Download - Legal Environment of Business
Legal Environment of Business
August Monday 25
Introduction to Law
Business: Exchange of resources, goods, or services
….. NEED TO ASK NOTES FROM FRIDAY
Sources of Law
Constitution Statutes
From legislation Codes
Judicial legislation (opinions) Reporters Common law Interpretation
Regulations From administrative agencies
CFR
Separation of Powers
Helps to limit the power of government Constitution enumerates powers for each branch
Legislative: makes laws (statutes) Executive: enforces laws (implementation) Judicial: interprets/applies laws (adjudication)
Corresponding checks and balances
Judicial Decisions (won’t ask specific questions)
Judicial reviews Power to declare laws and executive actions unconstitutional Marbury v. Madison (1803)
Stare decisis Precedents
Binding Persuasive
Res judicata
Federalism
National Government Article VI – Supremacy Clause
Preemption Article 1 – Commerce Clause (today it provides authorities from congress to regulate
business) 50 State governments
Article IV – Full faith and credit clause: (Guaranties every state is a union of republican government- same basic form that federal government has)
Tenth Amendment – Police Powers
Conflict of Laws
Federalism 50 different state systems of law
Multi-state transactions What law governments?
Torts – Where did the wrong occur? The injury? Contracts – Where was it made? To be performed?
Forum Selection Clause: Clause in a contract…
Law v. Ethics
Behavior may be legal or illegal Determines punishments/remedies
Behavior may be right or wrong/good or bad Determines how you ‘ought’ to act Often more restrictive than law
Things to think about
What is your “worldview?”
Spheres of Sovereignty
GOD – State – church – family – individual
August 27, 2014
CHAPTER 2
American Court System (State and Federal Courts)
The American Legal System
Remember, the American Legal System is a dual (federal) system Judiciary
Federal (national) courts State Courts
Actually 50 different state systems
American Courts
Both federal and state courts systems (generally) have three tiers: Trial Courts - litigation begins, court (often with a jury) hear and decide facts in dispute Intermediate appellate courts - courts of error (or review) decide questions of law, not fact High or Supreme courts - final appeals.
Jurisdiction
Jurisdiction is the power or authority of a court to hear and decide a case or controversy. Original jurisdiction
Trial courts Appellate jurisdiction
Supreme and intermediate appeals courts General jurisdiction Courts, State Circuit and Chancery Courts.
Federal District Limited jurisdiction
Municipal jurisdiction
Federal Jurisdiction
Federal Question jurisdiction Arising under the constitution, treaties and laws of the united states United Stated is a party
Diversity jurisdiction Parties are citizens of different states or countries $75,000 in controversy
Removal
@Book page around 30-33, figure 10.1
Also figure with “U.S Supreme Court “
Juries
Jury – a group of ordinary citizens selected and sworn by a court to render a decision.- Grand Jury
Indictments if probable cause for felonies 16 to 24 members
- Petit Jury Verdicts in trials 12 members (rarely as few as 6)
Jury Selection
Qualifications set by statute- Citizenship- Residency
Voire Dire Challenges
- Cause- Peremptory
Judges
Federal judges- Appointed by President, confirmed by Senate
State judges - Most states elect- Some states appoint
Law v. Equity
Law- Claims for money damages- Judgments
Equity- Claims for other relief (money is inadequate)
Property, domestic relations- Decrees
August Friday 29
Litigation (Mechanics of a Lawsuit)
Parties
Trial Court- Civil
o Plaintiff v. Defendant- Criminal
o State v. Defendant Appellate Court
- Appellant v. Appellee
Standing to sue (not important)
Doctrine limits the role of courts in society Plaintiff must allege a case or controversy between himself or herself and the defendant if the
court is to hear the case. Plaintiff must have a personal stake in the issue No way dependent on the merits of the plaintiff’s contention that particular conduct is legal
Jurisdiction
Subject Matter Jurisdiction Personal Jurisdiction
- Summons- Long arms statutes
o Minimum contact Venue (actual place)
Pleadings
Documents stating the (alleged) facts and legal claims of the parties.- Set the parameters of the litigation- Identifies the parties, basics of the claims, relief sought
Complaint Answer Counterclaim Defaults
Discovery
Allows both sides to determine what facts can be proven- Interrogatories: written questions asked to the other sides- Requests for Production of Documents- Requests for Admissions- Depositions
September 3, 2014
