Apple’s Headquarters in
Source: Photo courtesy of kalleboo, http://www.ﬂickr.com/
A legal entity chartered by
the state, with a separate and
distinct existence from its
Businesses must be organized in order to eﬀectively conduct their operations. This organization can run
from simple to complex and depends greatly on the needs of the business owners to structure their
liability and taxes. In this chapter, you’ll learn about the factors that go into organizing a business.
Speciﬁcally, you should be able to answer the following questions:
What are the available entity choices when conducting business?
What are the factors that determine entity selection?
What are the traditional entity choices, and how are they diﬀerent from each other?
Many of you may be reading this chapter on a laptop or desktop designed and manufactured by
Apple Inc. You may own a phone from Apple, or perhaps a portable music device. The company’s
innovation, product development process, marketing capabilities in creating new and
unthought-of markets, and ability to ﬁnancially reward its owners are well known. While you
might enjoy Apple products as a consumer, have you ever thought about Apple as a
? Its corporate headquarters in Cupertino, California (Figure 11.1), is the physical
embodiment of this entity we call a corporation, but what does that mean? It might surprise you
to learn that this building, or rather the legal concept of the entity that occupies it, is more like
you than you realize. For example, just like you, this entity can own property. This entity can enter
into contracts to buy and sell goods. This entity can hire and ﬁre employees. This entity can open
bank accounts and engage in complex ﬁnancial transactions. This entity can sue others, and can
be sued in court. This entity even has constitutional rights, just like you. Unlike you, however, this entity does not
breathe, does not bleed, and in fact may be immortal. And most unlike you, this entity has no independent
judgment of its own, no moral compass or conscience to tell it the diﬀerence between right and wrong. In this
chapter we’ll explore corporate entities such as Apple Inc. in detail. We’ll examine why human beings choose to
organize into corporate entities in the ﬁrst place, and why the law recognizes these entities for public policy
purposes. We’ll start by looking at the factors that go into making a decision about entity choice, and then examine
the available choices in detail.
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