Types of Business Types of Business OrganizationsOrganizations

– Sole proprietorshipsSole proprietorships– PartnershipsPartnerships

•GeneralGeneral

•LimitedLimited

– CorporationsCorporations– Limited Liability CompaniesLimited Liability Companies

General partnershipsGeneral partnerships

• Created informally by agreementCreated informally by agreement• Each partner personally liableEach partner personally liable• Partners owe fiduciary duty to Partners owe fiduciary duty to

partnershippartnership• Act of any partner binds partnershipAct of any partner binds partnership• Unless changed by agreement, share Unless changed by agreement, share

profits/losses equallyprofits/losses equally• Dissolved by death/bankruptcy of a Dissolved by death/bankruptcy of a

partnerpartner

Limited partnershipLimited partnership

• Created by filing certificate with stateCreated by filing certificate with state

• Must have at least one general Must have at least one general partnerpartner

• Limited partners have no liability Limited partners have no liability (beyond their investment)(beyond their investment)

• Limited partners cannot manage or Limited partners cannot manage or control the partnershipcontrol the partnership

Corporations (general)Corporations (general)

• Governed by state law (often Governed by state law (often Delaware)Delaware)

• Are considered legal “persons”Are considered legal “persons”– Can sue or be suedCan sue or be sued– Can enter into contractsCan enter into contracts– Can own propertyCan own property

• Can be publicly or closely heldCan be publicly or closely held

Corporations: formationCorporations: formation

• Must file articles of incorporation with Must file articles of incorporation with statestate

• Must adopt bylawsMust adopt bylaws

• Must elect an initial board of Must elect an initial board of directorsdirectors

Corporations: governanceCorporations: governance

• ShareholdersShareholders

• DirectorsDirectors– Duty of careDuty of care– Duty of loyaltyDuty of loyalty

• OfficersOfficers

Corporations: lawsuitsCorporations: lawsuits

• Direct lawsuits by shareholdersDirect lawsuits by shareholders

• Shareholder derivative suitsShareholder derivative suits

• ““Piercing the corporate veil”Piercing the corporate veil”– UndercapitalizationUndercapitalization– Dummy corporationsDummy corporations

Limited Liability CompaniesLimited Liability Companies

• Partners have limited liabilityPartners have limited liability

• But can also engage in management But can also engage in management and controland control

• Can pass profits directly to partners Can pass profits directly to partners (i.e., no corporate income tax)(i.e., no corporate income tax)

Federal securities regulationFederal securities regulation

• The Securities Act of 1933The Securities Act of 1933

• The Securities Exchange Act of 1934The Securities Exchange Act of 1934– The Securities Exchange CommissionThe Securities Exchange Commission– Rule 10b-5Rule 10b-5

Federal antitrust lawFederal antitrust law

• restraints on traderestraints on trade

• MonopoliesMonopolies

• Mergers and acquisitionsMergers and acquisitions

Other regulation of businessOther regulation of business

• Labor lawLabor law• Title VII of the Civil Rights Act of 1964 Title VII of the Civil Rights Act of 1964

(banning employment discrimination)(banning employment discrimination)– Enforced by EEOCEnforced by EEOC– Disparate treatmentDisparate treatment– Disparate impactDisparate impact

• Sexual harassmentSexual harassment– Quid pro quoQuid pro quo– Hostile environmentHostile environment

• Laws banning age and disability Laws banning age and disability discriminationdiscrimination