Premarital Practice
Dispositive Motions- Dismiss- Judgment on the Pleading- Summary Judgment
Pretrial Conference- Stipulations- Evidentiary Questions- Settlement
Trial
Jury Selection Opening Arguments Evidence
- Testimony of Witnesses (fact witnesses and expert witnesses)o Direct – Cross – Redirect
- Documents Jury Instructions Closing Arguments Verdict/Judgment
Remedies
What are you seeking when you file a lawsuit Criminal prosecution
- Punishment Civil suit
- Money damageso Compensatoryo Punitive
- Equitable Relief (doesn’t involve money. Involve someone doing something)
Post-Trial
Post-Trial Motions- New Trial- J.N.O.V
Appeal - Notice- Transcripts- Brief
TEST chap 1 to 4, 7
September 5, 2014
Alternate Dispute Resolution
(Negotiation, meditation and arbitration)
ADR
Alternate Dispute Resolution (ADR) is any means used by the parties to avoid litigation.- Negotiated settlements- Mediation- Arbitration
+ Matthew chap 15 verses 15-17 (Not sure)
Advantages of ADR
Preserve Business Relationships - Good Will
Avoid Cost of Litigation Unpredictability of Jury Verdicts Reduce Stress Save Time
Negotiation
First step in any dispute- Demand
Settlement Agreements- Release of liability
Mediation
Neutral third party attempts to help disputants reach a fair settlement- Court mandated in some cases- Informal- Non-binding
Magnuson-Moss Warranty Act (JUST KNOW THE NAME)- If a business adopts an informal dispute resolution system to handle compaints about
product warranties, then a…
Arbitration
Dispute submitted to a third party who has authority to impose a resolution.- Resolution are generally binding- More formal than mediation- Often mandated by contract
Uniform Arbitration Act- Written agreement- Submission (specifies the dispute)
Award (instead of a judgment)- Up to the end, you can withdraw your consent- May be enforced in court (if necessary)
Appealing for businesses and consumers- Avoid bad publicity- Utilize special knowledge of arbitrator- Not the same time or costs compared to court- Less complicated, more flexible- No motion practice- No discovery
CHAPTER SUMMARIES AND REVIEW QUESTIONS! FOR TEST!
6,7,8, 9 Chapter 4 in new edition.
September 8, 2014
Law for the Entrepreneur
Small Business Attorneys
Selecting an attorney- Martindable-Hubbell ratings- Fee arrangements
o Hourly rates (most common one)o Contingency fees (“we don’t get paid until you get paid”)o Product/service rates
Attorney-Client privilege: Everything is confidential.
Attorney and Business Planning
Forms of Business Organization- Liability considerations- Tax considerations- Management considerations- Ownership
Contracts- Employment
o Confidentialityo Non-competition
- Intellectual property protections (licenses)- Sales- Services
Risk Assessment- Insurance- Professional liability- Product liability- Premises liability
FOR TEST 2
September, 12, 2014
Torts
Recovery for Civil Wrongs
Tort- A wrongful act (or omission) committed by one person against the another (or his
property) for which damages are recoverable- The breach of a legal duty imposed by (common) law (no contact)- A private wrong
Types of Tort Liability- Intentional: It’s wrong to purposefully injure another or his property- Negligence: It’ wrong to fail to do what a reasonable person would do- Strict Liability: It’s wrong to create certainty inherently dangerous situations
Tort Damages- Nominal damages- Compensatory damages
o Economic loss – medical expenses, lost wages, property damageo Non-economic loss – pain & suffering, loss of enjoyment, loss of companionship
- Punitive (exemplary) damages
Persons Liable for Torts- Individual – usually responsible for your own acts
o Minors? Parents of minors?- Joint and Several- Respondeat Superior – master/principal liability
Intentional Torts- Interference with Personal freedom
o Assault: making you fear for your safetyo Batteryo False Imprisonmento Infliction of Emotional Distress
September, 15, 2014
Intentional Torts Interference with Personal Freedom
- Assault- Battery- False Imprisonment- Infliction of Emotional Distress
Interference with property rights- Trespass- Conversion
- Nuisance Interference with Economic Relations
- Disparagement- Interference with contractual Relations- Interference with Prospective Advantage- Misappropriation/Infringement
Wrongful Communications- Defamation
o Slandero Libel o Exceptions
- Invasion of Privacy- Fraud
September, 17, 2014
Torts
Recovery for Civil Wrongs
Negligence- Elements
o Dutyo Breach of Dutyo Causationo Damage
Duty- Due Care
o Reasonable-person test- Degrees of Negligence- Malpractice
Special doctrines of Negligence- Res lpsa Loquitur- Negligence per se
September, 19, 2014
NEED NOTES!!
