Legal Environment of Business

August Monday 25
Introduction to Law
Business: Exchange of resources, goods, or services
.. NEED TO ASK NOTES FROM FRIDAY

Sources of Law

Constitution
Statutes
From legislation
Codes
Judicial legislation (opinions)
Reporters
Common law
Interpretation
Regulations
From administrative agencies
CFR

Separation of Powers

Helps to limit the power of government

Constitution enumerates powers for each branch
Legislative: makes laws (statutes)
Executive: enforces laws (implementation)
Judicial: interprets/applies laws (adjudication)
Corresponding checks and balances

Judicial Decisions (wont ask specific questions)

Judicial reviews
Power to declare laws and executive actions unconstitutional
Marbury v. Madison (1803)
Stare decisis
Precedents
Binding
Persuasive
Res judicata

Federalism

National Government
Article VI Supremacy Clause
Preemption
Article 1 Commerce Clause (today it provides authorities from congress
to regulate business)
50 State governments
Article IV Full faith and credit clause:
(Guaranties every state is a union of republican government- same basic
form that federal government has)
Tenth Amendment Police Powers

Conflict of Laws

Federalism
50 different state systems of law
Multi-state transactions
What law governments?
Torts Where did the wrong occur? The injury?
Contracts Where was it made? To be performed?
Forum Selection Clause: Clause in a contract

Law v. Ethics

Behavior may be legal or illegal

Determines punishments/remedies
Behavior may be right or wrong/good or bad
Determines how you ought to act
Often more restrictive than law

Things to think about

What is your worldview?

Spheres of Sovereignty
GOD State church family individual

August 27, 2014

CHAPTER 2

American Court System (State and Federal Courts)

The American Legal System

Remember, the American Legal System is a dual (federal) system

Judiciary
Federal (national) courts
State Courts
Actually 50 different state systems

American Courts

Both federal and state courts systems (generally) have three tiers:
Trial Courts - litigation begins, court (often with a jury) hear and decide
facts in dispute
Intermediate appellate courts - courts of error (or review) decide
questions of law, not fact
High or Supreme courts - final appeals.

Jurisdiction

Jurisdiction is the power or authority of a court to hear and decide a case or

controversy.
Original jurisdiction
Trial courts
Appellate jurisdiction
Supreme and intermediate appeals courts
General jurisdiction Courts, State Circuit and Chancery Courts.
Federal District
Limited jurisdiction
Municipal jurisdiction

Federal Jurisdiction

Federal Question jurisdiction

Arising under the constitution, treaties and laws of the united states
United Stated is a party
Diversity jurisdiction
Parties are citizens of different states or countries
$75,000 in controversy
Removal

@Book page around 30-33, figure 10.1

Also figure with U.S Supreme Court

Juries

Jury a group of ordinary citizens selected and sworn by a court to render a

decision.
- Grand Jury
Indictments if probable cause for felonies
16 to 24 members
- Petit Jury
Verdicts in trials
12 members (rarely as few as 6)

Jury Selection

Qualifications set by statute

- Citizenship
- Residency
Voire Dire
Challenges
- Cause
- Peremptory

Judges

Federal judges
- Appointed by President, confirmed by Senate
State judges
- Most states elect
- Some states appoint

Law v. Equity

Law
- Claims for money damages
- Judgments
Equity
- Claims for other relief (money is inadequate)
Property, domestic relations
- Decrees
August Friday 29
Litigation (Mechanics of a Lawsuit)

Parties

Trial Court
- Civil
o Plaintiff v. Defendant
- Criminal
o State v. Defendant
Appellate Court
- Appellant v. Appellee

Standing to sue (not important)

Doctrine limits the role of courts in society

Plaintiff must allege a case or controversy between himself or herself and the
defendant if the court is to hear the case.
Plaintiff must have a personal stake in the issue
No way dependent on the merits of the plaintiffs contention that particular
conduct is legal

Jurisdiction

Subject Matter Jurisdiction

Personal Jurisdiction
- Summons
- Long arms statutes
o Minimum contact
Venue (actual place)

Pleadings

Documents stating the (alleged) facts and legal claims of the parties.
- Set the parameters of the litigation
- Identifies the parties, basics of the claims, relief sought
Complaint
Answer
Counterclaim
Defaults

Discovery

Allows both sides to determine what facts can be proven

- Interrogatories: written questions asked to the other sides
- Requests for Production of Documents
- Requests for Admissions
- Depositions
September 3, 2014

Premarital Practice

Dispositive Motions
- Dismiss
- Judgment on the Pleading
- Summary Judgment
Pretrial Conference
- Stipulations
- Evidentiary Questions
- Settlement

