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What are the 3 basic forms of business organizations?

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1. Sole Proprietorships 2. Partnerships 3. Corporations

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Closely Held

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corporation that issues stock to only a few people, often family members

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Publicly Held

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A corporation that may have thousands of stockholders and whose stock is traded on a national securities market

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Sole Proprietorship

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A business owned by one person It is the easiest and least expensive business organization to create. Legally no formal documentation is needed. A proprietorship's continuity is tied directly to the will of the proprietor.

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Partnership

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A business in which two or more persons combine their assets and skills

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Corporation

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A business owned by stockholders who share in its profits but are not personally responsible for its debts

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Limited Partnership

answer

A partnership in which only certain partners have personal liability

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S Corporation

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A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships.

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Limited Liability Company or Partnership

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A business organization in which the business (not the owner) is liable for the company's debts

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Proxy

answer

An agent appointed by a shore-holder for the purpose of voting the shares.

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Articles of Organization

answer

The document filed with a designated state official by which a limited liability company is formed.

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Owners of LLCs are called?

answer

members rather than shareholders or partners.

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When shareholders get to vote on executive compensation it is referred to as what?

answer

say-on-pay

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Alien Corporation

answer

one that is incorporated in a foreign country.

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Alter-ego theory

answer

one method used by courts to pierce the corporate veil when a shareholder fails to treat the corporate organization as a separate legal entity

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Why are so many companies incorporated in Delaware?

answer

Delaware has a stable legal environment. Delaware's legislature is generally believed to be supportive of business interests. There is no income tax for businesses that do not operate in Delaware ( though there is a franchise tax). and the state Division of Corporations makes the process of incorporation simple and efficient.

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Derivative suit

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a lawsuit filed by one or more shareholders of a corporation against that organization's management. This suit is brought to benefit the corporation directly and its shareholders indirectly.

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Limited Personal Liability

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means owners are liable for the debts of the corporation only to the extent of those shareholders' investment in the cost of the stock.

question

Relative to other factors discussed in this chapter, how important is the factor of creation?

answer

...

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Creation

answer

The legal steps necessary to form a particular business organization. At times, a businessperson may be concerned with how much it will cost to have each form established. Usually, the cost of creation is not a major factor in considering which form of business organization a person will choose to operate a business. The most significant creation-related issues are how long it will take to create a particular organization and how much paperwork is involved.

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What are the issues when considering methods of creating business organizations?

answer

Time and money

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What is the crucial issue with continuity factor?

answer

The method by which a business organization can be dissolved.

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Dissolution

answer

Any chance in the ownership of an organization that changes the legal existence of the organization.

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What are some issues of whether an organization and its business will continue?

answer

Death, retirement or withdraw of an owner.

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What is important to consider when selecting a form for a business venture?

answer

Consideration of potential conflict and mechanism to resolve disputes!!

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When considering the liability factor, you should always ask yourself...

answer

To what degree is the owner of the business personally liable for the debts of the business organization? When is the owner liable under the law for harm caused by the business organization?

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Is a single tax better than a double tax?

answer

Not always better.. People have stated that the double taxation of corporate income should be avoided by selected a different form of organization. However, advantages also exist when an organization is subject to the supposed "double tax".

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Factors to consider when selecting a business's organizational form

answer

1. The cost of creating the organization 2. The continuity or stability of the organization. 3. The control of decisions. 4. The personal liability of the owners. 5. The taxation of the organization's earnings and it's distribution of profits to the owners.

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What are the limitations of the sole proprietorship?

answer

...

question

Non scholae sed vitae discimus!

answer

We learn not for school but life - Seneca

question

What is money?

answer

Anything that serves as a medium of exchange, unit of account, and store of value

question

Who said, ""As I've said earlier, the difficulty is defining what money truly is. We have been unable to define money."

answer

Alan Greenspan Chairman, Fed. Reserve

question

Thermodynamics

answer

Study of energy transformations that occur in a collection of matter

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1st law of Thermodynamics

answer

Energy cannot be created or destroyed. In a closed system, the total amount of energy is constant.

question

2nd law of Thermodynamics

answer

"Law of increasing entropy" The quantity of energy remains constant in the first law but the quality of energy deteriorates gradually over time.