September, 22, 2014
PROPERTY 1
Personal Property, Intellectual Property and Wills
Property and Capitalism
Property rights are fundamental to capitalism A primary purpose of government is to protect rights Property rights include possession, use and transfer
Real v. Personal Property
Real property- Land and things are fixed to land
o Property rights go up and down Oil and mineral rights
- Fixtures – personal property, which is “fixed to,” and therefore now part of, real state. Personal property
- Tangible: something you can touch and feel- Intangible: has value but not physical
o Name and goodwillo Intellectual property
Transfers of Personal Property
By Sale By Gift
- During life- Upon death
Special Cases: - Abandoned- Lost- Mislaid
Documents of Title
Real Property – formal, strict requirements for deeds. Personal property – informal
- Bill of Sale- Receipts- Car Titles
September, 24, 2014
Bailments
Temporary transfer of possession- Storage, repair, etc.
Bailee has responsibility for protection and care of the Bailor’s property. Special care
- Innkeepers- Common carries
Leasing Personal Property
Leading does not transfer ownership, it grants the lessee the right to possess and use in exchange for a free (rent)
Governed by Article 2A of the Uniform Commercial Code Businesses tend to lease equipment that is constantly being upgraded
- Cars, computers, etc.
Intellectual Property
Governed (mostly) by federal law 4 types
- Copyrights- Patents- Trademarks- Trade Secrets
Copyrights – composed works: literary, musical, theatrical, artistic.- Protected upon creation
Patents – inventions and processes- Protects the right to manufacture and profit from that particular invention- Has to be applied for with the U.S Patent Office
Trademarks – names, logos to identify business or products Trade secrets – any unique business info
Infringement
Injunctions and/or damages for misuse of IP- Injunction is an order from a court to cease doing something.- Statutory damages available of copyright infringement
Fair use – defense against some uses of IP
September, 26, 2014
Wills and Estates
Will is a document disposing of your property upon death. Testator (person making the will) must have testamentary capacity If you die without a will, property passes by intestate succession
- Governed by state law
Probating !!! in the test
Property II
Real Property
Land – owning real estate- Fee simple absolute
o Complete ownership – all rights, no conditions- Life estate- Remainder interest- Reversion
Acquiring Title to Real Estate
Title by Occupancy (original entry)- Taken from the sovereign (grants)
Transfer by Deed Title by Adverse Possession
- Actual, exclusive, continuous, hostile, open, notorious- Tennessee is 7 years under color of title, 20 years without- Suit to quiet title
Title by WillGrantor, grantee
Covenants of Title
Promise/guarantee that- At the time of making the deed, the grantor has fee simple title and the right and power
to convey it- The property is free from all encumbrances except those noted in the deed- The grantee and his successors will have the quiet and peaceful enjoyment of the
property- The grantor will deed the title of the grantee if anyone else should claim the property
September, 29, 2014
Types of Deed
Warranty Deed – normal, contains all 4 covenants- Grant Deed – only a few states, fewer protections- Bargain & Sale Deed – covenants only a right to convey
Quitclaim Deed – transfers the grantor’s interests, whatever they may be.
Multiple Owners
Applies to personal and real property
Tenancy in common – co-owners Joint Tenancy – right of survivorship Tenants by the Entirety – married/real property only
Encumbrances
Any burden on title to land. Including liens and mortgages
Easements- Right to use or benefit from part of property
Licenses - Permission to make use of land, privilege.
Leases
Transfer of possession from lessor (landlord) to lessee (tenant) in exchange for rent. It may be oral or written, express or implied.
Classification by term- Stated period- Period to period- At will- At sufferance (hold over)
Governed largely by the lease (document)- Should specify term and rent
Lessee has exclusive right of possession - Right to sublease?- Eviction?- Improvement?
