public services
How a Corporation is Formed

___________________ – an individual who brings interested parties
together and take preliminary steps to form a corporation

An application for incorporation must be filed with the state where
they want to be incorporated (usually with the Secretary of State).

______________________________ – filed by the incorporators and
serve as the basic plan of operation; needs to be signed by 1 or more
of the incorporators

At least 1 of the incorporators must have ______________________
__________________________________.

The state will issue a ________________________ or a __________
upon approval of the plan.

Shares of ___________ are then sold and the __________________
(owners) meet to elect a board of individuals to administer the
corporation.

The board then hires managers who will run the ________________
_______________________________________.
Parts of an Articles of Incorporation
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_______________________________________
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Duration (definite or perpetual)
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________________________________________
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Number and kinds of shares of capital stock to be authorized for
issuance
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Location of corporation’s principal office and name of its agent
whom legal notices can be given to
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___________________________________________
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____________________________________________
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Any other provisions the corporation wants to add that are
consistent with the law
Stock

Each share of stock represents a ___________________________________________________________.
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Shareholder – __________________________________________________________________________
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Corporations use the money from the initial sale of stock to buy equipment, supplies, and inventory; hire
labor; and pay expenses.

__________________________________________________. This allows more shares of stock to be sold.
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Stock ownership does not transfer title to specific corporate property to the stockholder.
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Par Value – _________________________________________________________________________
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_____________________________ – a stock that does not have a par value and is originally sold at a price
set by the board of directors
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Common Stock – ________________________________________________________________________
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Dividends – ___________________________________________________________________
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Preferred Stock – gives the holder a stated dividend before the common shareholders receive anything but
usually no voting power

Liquidation – ___________________________________________________________________________
Who controls the business of a
corporation?

No shareholder, even one that owns most or all the stock, can act for
the corporation or bind it by contract.

Shareholders ___________________________________________ by
electing the directors.

Shareholders also have the power to _______ on major issues such as:
_________________________________________________________
________________________________________________________.

_____________ are responsible the overall direction of the corporation.
They are bound to act in good faith and oversee the corporation and
formulate general policies with due care.

Inside Board – _____________________________________________

______________________ – has no officers as members and looks at
corporate performance more objectively and critically

Mixed Board – _____________________________________________
Powers & Duties of Corporate Officers
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Commonly include a president, vice president,
secretary, and treasurer.

Officers of a corporation are its _____________, so
they are governed by _______________________
_____________________________.

Officers are __________________________ to the
corporation for ____________________________
______________________________.

Business Judgment Rule – neither shareholders,
directors, officers, nor other corporate employees
can be held personally to be criminally or civilly
liable to parties outside the corporation for honest
errors of judgment made in the course of business
How does a corporation end?

______________________________________
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______________________________________
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_____________________________________
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__________________________________
 ____________________ – when 2 corporations cease to exist a
new corporation is formed (approved by both boards of directors
and a majority of both corporation’s shareholders)
 ____________ – when 1 corporation absorbs another; surviving
company retains its charter and identity while the other
disappears (approved by board and shareholders of both
corporations)

____________________________

____________________________
Powers of the Corporation

____________________________
 Corporation can continue indefinitely or for period stated by incorporators

____________________________
 Can have nay name that isn’t identical or deceptively similar to the name of
another business

_______________________
 Rules and regulations for the internal management of its affairs

_______________________________
 Make contracts, incur liabilities, acquire assets, make/indorse/accept
commercial paper, issue stocks and bonds,
mortgage/pledge/lease/sell/assign property, buy stock back from owners,
buy and hold stock of other corporations, make reasonable donations, hire
and fire employees, establish benefit and incentive packages, sue or be
sued
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Other implied powers
 ____________________________________________________________
 Research and development, leasing space and equipment, advertising,
buying health, life, and liability insurance for employees
Rights of Shareholders
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___________________________________
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__________________________________
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___________________________________
 _________________ – used for voting when a shareholder does not want
to attend a meeting or vote in person
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________________________________
 Capital Stock – ____________________________________
 Shareholder’s right to purchase additional stock to maintain the
percentage of stock they owned before the increase of capital stock

________________________________________________
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________________________________________________
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_____________________________________________________
Quick Review