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Entropy

answer

A measure of disorder, or randomness.

question

As the universe tends towards maximum disorder, available energy is inevitably used for...

answer

Productivity Growth Repair

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The universe is

answer

winding down.

question

Is it possible to prevent, slow down or reverse entropy?

answer

Yes, at least temporary.

question

How do you temporarily prevent, slow down or reverse entropy?

answer

You must apply.. 1. Additional Energy 2. With intelligence.

question

Does energy alone have value?

answer

No.

question

Does intelligence alone have value?

answer

No.

question

What combination of things has value?

answer

Energy and intelligence has value.

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Creativity

answer

...

question

What is money?

answer

A representation of energy and intelligence which is exchanged for goods and services!

question

What is money a convenient substitute for?

answer

Energy and intelligence!

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What does money represent?

answer

Ultimately, money represents the ability to reverse entropy.

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What do we mean exactly when we say "by adding value"

answer

The concept of "reversing entropy" or at least, slowing the rate of entropy is exactly what we mean by "adding value" We are bringing order to a chaotic universe.

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Zero Sum Game

answer

situation in which what one side wins, the other side loses.

question

If you can slow down or reverse entropy with your own intelligence and energy, if you can create, if you can bring order out of the chaos, if you can "add value", then...

answer

IT IS NOT A ZERO SUM GAME

question

What is trade?

answer

When we use money, we exchange each others ability to reverse entropy.

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What is accounting?

answer

The attempt to understand the flow of energy and intelligence within an economic system. Improved understanding of the flow leads to better management of that system.

question

What are humans a combination of?

answer

Energy and intelligence!

question

Property

answer

establishes a relationship of legal exclusion between an owner and other people regarding limited resources.

question

Intellectual property

answer

A product of the intellect, such as an expressed idea or concept, that has commercial value.

question

Why was the trade secret law created?

answer

Trade secret law arose to protect the employer's valuable knowledge. It also facilitated economic development by making employers willing to hire employees who might come into contact with the employer's knowledge.

question

Trade Secret

answer

Any form of knowledge or information that 1) Has economic value from not being generally known to, or readily ascertainable by proper means by, others and 2) Has been the subject of reasonable efforts by the owner to maintain secrecy.

question

What is a trade secret audit?

answer

Simply lists all the valuable forms of information possessed by the business, including formulas, plans, reports, manuals, research, and knowledge of customers and suppliers.

question

How do companies protect their computer stored knowledge?

answer

Firewalls and encryption to keep hackers from obtaining access. Some companies maintain two different computer systems in order to protect proprietary (owned) knowledge, one connected to the Internet and one networked only internally.

question

What is the wrongful taking of any kind of intellectual property?

answer

Misappropriation or infringement.

question

Patent

answer

A document granting an inventor sole rights to an invention

question

Overlapping Intellectual Property Rights Example

answer

Patent on touch screen Patent on hardware switch in cell phone Patent and copyright on an OS

question

What happens when a patent expires?

answer

The patent is in the public domain, and others may use it without limitation.

question

Trademark

answer

Any mark, word, picture or design that attaches to goods to indicate their source.

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Service Mark

answer

A mark associated with a service, for example, LinkedIn.

question

Certification Mark

answer

A mark used by someone other than the owner to certify the quality, point of origin, or other characteristics of goods or services, for example, the good Housekeeping Seal of Approval.

question

Collective Mark

answer

A mark representing membership in a certain organization or association for example, the National Football League Logo.

question

Trade Dress

answer

refers to a color or shape associated with a product or service. "The total image and overall appearance" of a business. Example: The red color scheme of Coca-Cola when associated with the general design of Coca-Cola labeling constitutes a trade dress.

question

Examples of trademarks lost due to generic use

answer

Aspirin Cellophane Cola Escalator Lite Beer refrigerator Thermos Zipper Xerox (verb or noun)

question

2 Reasons a trademark is most likely to become generic

answer

1. When an owner does not defend against unauthorized use. 2. When the public becomes confused as to whether a term refers to a particular product/service or refers to a general class of products/services.

question

How can one win a trademark infringement lawsuit... with one of three basic defenses.

answer

1. The mark is not distinctive. 2. There is little chance of the public's being confused by use of a term trademarked by someone else, or 3. The use is a "fair- use".

question

Copyright

answer

Gives those who have this property a monopoly over the right to exclude others from copying and marketing for a limited period of time.

question

Fair Use

answer

Includes copying for "criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarships, or research"

question

The Digital Millennium Copyright Act (DMCA)

answer

makes illegal the effort to get around (circumvent) devices used by copyright owners to keep their works from being infringed.