October, 1, 2014
Mortgages Security interest in real property (promissory note)
- Deed of trust- Requirements similar to deeds
Cancelled on payment of debt
- Cloud of title Foreclosure Priority of liens
Restrictions on Ownership
Governmental/Public- Zoning Regulations- Eminent Domain- Taxation
Private- Restrictive Covenants
Matching definitions! To know for the test
Definitions in the margins
Problems like the ones on the homework. From Property sections!
Property questions, different types of gifts, principles ownerships, interest, trust, licences, tenecy, wills,
Personal and real property difference
Leases
FOR TEST 3
October, 6, 2014
Introduction to Contracts
Basics Concepts and Terms
Contract: a promise (or promises) that ae enforceable in court. Elements of a contract:
- Mutual assent- Consideration- Legal capacity- Legal subject matter
Sources of contract law
Clasification of Contracts
Billateral
Unilateral
Expressed Implied- in-fact
Implied in Law (quasi-contracts)- Quantum meruit
Terms
Void Voidable
Executed Executory Contracts
October, 8, 2014
Remedies: Breach of Contract
Legal remedies- Nominal damages- Compensatory damages
o Makes the party ‘whole’ – benefit of the bargaino Duty to mitigate
- Consequential damages- Punitive damages- Liquidated damages
Equitable relief- Specific performance- Recession- Restitution
CHAPTER 14
The agreements
Offer and Acceptance
Mutual Assent Consideration Legal Capacity Legal Subject Matter Offer: a conditional promise by the offeror
- A statement of being prepared to be bound to a contractual position. Acceptance: response by the offeree
- Performance of an act- Forbearance (refrain from acting)- Promise to act or forbear
October, 10, 2014
Requirements of a Valid Offer
Present intent to contract - Evaluate the language used
Definiteness - State material terms
o Gap filling Proper party Communication
Duration of the Offer
Power to accept until terminated Methods of termination of offer:
- Lapse of time- Operation of law- Rejection by offeree- Revocation by offeror
Irrevocable Offers
Option contracts- You give some value to the offeror so that they will leave the offer open for a period of
time Firm offers – legislated (UCC)
- The firm offer by a merchant is an option without consideration or value. Conduct by offeree
- Basically, if somebody starts the work, you can’t revoke.
Acceptance
Nature of an acceptance Bilateral contract acceptance Counteroffers
- Traditional Rule: Mirror Image- UCC provision
Silence Communication of acceptance Unilateral contract acceptance
October, 13, 2014
NEW CHAPTER
Consideration
Valid contracts require consideration- Each party receives a legal benefit and incurs a legal detriment
o Receive something you had no prior legal right to receive or expect.- The price paid for a promise
Elements of Bargain
Bargain requires causation between the legal detriment and the legal benefit. Elements:
- The promise must suffer legal detriment- The promise must induce the legal detriment- The legal detriment must induce the making of the promise
Adequacy
Mutuality of Consideration
Applies to bilateral contracts. Principle that requires both parties to a contract to be bound to one another.
- If not, neither is bound. Illusory promises – no real detriment Preexisting duty – already obligated to act False forbearance – no claim Past consideration – actions already taken.
October, 15, 2014
NEED NOTES!!
October, 17, 2014
Genuine Assent
Mistake - State of mind inconsistent with reality- Bilateral- Unilateral
Misrepresentation- Fraud- Negligent misrepresentation
Undue influence Duress
October, 20, 2014
Illegality and Public Policy
Status of an illegal contract
Illegality- Prohibited by statute- Contrary to public policy
Courts will not enforce an illegal contract- Parties remain as they are- No damages- Exceptions?
Agreements in Violation of Statute
License requirements Usury Agreements in Restraint of Trade
- Sherman Anti-Trust Acto Price fixingo Monopolies
Agreements in Violation of Public Policy
Agreements Not to Compete- If unreasonable
o Timeo Territory
Unconscionability- Oppressive, overreaching, shocking to the conscience- Disclaiming liability
October, 22, 2014
Form and interpretation
Statute of Frauds
Designed to prevent fraud by requiring a signed writing for certain important contracts- Normally raise as a defense- “within the statute”- Depends on state law/UCC
Sales of land Guaranty/surety contracts Can’t be performed within year
Parol Evidence Rule
Applies when a court is seeking to interpret a contract Presumption is that a written contract represents the entire agreements of the parties Can’t submit evidence of prior negotiations, oral agreements or understandings that might
contradict or vary the written terms.
