Corporations Outline

Corporations Outline - I a Economic and Legal Aspects of...

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Economic and Legal Aspects of the Firm a. Most Common Forms of Business Organizations i. Sole Proprietorship (Classical Firm) 1. Entrepreneur two critical tasks: a. Directs the business and exercises the ultimate business judgment b. Accepts full responsibility for his or her business decisions by being the residual guarantor and claimant 2. Unlimited liability – no real distinction between the business and the entrepreneur 3. Limited availability to capital 4. No agency problems other than contract and tort – no separation of ownership and control 5. No separate business taxation ii. Partnership 1. Few formal costs (easy to get into, little formal compliance) – no registration with the state, annual meetings, etc you may even be in a partnership and not even realize it 2. Unlimited liability personally liable for all business debts 3. Joint liability partners may each bind partnership (and hence each other) – responsible for each other’s actions 4. Tenuous existence Dissolves upon exit or death of a partner 5. Partners manage the business themselves No distinction between ownership and control 6. Equally share in profits and losses unless otherwise agreed 7. Pass-through taxation – only taxed once iii. Joint Venture 1. Where associates join to exploit a particular opportunity 2. Less permanent and less complete merging of assets and interests 3. Legal relationship between two or more persons, who in some specific venture, seek a profit jointly without the existence between them of any actual partnership, corporation, or other business entity iv. Limited Partnership 1. Some formation costs Not as easy as regular partnership – must register with state 2. Limited liability for investors (limited partners) who do not control the operations of the company The most they will lose is the amount they’ve invested 3. Unlimited liability for general partners (and there must be at least one), who are tasked with managing 4. Dissolves upon withdrawal of a general partner, but limited partners may freely transfer ownership 5. Distinction between limited and general partners is sometimes unclear, creating risks for would-be limited partners 6. Share profits and losses according to capital contributions, or by agreement 7. Pass-through taxation – only taxed once v. Limited Liability Company 1. Hybrid between partnership and corporation 2. Higher formation/compliance costs than partnerships – varies from state to state 3. Limited liability for investors 4. Management and profit/loss sharing vary by agreement – default rules vary All the losses aren’t necessarily going to fall on a general partner 5. Pass-through taxation – only taxed once One of the big reasons LLCs are more popular than small corporations because no double taxation and you get limited liability vi. Business Trust (MA Trust) vii. Corporation 1. Independent legal entities 2. Used to need the legislature to grant a charter suspicion of corporations because of the huge
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This note was uploaded on 05/25/2011 for the course LAW Corporatio taught by Professor Bridgeman during the Spring '10 term at FSU.

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Corporations Outline - I a Economic and Legal Aspects of...

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