© 2011 south-western | cengage learning goals lesson 5.1 sole proprietorships distinguish the...
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© 2011 South-Western | Cengage Learning
GOALS
LESSON 5.1
SOLE PROPRIETORSHIPS
Distinguish the fundamental differences in the basic business forms
Explain why someone might choose to become a sole proprietor
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 2
5.1
Basic Forms of Business Organization
Three basic formsSole proprietorshipPartnershipCorporation
These are listed in order of low to high ease and cost of entry, as well as degree of complexity, longevity, intrusiveness of governmental regulation, and the ability to attract professional management.
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 3
5.1
Sole Proprietorship
A sole proprietorship is defined as a business owned by one person. It is the simplest and most fundamental of all
the forms of business organization.A single owner is personally liable for the
obligations of the business.
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 4
5.1
Sole Proprietorship Basics
Business licensesTax numberEmployer Identification Number
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 5
5.1
Advantages and Disadvantages ofSole Proprietorships
Sole proprietorships are more flexible and responsive to change than the other business forms.
Success or failure depends on interest, desire, finances, and physical health of the owner.
If a sole proprietorship fails, its obligations are enforceable not only against the assets of the business but also the possessions of its sole proprietor.
© 2011 South-Western | Cengage Learning
GOALS
LESSON 5.2
PARTNERSHIPS
Explain how to form a partnershipDescribe legalities involved in the operation
and termination of a partnership
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 7
5.2
Partnership Basics
A general partnership is an association of two or more persons to carry on a business for profit as co-owners.
Each of the partners is individually liable for the obligations of the firm.
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 8
5.2
Uniform Partnership Act
Enacted in every state except LouisianaDefines rights and duties of the partners
in relation to the partnership
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 9
5.2
Types of Partners
General partnersSilent partnersSecret partnersNominal partnersDormant partners
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 10
5.2
Limited Partnership
A limited partnership is made up of one or more general partners with full personal liability and one or more limited partners whose liability for partnership obligations extends only to the amount of their investment in the business.
To retain their limited liability, limited partners must not participate in the general management of the business.
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 11
5.2
Creation of a General Partnership
By agreementBy court acknowledgment
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 12
5.2
Operation of a Partnership
Management of partnershipsProfits, losses, and property rightsLiability for business operationsFiduciary duty above all
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 13
5.2
How Are Partnerships Ended?
By the intentional act of a partnerBy action of lawBy court judgmentWinding up
© 2011 South-Western | Cengage Learning
GOALS
LESSON 5.3
CORPORATIONS
Discuss the nature of corporations, including their advantages and disadvantages
Explain how corporations are created, owned, managed, and terminated
List and describe different types of corporations, including alternatives to the full corporate form
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 15
5.3
Corporation Basics
A corporation is defined as a legal entity or artificial person created through the authority of federal or state law. It can be owned by one or more persons, other corporations, a
government body, or a combination of all of these. It can sue or be sued without its investors being exposed to the
risk of losing personal assets to pay any corporate debts that result.
It continues in existence beyond the withdrawal or death of its owners due to the free transferability of ownership in the form of certificates of ownership called shares of stock.
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 16
5.3
Advantages of Corporations
Perpetual lifeLimited liabilityTransferability of ownership interestsAbility to attract large sums of capitalProfessional management
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 17
5.3
Disadvantages of the Corporate Form
Double taxationMore costly and more troublesome to
organizeGovernment regulations
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 18
5.3
Types of Corporations
Domestic corporationForeign corporationAlien corporationPublic corporationPrivate corporation Profit-making corporationNonprofit corporationPublic service corporation
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 19
5.3
Creation of a Corporation
Articles of incorporationCharterShares of stock
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 20
5.3
Types of Stock
Common stockPreferred stock
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 21
5.3
Corporate Management
Board of directorsFiduciariesModel Business Corporation Act
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 22
5.3
Corporate Powers
Make contractsBorrow money and incur other liabilitiesLend money and acquire assets, including all
forms of real and personal propertyMake, indorse, and accept commercial paper,
or orders or promises to pay moneyIssue various types of stock and bondsMortgage, pledge, lease, sell, or assign
property (Continued on next slide)
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 23
5.3
Corporate Powers
Buy back its own stock, unless this would make it impossible for the corporation to pay its debts or to pay off any superior class of stock
Acquire and hold stock in other corporations provided the result would not violate antitrust laws
Make reasonable donations or gifts for civic or charitable purposes to promote goodwill in accord with corporate social responsibility
(Continued on next slide)
(Continued from previous slide)
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 24
5.3
Corporate Powers
Hire and fire agents, independent contractors, and ordinary employees
Establish pension, profit sharing, and other incentive plans for employees
Sue and be suedUtilize other implied powers
(Continued from previous slide)
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 25
5.3
Termination of Corporations
Incorporator specification or shareholder agreement
Loss of charterConsolidation or mergerBankruptcyCourt order
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 26
5.3
Alternatives to the Full Corporate Form
S corporationsLimited liability corporations (LLC)Limited liability partnerships (LLP)
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 27
5.3
S Corporations
Timely filingDomestic corporationIdentity of shareholdersNumber of shareholdersClasses of stock
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 28
5.3
Limited Liability Corporations (LLC)
Limited liability protection and taxation as a partnership
No limitation on the number of membersNo limitations as to whom or what can be
a stockholderMembers are allowed to participate
completely in managing the business
© 2011 South-Western | Cengage Learning
BUSINESS LAW, 2e LESSON
SLIDE 29
5.3
Limited Liability Partnerships (LLP)
Similar to LLCsUsed mostly by existing partnerships who
find it difficult to convert to the LLC form
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