Construction and Interpretation of Contracts
Construe - determine a contract’s legal effect Interpret – determine the intentions of the contracting parties Language which is “clear and unambiguous” must be followed Language which is ambiguous or obscure will be given a “reasonable” interpretation
- Judged objectively- Plain, ordinary, meaning- Construed against the drafting party.
October, 24, 2014
Conditions
Condition: A clause, express or implied, that has the effect of investing or divesting legal rights and duties of the parties.
Conditions Precedent Conditions Concurrent Conditions Subsequent Express Conditions
- Personal satisfaction (objective or subjective) Constructive Conditions
Performance
Tender of performance Substantial performance Anticipatory repudiation
Excuses for Nonperformance
Hindrance Prevention Noncooperation Waiver Impossibility Commercial Impracticability
October 27, 2014
Discharge
Full performance- Payment
Accord and Satisfactifor
Release
Contract rights of Third Parties
Third Party Contracts
Donee-beneficiaries Creditor-beneficiaries
Intended beneficiaries Incidental beneficiaries
Assignments
A transfer of the rights under the contract Contracts are generally “freely assignable”
- No formal requirements- Consent of other party not required- Assignment doesn’t necessarily relieve of duties- Notice should be given
Novation – if all parties agree to assign, a new contract may be formed.
Test Chapter 13 to 20
Terms, defining things, different between. If is not on the notes, not on the test.
FOR LAST TEST FROM NOW ON
October, 31, 2014
Basic Principles of Agency
Common Law: Agency
Law that applies when one person is acting on behalf of or control of another/- Person in control is the principal- Person acting on behalf is the agent
Most agency law is based on common law- Agency law is important to principals, agents and third parties.
Types of Principals and Agents
Principals- Disclosed- Undisclosed- Partially disclosed
Agents- Brokers/Factors- General Agents- Special Agents
Independent Contractor- Degree of control
Agency Relationships
Capacity Formal Requirements
- Consent- Written or Oral- Express or Implied
Power of Attorney- Attorney in fact
Duties of Agents
Fiduciary Relationship Duty of loyalty Duty to protect confidential information Duty of obedience Duty to inform Duty of care Duty to account
November, 3, 2014
Duties of Principals
Duty to compensate
Duty to reimburse Duty to indemnify
Termination
By operation of law- Death- Insanity- Bankruptcy
By parties’ actions- Mutual agreement- Unilateral action
Agency Liability Concepts
Liability in Tort and Contracts
Contract Liability
Actual Authority- Express- Implied/Incidental
Apparent Authority- Also called Ostensible Authority- Depends on actions/words of the principal- Form of Estoppel
Ratification
November 5, 2014
Contract Liability of Principals
Disclosed Principal to Agent Disclosed Principal to Third Party Undisclosed Principal to Agent Undisclosed Principal to Third Party
Tort Liability
Agents, employees and independent contractors are always liable for their own torts. Respondeat Superior – principal/employer is liable for torts of agents/employees acting “in the
course and scope of employment”- Called “vicarious liability”- Principals and agents are “jointly and severally liable” for agent/employee torts.- Frolics, detours.
Independent Contractors
Independence – rights to direct the manner/details of the work- Jury question- Contract does not determine- Principals not liable for torts of independent contractors
o Professionalso Inherently dangerous work
November 7, 2014
Employment and Labor Law
Employment
Employment At-Will- Freedom of contract- Market controls- Reciprocity
o No set duration Legal doctrine allows employer to terminate an employee for any reason (or no reason) and
allows the employee to quit at any time for any reason- Also allows employers to change terms
Wrongful Discharge
Exceptions to employment at-will- Contract (express agreement)
o Duration, conditions, handbook?- Public policy
o Discrimination (race, gender)o Exercise of legal rights
Whistleblower statutes Workers’ Compensation claim Harassment complaints
- “Good Cause”
Conditions of Employment
Pay - Fair Labor Standards Act (1938)
o Applies to almost all employerso Limits use of child laboro Sets minimum wages & maximum hours
Exempt employees (“white collar”).