Answer the following questions on your handout:
 1) Which of the following is NOT required to be in the articles of
incorporation? A) Name of corporation
B) Period of duration C) Purpose of being organized
D) All of the above ARE required
 2) True or False: A corporation that provides utilities to consumers
is known as a public service corporation.
 3) Usually, _________ shareholders do not vote in corporate
elections.
 4) A rule adopted by a corporation’s board of directors that calls
for stockholder meeting every 6 months would be known as a(n):
A) Article of incorporation B) Bylaw C) Corporate amendment
 5) True or False: Shareholders will always be paid dividends as
long as the corporation makes a profit.
Traditional Small Business Forms
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____________________________________
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1 general partner has unlimited liability
Limited partners liable to the extent of their investment
General partners have freedom to set up business as they see fit
More government regulation than a general partnership
Uniform Limited Partnership Act (ULPA)
Revised Uniform Limited Partnership Act (RULPA)
Can only be created by proper execution, recording, and publication of
limited partnership certificate
 Limited partners who participate in managerial decisions lose that status and
become liable without limit

________________________________________
 Governed by subchapter of the Internal Revenue Code
 Not subject to double taxation like a subchapter C corporation
 Earnings and losses are treated like a partnership and are only taxed at the
individual owner’s level
 Hybrid Business Entities – business forms with mixed attributes of a
partnership and corporation
 Requirements: timely filing (before March 15), domestic, shareholders must
have a certain identity, 75 or fewer shareholders, and only 1 class of stock
 Formed in same way as a corporation. S corporation is only a tax status.
New & Evolving Small Business Forms

__________________________________________
 Must be formed and operated in accordance with the laws in the
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state in which it was formed.
Articles of Organization: Name, type of business, address, agent(s),
organizers, & initial LLC members
Members – owners of an LLC
Owner’s liability is limited to their investment
Advantages: no limitation on number of members, identity of
stockholders, and members can manage business without fear of
losing their status
Disadvantages: Centralized management, indefinite life, double
taxation, and free transferability of ownership
____________________________________
 Avoids double taxation and partial limited liability protection
 Since the inception of LLPs in 1991, almost all states enacted LLP
statutes within 6 years.
 Limited liability protection extends to protect against the
consequences of the malicious acts of others involved in the
partnership.
Government Regulation of Business

The federal government is given the responsibility for regulating
interstate commerce under ________________________________.

____________ – _______________; __________ – _____________

A large number of administrative agencies were created under _____
as a response to the Great Depression.

Agency rulings can be appealed, but the appeal is heard by agencystaffed appellate bodies.

Court review of agency decisions:
 __________________ – notifying parties of the charges and of the upcoming
hearing or trial, providing parties the opportunity to appear at the proceeding
to present evidence, confront witnesses, and defend themselves
 Courts check to make sure that the action causing the appeal is within the
powers granted to the agency by Congress.
 The court also makes sure that the agency did not act in an arbitrary or
capricious way.
○ _________________ - subject to individual will or judgment without restriction;
contingent solely upon one's discretion
○ _________________ - subject to, led by, or indicative of whim; erratic
Major Government Agencies

_________________________________________________
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_______________________________________________________________
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1934; controls interstate channels of communication (satellite, TV, radio, phone)
______________________________________________________________________________
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1935; preserves employee rights to join unions and participate in collective bargaining
___________________________________________________________
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1934; controls the enforcement of laws regulation the disclosure of info to the buying and selling of stocks and bonds;
regulates stock exchange
_________________________________________________________________
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Created in 1914; helps protect consumer rights and enforce laws against anti-competitive business activities
_______________________________________________________________
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Oldest federal agency (1887); regulates various modes of interstate and land transportation
1964; protects against workplace discrimination based on race, religion, sex, color, ethnicity, age, and disability
_______________________________________________________________________________

1970; develops and issues rules to govern health and safety in the workplace

Consumer Product Safety Commission (CPSC) 1972

Food and Drug Administration (FDA) 1906

________________________________________________________________


1970; enforces Clean Air and Clean Water acts; concerned with environmental safety
___________________________________________________________________

1975; insures the safety of our nuclear power plants
Quick Review

Answer the following questions on your handout:
 1) True or False: Interstate commerce means commerce that
actually crosses state lines.
 2) Which of the following is necessary for due process?
A) Notice of hearing B) Opportunity to present evidence
C) Opportunity to confront witnesses D) All of the above
 3) Toxic chemical wastes would be the responsibility of the
__________________________.
 4) Safety in the workplace is the responsibility of the:
A) FTC
B) FCC
C) EEOC
D) OSHA
 5) The ___________________ was created to help the
government enforce the country’s antitrust laws.