Forms of Busi. Ass'n
- Overview of 5 Types
- Sole Proprietorship
- Limited Liab. Co. (LLC)
- Limited Liab. Partnership (LLP)
- Min. Form: 20% of Busi. But Most Revenue
- Pub. Corp
- Many dispersed owners / shareholder (SH) & no 1 SH control
- Owners & managers distinct
- Est'ed mkt that helps buy & sell stock
- Ownership int. change freq'ly b/c ez exit
- Close Corp.
- Few owners actively managing & controlling busi.
- Hard 2 sell int. b/c no ez exit
- Legal Charact's
- Legal entity indep. of owners
- Created by observing formalities
- Stock shares R evid. of ownership int. & freely transferrable
- Corp. mgmt centralized
- SH elect bd. of dir., who appts officers
- Unlimited life which is killed by dissolving
- Limited liab. so SH not liab. 4 corp's debts
- No uniformity of law b/c each state has stt. law
- Corp. law mandatory so can't change structure by K
- Double tax on SH so soln's
- Not incorp.
- Can keep $ in busi.
- Can have expenses (salary) 2 lwr taxable income
- Subchp. S 4 closely held corp. 2 elect not 2 B taxed 4 some
- SH taxed dir'ly
- If keep profit in busi. 2 reinvest, pay div. 2 pay tax
- Sole Proprietorship
- Most busi. R sole propietorship
- Unincorp'ed busi. owned by 1 person so no sep. legal entity
- Unlimited liab.
- No formalities / double tax
- Ass'n Of 2 / more People as Owners 2 Carry On Busi. 4 Profit
- General Partn. (GP)
- Uniformity of law b/c states adopted UPA & few adopted
- No legal entity but ass'n of indiv. / rel. btwn people
- Liab. vicariously, indiv'ly, & fully
- No formality but express / implied intention
- Int. not freely transferrable but req. consent (could B implied)
- No double tax & tax losses pass through
- Rel. as K'al & can change structure
- Fragile so dsln anyX member changes by operation of law &
busi. cont's by new partn.
- No central mgmt & agent 2 each other but can create mgmt
- Limited Partn. (LP)
- At least 1 active liab. GP & @ least 1 passive LP
- Formalities req'ed
- Centralized mgmt where GP active
- Stt. law where gov'ed by UPA & RULPA
- Soln 2 LP's passivity
- Form corp.
- Advise GP
- LP can B ee
- Form corp. as GP
- Limited Liab. Co. (LLC)
- Hybrid of Corp & Partn
- Tax by partn. but limited liab., cont. life, & no dsln
by member change
- Approximates result of LLP w/o awkward structure
- No double tax
- New so legal uncert. & IRS can change its mind
- Works 4 small busi. but not 4 large
- Can't keep $ in busi. b/c owners still taxed
- Varies from state 2 state
- Limited Liab. Partn. (LLP)
- Newest Category: Specie of GP
- Limited 2 prof'l model 2 limit liab. of malpract. claims
- Modernly defer 2 leg. but few state req. state sup ct 2 approve
- Can sue 4 entire asset of partn. busi. but no pers. recourse
4 all partn.
Advisability of Incorp.
- Factors 2 Consid.
- Limited Liab.
- Limit liab. only 4 K claims & pract'ly still some liab.
- Can limit tort liab. through ins.
- Double Tax
- Corp. 4 large busi.
Jxn of Incorp.
- Corp. Stt's Replaced Charger
- Ez Incorp. W/O Consent
- Place of Incorp.: Choice of Law
- DL As Best Jxn Choice
- Conscious policy 2 B jxn of choice 4 revenue of fee &
- Favor mgmt over SH, maj. SH over min. SH, SH over creditor,
& pub. corp. over close
- Try 2 catch also @ reincorp.
- CA 211.5 Limit Close Corp. 2 CA Law if Strong Cnxn
Incorp. Process & Design of Cap. Structure
- Setting Up Corp.
- File Articles of Incorp & Fee w/Sec. of State
- Initial bd. of dir'or & basic stuff
- Can elect 2 B stt. close corp. which relax cert. formalities
- Bylaws of Corp.: Specif. Rules Gov'ing Corp.
- Appt Officers @ 1st Bd of Dir'or Mtng
- Dir'ors Auth. Stock Issue & SH Gives Consid. 4 Stock
- Fund'al Structural Issues
- Address Through
- Articles of Incorp.
- Sep K indep of corp.
- Protection 4 min. SH
- Restrictions on Bd. of dir'ors auth.
- Req. bd. 2 solicit aproval of dec. / indep
- Restrict permissive activity of corp.
- Transferrability of share
- Common Stock
- All Corp. Has This: Unit of Asset Not Corp's Asset
- Articles of Incorp. Address
- Owns Corp.
- Gen'ly not take dividend
- Not sole claimant but undef'ed residual claim so upside potential
- Sr. Sec. 2 Common Stock
- Pref'ed Stock
- Articles of incorp. auth.
- No legal oblgn but if div. payment by bd's discretion, pref'ed
SH gets def'ed share before common
- Not vote gen'ly
- Equity claim holder
- Get liquidated pref. when corp. liquid.
- Creditor / Bank
- Highest priority
- Get principal loan + accrued int. if corp. dslv
- Debt Securities
- Sr. 2 all stock & there's legal oblgn 2 pay annual amt
- Def'ed rate of int. by articles of incorp.
- Mostly larger corp.
Ultra Vires Doc.
- Dying Doc.
- Gen. Incorp. Stt So No Need 2 Specify Activity
- Voidable Act If Corp. Goes Beyond
- Unanimous SH consent can cure
- Three Areas Where Still Alive
- Corp. as partner where possibility of div'ed loyalty
- Corp. as guarantor of 3rd party's debt where CA stt. can rq.
SH 2 approve guarantee if officer / dir'ors debt
- Corp's pwr 2 make gifts
- No real prob. 4 recog'ed charitable causes b/c pub. image
/ pub. policy 2 do so
- More prob. 4 indiv. gifts like gift 2 deceased ee's spouse
- Using Ultra Vires as Planning Opp.
- Can Incl. Restrictive Cl. in Article of Incorp.
- 3rd Party 2 Corp. Can Protect from Restrictive Cl. By
- Make corp. prod. all doc's
- Make corp. prov. own guarantee
- Outside person assures / guarantees, gen'ly corp. atty
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Ms. Haeji Hong
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