November 11, 2014
Benefits - Employee Retirement Income Security Act – ERISA (1974)
o Governs pensions, health, disability and other benefit plans- COBRA (1985)
o Requires extension of health coverage if job eliminated- Family Medical Leave Act – FMLA (1993)
o Requires employee leave for medical emergencies- Unemployment Insurance
o SSA (1935) – state programs funded by federal payroll tax Worker Safety
- Occupational Safety and Health Act (1970)o General duty to keep workplace reasonably safeo Comply with OSHA regulations
- Workers’ Compensationo Each state has its own injured at worko Benefits for employees injured at work
Arose out of employment/course and scopeo No fault insurance/exclusively remedy
Privacy- Drug testing- Genetic information- Medical information (HIPPA)- Monitoring
Labor Law
National Labor Relations Act (1935) – Wagner Act- Protects rights to organize unions- Protects collective bargaining rights- Protects the right to strike- Protects unfair labor practices- NLRB
Labor Management Relations Act (1947)- Limits certain practices by unions- Allows states to pass “right to work” laws
o Illegal to mandate union membership/due payments
Collective Bargaining
Representation Election Exclusive bargaining representative Duty to bargain in good faith Job actions
Strike Lockout
November 12, 2014
Anti-Discrimination Laws
Civil Rights Acts of 1866- Section 1981 prohibits employment discrimination based on race or color.
Equal Pay Act of 1963 Civil Rights Act of 1964
- Title VII prohibits employment discrimination based on race, color, religion, national origin or gender.
Age Discrimination in Employment Act 1967 Pregnancy Discrimination Act of 1978 Americans with Disabilities Act of 1990 Genetic Information Nondiscrimination Act of 2008
Title VII
Applies to employers with 15+ employees engaged in interstate commerce Equal Employment Opportunity Commission
- Investigation (upon filing of a charge)- Settlement or “Right to Sue” letter
Disparate Treatment Disparate Impact Causation Remedies
- Equitable relief, injunctions, damages
Americans with Disabilities Act
Disability – broadly defined (examples)- A physical or mental impairment that substantially limits one or more life activities- A record of such an impairment (cured)- Regarded as having such impairment (rumor)
Reasonable accommodations- Undue hardship
Discrimination
Adverse Actions- Hiring - Promotion- Discharge
Defenses- Seniority- Merit- Bona fide occupational qualification
Constructive Discharge Retaliation
Harassment
Sexual Harassment- Unwelcome advances, requests for favors, inappropriate jokes, comments, etc.
Quid pro quo Hostile environment
- “The workplace is permeated with unwelcome sexual conduct that creates an offensive work environment.”
DEFINITIONS FOR TEST
Final test from here on
11/17/2014
Types of Business Organizations
Proprietorships General Partnerships Limited Partnerships Limited Liability Companies Corporations
- Professional Corporations- “Subchapter S” Corporations- “Closely Held” Corporations
Proprietorships
Sole proprietorship are the simplest form of business organizations Sole proprietorship has a single owner
- 100% control- 100% liability for debt, torts, contracts, taxes, etc.- Business can be any size and have any number of employees.
General Partnerships
Business organization involving two or more owners who agree to operate a business together.
- Partners share control and ownership- Partners share the profits and losses
o May be specified in Partnership Agreements- Partners share liability
Advantages of Partnerships
Easily formed by individuals- Contractual, simple- No state involvement- Minimal costs involved in formation
Partnerships are not taxable entities May operate in multiple jurisdictions without state recognition Subject to less state regulation/supervision (than corporations)
Disadvantages of Partnerships
Limits the number of owners/investors Each new (or departed) partner dissolves reforms the partnership Partner liability is unlimited (contract ad tort) May be taxed on income not received (reinvested)
Joint Ventures
Similar to partnerships - Share profits/losses
Usually of limited duration or for a specific transaction- Not an ongoing business concern
No separate legal status
Limited Partnership
Entity composed of both “general” and “limited” partners- Creature of statute (hybrid entity)- Always involves an agreement- General Partners operate the business and have unlimited liability for debts- Limited Partners do not exercise control; they make a limited capital contribution and
share profits & losses (like a corporate shareholder)
Limited Liability Company
Newest option; another hybrid - Great for small businesses- Limited liability
o Unless individually guaranteed- Easy formation and operation- Tax conduit
Corporations
Artificial entity created by State formed by multiple owners (shareholders) which has the power to own property, conduct business and incur liability for itself.