Trial

Jury Selection
Opening Arguments

Evidence
- Testimony of Witnesses (fact witnesses and expert witnesses)
o Direct Cross Redirect
- Documents
Jury Instructions
Closing Arguments
Verdict/Judgment

Remedies

What are you seeking when you file a lawsuit

Criminal prosecution
- Punishment
Civil suit
- Money damages
o Compensatory
o Punitive
- Equitable Relief (doesnt involve money. Involve someone doing
something)

Post-Trial

Post-Trial Motions
- New Trial
- J.N.O.V
Appeal
- Notice
- Transcripts
- Brief

TEST chap 1 to 4, 7

September 5, 2014
Alternate Dispute Resolution
(Negotiation, meditation and arbitration)
ADR

Alternate Dispute Resolution (ADR) is any means used by the parties to avoid
litigation.
- Negotiated settlements
- Mediation
- Arbitration

+ Matthew chap 15 verses 15-17 (Not sure)

Advantages of ADR

Preserve Business Relationships

- Good Will
Avoid Cost of Litigation
Unpredictability of Jury Verdicts
Reduce Stress
Save Time

Negotiation

First step in any dispute

- Demand
Settlement Agreements
- Release of liability

Mediation

Neutral third party attempts to help disputants reach a fair settlement

- Court mandated in some cases
- Informal
- Non-binding
Magnuson-Moss Warranty Act (JUST KNOW THE NAME)
- If a business adopts an informal dispute resolution system to handle
compaints about product warranties, then a

Arbitration

Dispute submitted to a third party who has authority to impose a resolution.

- Resolution are generally binding
- More formal than mediation
- Often mandated by contract
Uniform Arbitration Act
- Written agreement
- Submission (specifies the dispute)
Award (instead of a judgment)
- Up to the end, you can withdraw your consent
- May be enforced in court (if necessary)
Appealing for businesses and consumers
- Avoid bad publicity
- Utilize special knowledge of arbitrator
- Not the same time or costs compared to court
- Less complicated, more flexible
- No motion practice
- No discovery

CHAPTER SUMMARIES AND REVIEW QUESTIONS! FOR TEST!

6,7,8, 9 Chapter 4 in new edition.

September 8, 2014

Law for the Entrepreneur

Small Business Attorneys

Selecting an attorney
- Martindable-Hubbell ratings
- Fee arrangements
o Hourly rates (most common one)
o Contingency fees (we dont get paid until you get paid)
o Product/service rates
Attorney-Client privilege: Everything is confidential.

Attorney and Business Planning

Forms of Business Organization

- Liability considerations
- Tax considerations
- Management considerations
- Ownership
Contracts
- Employment
o Confidentiality
o Non-competition
- Intellectual property protections (licenses)
- Sales
- Services
Risk Assessment
- Insurance
- Professional liability
- Product liability
- Premises liability

FOR TEST 2
September, 12, 2014
Torts
Recovery for Civil Wrongs

Tort
-

A wrongful act (or omission) committed by one person against the

another (or his property) for which damages are recoverable
- The breach of a legal duty imposed by (common) law (no contact)
- A private wrong
Types of Tort Liability

Intentional: Its wrong to purposefully injure another or his property

Negligence: It wrong to fail to do what a reasonable person would do
Strict Liability: Its wrong to create certainty inherently dangerous
situations
Tort Damages
- Nominal damages
- Compensatory damages
o Economic loss medical expenses, lost wages, property
damage
o Non-economic loss pain & suffering, loss of enjoyment, loss of
companionship
- Punitive (exemplary) damages

Persons Liable for Torts

- Individual usually responsible for your own acts
o Minors? Parents of minors?
- Joint and Several
- Respondeat Superior master/principal liability
Intentional Torts
- Interference with Personal freedom
o Assault: making you fear for your safety
o Battery
o False Imprisonment
o Infliction of Emotional Distress
September, 15, 2014

Intentional Torts
Interference with Personal Freedom
- Assault
- Battery
- False Imprisonment
- Infliction of Emotional Distress
Interference with property rights
- Trespass
- Conversion
- Nuisance
Interference with Economic Relations
- Disparagement
- Interference with contractual Relations
- Interference with Prospective Advantage
- Misappropriation/Infringement
Wrongful Communications
- Defamation
o Slander
o Libel

o Exceptions
Invasion of Privacy
Fraud

September, 17, 2014

Torts
Recovery for Civil Wrongs

Negligence
- Elements
o Duty
o Breach of Duty
o Causation
o Damage
Duty
- Due Care
o Reasonable-person test
- Degrees of Negligence
- Malpractice
Special doctrines of Negligence
- Res lpsa Loquitur
- Negligence per se

September, 19, 2014

NEED NOTES!!

