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