- State issues a charter- Tennessee Code 48-11-101 et seq.- Treated like a legal “person,” separate from its owners- Taxable entity
Advantages of Corporations
Able to have more investors/raise capital Favorable tax provisions Control vested in small group (board/officers) Investors have limited liability Perpetual existence Shareholders may also be employees
- Tax advantages, workers’ comp
11/19/14
Disadvantages of Corporations
Formal, legal requirements from State- Added cost of formation and operation
Additional licensing/fees may be owed Double taxation (income and dividends taxed) Must qualify in each state where business operates Subject to more regulation (securities, etc.)
Corporate Taxation
Income Taxes- C corporations are double taxed
o Losses are not deductible by shareholders- S corporations “pass thru” taxes (like partnerships)
Deductions- Can deduct health insurance premiums/cost- Retained earnings not taxed to shareholders- Allowed deferred compensation plans
Partnerships
Formation
Elements
- 2 or more parties- Common interest in conducting business- Understanding to share profits and losses
Ideally, the partnership is formed upon the execution of a partnership agreement Express – oral or written Implied – by the conduct of the parties By estoppel – like apparent authority
Partnership Agreement
Name Parties Purpose Duration Division of profits and losses Advances (draws) Method of accounting Liability on death or withdrawal Procedures for dissolution
Rights of Partners
Equal right to participate in management Compensated for services/expenses Interest Information/inspection Accounting Interest in property
November 21, 2014
NEED NOTES!
December 1, 2014
Limited Liability Partnership
TCS 61-1-1001 Register with TN Secretary of State Mostly for law firms, accountants, etc.
Limited Liability Companies
Key features- Limited liability- “Pass through” income tax treatment
Creature of state law- TCA 48-201-101- File Article of Organization with the Secretary of State
Differences with corporations- Name must include LLC- Members instead of shareholders- Operating agreement instead of bylaws
Must choose 1 of 2 methods of management- Member managed (like a partnership)- Manager managed (like a corporation)
Corporations
Incorporation
Process by which a person or persons create a legal entity called a corporation- Corporation is considered a separate “person” for most legal purpose
Governed by state law Types
- For profit- Not for profit
Obtaining a Charter
Charter is issued by the secretary of State after Articles are filed. Articles of Incorporations is the basic governing document of the corporation
- Name o Must include incorporated, corporation or company in the name (or
abbreviation) TCA 48-14-101
- Registered agent and office- Stock structure
December, 3, 2014
Organization
Organizational meeting- Elect directors- Adopt bylaws
o Internal rules governing corporation- Authorize sale of stock
Stock
Articles of Incorporation authorizes a set of number of shares of stock- Common stock – equity, vote, dividends- Preferred stock – propriety on dividends or assets
Par value: Value the corporation set for the stock Dividends: Securities law: selling stocks and bonds.
Stock: Ownership
Bond: Borrowing debt.
Treasury stock: Corporation buy shares.
Corporate Governance
Shareholders- Own corporation- Annual meetings- Dividends- Elect directors- Proxies: power to vote for another shareholders
Directors – 3 minimum often required- Set policy- Elect officers
Officers – president and secretary- Run the corporation
Corporate Powers
Powers may be listed in the Articles- Otherwise provided by statute- TCA 48-13-102
Ultra Vires acts – acts beyond the power/authority of the corporation Limited liability
- Piercing the corporate veil
Dissolution
Voluntary - Requires the action of the shareholders
o If initiated by the BoD, requires 2/3 vote of s/h- Payment of creditors, then distribution to s/h
Involuntary - By state, for failure to comply with the law
o Annual reports, franchise taxes, registered agent- Equity proceeding by shareholders or creditors
Mergers and Acquisitions (M & A)
Consolidation – two corporations join into a new corporation Merger – one corporation absorbs another, the second is dissolved
- Both require shareholder approval- Require filings with the state- Assumes debts of old corporation(s)
Antitrust Laws
TEST.
- Terminology - Discussion Questions. > given facts, what is the best business organization for that
situation (it should be a corporation). Adv and disv of Business Organizations