September, 22, 2014

PROPERTY 1
Personal Property, Intellectual Property and Wills
Property and Capitalism

Property rights are fundamental to capitalism

A primary purpose of government is to protect rights
Property rights include possession, use and transfer

Real v. Personal Property

Real property

Land and things are fixed to land

o Property rights go up and down
Oil and mineral rights
- Fixtures personal property, which is fixed to, and therefore now part
of, real state.
Personal property
- Tangible: something you can touch and feel
- Intangible: has value but not physical
o Name and goodwill
o Intellectual property

Transfers of Personal Property

By Sale
By Gift
- During life
Upon death
Special Cases:
- Abandoned
- Lost
- Mislaid

Documents of Title

Real Property formal, strict requirements for deeds.

Personal property informal
- Bill of Sale
- Receipts
- Car Titles

September, 24, 2014

Bailments

Temporary transfer of possession

- Storage, repair, etc.
Bailee has responsibility for protection and care of the Bailors property.
Special care
- Innkeepers
- Common carries
Leasing Personal Property

Leading does not transfer ownership, it grants the lessee the right to possess
and use in exchange for a free (rent)
Governed by Article 2A of the Uniform Commercial Code
Businesses tend to lease equipment that is constantly being upgraded
- Cars, computers, etc.

Intellectual Property

Governed (mostly) by federal law

4 types
- Copyrights
- Patents
- Trademarks
- Trade Secrets
Copyrights composed works: literary, musical, theatrical, artistic.
- Protected upon creation
Patents inventions and processes
- Protects the right to manufacture and profit from that particular
invention
- Has to be applied for with the U.S Patent Office
Trademarks names, logos to identify business or products
Trade secrets any unique business info
Infringement

Injunctions and/or damages for misuse of IP

- Injunction is an order from a court to cease doing something.
- Statutory damages available of copyright infringement
Fair use defense against some uses of IP
September, 26, 2014
Wills and Estates

Will is a document disposing of your property upon death.

Testator (person making the will) must have testamentary capacity
If you die without a will, property passes by intestate succession
- Governed by state law

Probating !!! in the test

Property II
Real Property

Land owning real estate

- Fee simple absolute
o Complete ownership all rights, no conditions
- Life estate
- Remainder interest
- Reversion

Acquiring Title to Real Estate

Title by Occupancy (original entry)

- Taken from the sovereign (grants)
Transfer by Deed
Title by Adverse Possession
- Actual, exclusive, continuous, hostile, open, notorious
- Tennessee is 7 years under color of title, 20 years without
- Suit to quiet title
Title by Will
Grantor, grantee

Covenants of Title

Promise/guarantee that
- At the time of making the deed, the grantor has fee simple title and
the right and power to convey it
- The property is free from all encumbrances except those noted in the
deed
- The grantee and his successors will have the quiet and peaceful
enjoyment of the property
- The grantor will deed the title of the grantee if anyone else should
claim the property

September, 29, 2014

Types of Deed

Warranty Deed normal, contains all 4 covenants

- Grant Deed only a few states, fewer protections
- Bargain & Sale Deed covenants only a right to convey
Quitclaim Deed transfers the grantors interests, whatever they may be.

Multiple Owners
Applies to personal and real property

Tenancy in common co-owners

Joint Tenancy right of survivorship
Tenants by the Entirety married/real property only

Encumbrances
Any burden on title to land. Including liens and mortgages

Easements
- Right to use or benefit from part of property
Licenses

Permission to make use of land, privilege.

Leases
Transfer of possession from lessor (landlord) to lessee (tenant) in exchange for rent.
It may be oral or written, express or implied.

Classification by term
- Stated period
- Period to period
- At will
- At sufferance (hold over)
Governed largely by the lease (document)
- Should specify term and rent
Lessee has exclusive right of possession
- Right to sublease?
- Eviction?
- Improvement?

October, 1, 2014

Mortgages
Security interest in real property (promissory note)
- Deed of trust
- Requirements similar to deeds
Cancelled on payment of debt
- Cloud of title
Foreclosure
Priority of liens

Restrictions on Ownership

Governmental/Public
- Zoning Regulations
- Eminent Domain
- Taxation
Private
- Restrictive Covenants

Matching definitions! To know for the test

Definitions in the margins
Problems like the ones on the homework. From Property sections!

Property questions, different types of gifts, principles ownerships, interest, trust,

licences, tenecy, wills,
Personal and real property difference
Leases

FOR TEST 3
October, 6, 2014
Introduction to Contracts
Basics Concepts and Terms

Contract: a promise (or promises) that ae enforceable in court.