question

Limitd Liability Companies LLCs

answer

Limited Liability of owners (like corporations) + Single taxation of profits (like partnership) = BEST OF BOTH WORLDS!

question

I never allowed schooling to interfere with my education

answer

Samuel Clements ( Mark Twain)

question

Shareholders

answer

Owners of the corporation who elect the directors

question

Directors

answer

Represent the shareholders in directing the major affairs of corporation and who also hire the officers.

question

Officers

answer

Oversee the day-to-day business of the corporation.

question

Why should one incorporate?

answer

Limited Liability This is the major advantage of a corporation over proprietorship and partnership. Note; Limited liability of owners, NOT the corporation itself.

question

Corporate Law

answer

The United States does not have a single, national body of law which governs business organizations in general, or corporations in particular. Creation and management are matters of state law. Each state regulates corporations which are formed in, or do business in that state.

question

There are two basic ways to bring capital into a corporation (other than making a profit)

answer

A corporation may 1. Sell stock or 2. Incur debt

question

Corporate Debt

answer

Debt= The corporation borrows capital from the public and promises to repay with interest.

question

What are three types of corporate debt?

answer

Bonds, Notes or Debentures

question

Bond

answer

Long-term debt secured by a lien or mortgage against corporate property

question

Note

answer

Short-term bond.

question

Debenture

answer

Unsecured corporate debt

question

How many types of corporations are there?

answer

Four

question

What are the four types of corporations

answer

Two "not-for-profit" and Two "for profit". 1. Public Corporation 2. Non-profit Corporation 3. Publicly-held Corporation 4. Private Corporation

question

Public corporation

answer

a government corporation, organized for governmental "public" reasons. EX: City of Newark, U.S Postal Service, NYC.

question

Examples of non-profit corporations

answer

International Red Cross Private Schools Many churches and other religious congregations Many hospitals YMCA, Swim Clubs, Boy Scouts, JCC, ETC

question

The state statutes typically limit the maximum number of shareholders in a privately held corporation to about...

answer

Twenty or thirty.

question

Bylaws

answer

approved by original shareholders and/or directors, specify how the corporation will be operated including such items as Number of Directors and How Elected Time, Place & Manner of shareholder meetings Officers, titles and responsibilities Tax Matters ETC

question

How do investors purchase stock in publicly held corporations?

answer

Investors purchase stock through brokers licensed to trade on the exchange.

question

Why do corporations go public?

answer

MONEY!!!!! MONEY!!!! MONEY!!!

question

Why do corporations go public

answer

CAPITALIZATION

question

What is needed to complete the incorporation process?

answer

1. Certificate of Incorporation, filed in appropriate state office. 2. Apply for Tax ID# from IRS. A few seconds on the IRS website www.irs.gov 3. Purchase a corporate kit, which contains, stock certificates, corporate seal, directors minutes, memos, etc. 4. Open a corporate bank account.

question

Board of Directors General Responsibilities include

answer

1. Declaring/ paying dividends to shareholders; 2. Authorizing major corporate policy decisions; For example: sale of major corporate assets, developing new product lines, overseeing major contract negotiations. 3. Appointing, supervising and removing corporate officers and other managerial employees.

question

In general, directors have two seperate duties (fiduciary duties)

answer

1. Duty of Care 2. Duty of Loyalty

question

Litigation alleging a breach of directors' fiduciary duties typically involves one or more of the following:

answer

1. Competing with the corporation; 2. Usurping a corporate opportunity; 3. Having an interest in conflict with the corporation; 4. Authorizing corporate transaction detrimental to minority shareholders; 5. Selling control of the corporation. 6. Engaging in insider trading;

question

What is the business judgement rule?

answer

Directors are expected to use their best judgement in guiding corporate management, but they are not expected to guarantee business success.

question

Business Judgement Rule

answer

The Business Judgment Rule: Directors and officers are not liable when a decision is within management authority, as long as the decision complies with the fiduciary duties. Honest mistakes of judgment and poor business decisions do not automatically make them liable to the corporation or shareholders.

question

SEC ACTIVITIES

answer

1. Requires disclosure of facts concerning public offerings; 2. Regulates trading on securities exchanges; 3. Investigates securities fraud with Dept of Justice; 4. Requires registration of brokers and dealers; 5. Supervises activities of mutual funds; 6. Recommends administrative sanctions, civil remedies and criminal prosecution in cases involving securities law violations.

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