Business Associations (Organizations)

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Business Associations(Organizations)
A group of two or more people (or even one
person) can create a new person or entity
under the law that does business, has rights, has
limits, can create liability etc. The type of
organization greatly determines the extent of
these privileges and duties.

• OBE 118, Fall 2004
• Professor McKinsey

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The Concept of an Entity

• A business organization is often a unique entity,
  separate from its owners.
• The entity has a birth place
• The entity has a place(s) of residence
• Concept of agency critical to many forms of
  business organization

3
Purpose

• What is the purpose of McDonalds?
• Chevron/ Texaco?
• Hornet Foundation?
• UNICEF?
• Why is purpose relevant?

4
Constituents

• Owners
• Managers
• Employees
• Customers
• Partners, contractors, and others
• The Public
• Government

(Shareholders, members, partners, etc.)
(Managers, executives, board members, etc.)
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Business Organizations
Sole Proprietorship
Partnership
Corporation
Hybrids
Limited Liability Company (LLC)
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Sole Proprietorships

• The Original Form of Business

Advantages
Disadvantages
Simple
Unlimited Liability
Single Taxation
Limited Growth
Attracting Capital

• This form of business happens automatically
  when a person does business of his or her own and
  does not have some other type of business org.

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Partnerships

• The Other Common Law Form of Business

Advantages
Disadvantages
Still Simple
Unlimited Liability
Single Taxation
Growth Potential
Attracting Capital
People Resources
The Uniform Partnership Act (UPA) adopted in
most states
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Partnerships- Basic Concepts
Partners in a business are like spouses, they
depend greatly upon each other, must cooperate,
can create liability for each other, and often
end up with irreconcilable differences

• Forming a partnership- no formality required!!!

• Characteristics of partnership no limited
  liability

- but also no double taxation

• Rights and duties of partners lots of default
  stuff if not specified in a partnership agreement

• Managing a partnership

• Ending (Termination) of a partnership

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Corporations
A statutory form of business, heavily regulated
and complex in creation and operation
Advantages
Disadvantages
Limited Liability
Double Taxation
Growth
Complexity
People Resources
Laws Governing Corporations
Securities Laws (Federal and State)
Antitrust Law (Federal and State)
Tax Laws (Federal and State)
Corporate Law (Federal and State)
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Corporations- Basic Concepts

• A statutory immortal being.

• Shareholders/ Directors/ Officers/ Employees

• Exists in one particular state

• Shareholders vote and elect Directors

• Directors are called the Board of Directors and
  must meet regularly, vote to approve or
  disapprove actions and must have meeting minutes

• Officers execute the orders of the Board

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Limited Liability Company (LLC)
A very new creation that merges the basic sought
after benefits of Limited Liability and Single
Taxation with little administrative complexity
Advantages
Disadvantages
Limited Liability
Growth (perhaps)
Single Taxation
Legal Uncertainty
People Resources
Ease of Creation
Flexibility
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LLC- Basic Concepts

• Owners are called Members
• Usually created by filing Articles of
  Organization with state.
• Many states allow single owner LLCs
• Often an operating agreement is created between
  members to govern their relationship, obligations
  and rights.

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Sole Proprietorship
Partnership
LLC