the law of corporation. factors considered 1. creation—how the business is started 2....

The Law of CorporationThe Law of Corporation

Factors Considered• 1. creation—how the business is started• 2. management—how it is managed and operates on

a daily basis• 3. ownership—who owns the business’s property and

assets• 4. profit—how the business’s profits and losses are dis

tributed• 5. liability—who is accountable for the business’s legal

responsibilities• 6. taxation—how the business is taxed• 7. continuity—the length of the business’s life• 8. termination—how the business can be terminated

Business Organizations

• Sole proprietorship

• partnership

• corporation

Sole proprietorship• a sole proprietorship is an unincor

porated business owned by one person.

• small scale, simplest and most numerous form of business

Advantages of Sole proprietorship

• Simplicity: legal formalities

• Autonomy: freedom of action.

• Sole Gain

• Single Tax

• Shelter Income: Depreciation

Disadvantages of Sole proprietorship

• Limited Resources

• Unlimited and Unshared Liability

• Business Dies with the Sole Proprietor

Partnerships• A partnership, then, is a volunta

ry association of two or more persons, each contributing money, property, skills, labor, or goodwill as the capital of the new firm.

Partnerships• General Partnership

• Limited Partnership

• Professional Partnerships

General Partnership• Each is fully liable for the debts of

the business, and each shares in the profits.

Advantagesof General Partnership

• The partners get all the profits.

• The partnership itself is free from federal income tax.

• Partnerships permit a pooling of capital and talent and a sharing of risk.

Disadvantagesof General Partnership

• The death of a partner may automatically end the partnership

• Business debts can devour all of the business assets.

Limited Partnership• at least one limited partner and

one general partnerthe

• A limited partner is largely an investor in the firm. A general partner is one who has unlimited liability and is active in managing the partnership.

Professional Partnerships

• They are usually not capital intensive. The real value of the typical personal service partnership lies in the training, knowledge, skill, experience, character, and reputation of the individual members of the firm. As a consequence, the firm’s income is derived almost entirely from the personal services rendered by the partners.

Corporation

• A body, created by law, composed of

individuals united under a common

name, the members of which succeed

each other, so that the body continues

the same notwithstanding the change of individuals who compose it, and is, for certain purposes, considered as a natural person

Corporation

• A corporation is created by law.

• A corporation is invisible and intangible.

• A corporation is an intangible artificial being

Types of Corporation

• for profit & not-for-profit

• unlimited liability & limited liability

• public & private

• parent & subsidiary

• head office & branch office

Formation of Corporation• Promoters

• Selection of a state in which to incorporate;

• Preparation : name, nature and purpose, duration, capital structure, registered office and agent, incorporators

• Certificate of incorporation

• First organizational meeting

Corporate Financing • Stocks

• Debt securities

True or False

• A company business entity can continue even though the holders of shares change and shareholder die.

• A partner is not liable for what happened before becoming a partner or for what happened after retiring from the firm.

True or False• In a limited partnership, a limited partner c

ontributes capital to the partnership but has no right to participate in the management and operation of the business. The limited partner assumes no liability for partnership debts beyond the capital contributed.

• A partner's interest in a partnership is freely transferable.

True or False• A director of a corporation can amend the

articles of incorporation when he deems it necessary.

• A shareholder has a right to inspect the corporation's books and records .

• Directors' management responsibilities include appointment, supervision and removal of corporate officers and other managerial employees and determination of their compensation