Elements of a contract:
- Mutual assent
- Consideration
- Legal capacity
- Legal subject matter
Sources of contract law

Clasification of Contracts

Billateral
Unilateral

Expressed
Implied- in-fact

Implied in Law (quasi-contracts)

- Quantum meruit

Terms

Void
Voidable

Executed
Executory Contracts

October, 8, 2014
Remedies: Breach of Contract

Legal remedies

Nominal damages
Compensatory damages
o Makes the party whole benefit of the bargain
o Duty to mitigate
- Consequential damages
- Punitive damages
- Liquidated damages
Equitable relief
- Specific performance
- Recession
- Restitution
CHAPTER 14
The agreements
Offer and Acceptance

Mutual Assent
Consideration
Legal Capacity
Legal Subject Matter
Offer: a conditional promise by the offeror
- A statement of being prepared to be bound to a contractual position.
Acceptance: response by the offeree
- Performance of an act
- Forbearance (refrain from acting)
- Promise to act or forbear
October, 10, 2014

Requirements of a Valid Offer

Present intent to contract

- Evaluate the language used
Definiteness
- State material terms
o Gap filling
Proper party
Communication

Duration of the Offer

Power to accept until terminated

Methods of termination of offer:
- Lapse of time
- Operation of law
- Rejection by offeree
- Revocation by offeror

Irrevocable Offers

Option contracts
- You give some value to the offeror so that they will leave the offer open
for a period of time
Firm offers legislated (UCC)
- The firm offer by a merchant is an option without consideration or
value.
Conduct by offeree
- Basically, if somebody starts the work, you cant revoke.

Acceptance

Nature of an acceptance
Bilateral contract acceptance
Counteroffers
- Traditional Rule: Mirror Image
- UCC provision
Silence
Communication of acceptance
Unilateral contract acceptance
October, 13, 2014

NEW CHAPTER
Consideration

Valid contracts require consideration

- Each party receives a legal benefit and incurs a legal detriment
o Receive something you had no prior legal right to receive or
expect.
- The price paid for a promise

Elements of Bargain

Bargain requires causation between the legal detriment and the legal benefit.
Elements:
- The promise must suffer legal detriment
- The promise must induce the legal detriment
- The legal detriment must induce the making of the promise
Adequacy

Mutuality of Consideration

Applies to bilateral contracts.

Principle that requires both parties to a contract to be bound to one another.
- If not, neither is bound.
Illusory promises no real detriment
Preexisting duty already obligated to act

False forbearance no claim

Past consideration actions already taken.

October, 15, 2014

NEED NOTES!!

October, 17, 2014

Genuine Assent

Mistake
- State of mind inconsistent with reality
- Bilateral
- Unilateral
Misrepresentation
- Fraud
- Negligent misrepresentation
Undue influence
Duress

October, 20, 2014

Illegality and Public Policy
Status of an illegal contract

Illegality
- Prohibited by statute
- Contrary to public policy
Courts will not enforce an illegal contract
- Parties remain as they are
- No damages
- Exceptions?

Agreements in Violation of Statute

License requirements
Usury
Agreements in Restraint of Trade
- Sherman Anti-Trust Act
o Price fixing
o Monopolies

Agreements in Violation of Public Policy

Agreements Not to Compete

If unreasonable
o Time
o Territory
Unconscionability
- Oppressive, overreaching, shocking to the conscience
- Disclaiming liability
October, 22, 2014
Form and interpretation

Statute of Frauds

Designed to prevent fraud by requiring a signed writing for certain important

contracts
- Normally raise as a defense
- within the statute
- Depends on state law/UCC
Sales of land
Guaranty/surety contracts
Cant be performed within year

Parol Evidence Rule

Applies when a court is seeking to interpret a contract

Presumption is that a written contract represents the entire agreements of
the parties
Cant submit evidence of prior negotiations, oral agreements or
understandings that might contradict or vary the written terms.

Construction and Interpretation of Contracts

Construe - determine a contracts legal effect

Interpret determine the intentions of the contracting parties
Language which is clear and unambiguous must be followed
Language which is ambiguous or obscure will be given a reasonable
interpretation
- Judged objectively
- Plain, ordinary, meaning
- Construed against the drafting party.
October, 24, 2014

Conditions
Condition: A clause, express or implied, that has the effect of investing or
divesting legal rights and duties of the parties.
Conditions Precedent
Conditions Concurrent
Conditions Subsequent
Express Conditions

- Personal satisfaction (objective or subjective)

Constructive Conditions
Performance

Tender of performance
Substantial performance
Anticipatory repudiation

Excuses for Nonperformance

Hindrance
Prevention
Noncooperation
Waiver
Impossibility
Commercial Impracticability
October 27, 2014

Discharge

Full performance
- Payment
Accord and Satisfactifor
Release
Contract rights of Third Parties

Third Party Contracts

Donee-beneficiaries
Creditor-beneficiaries

Intended beneficiaries
Incidental beneficiaries

Assignments

A transfer of the rights under the contract

Contracts are generally freely assignable
- No formal requirements
- Consent of other party not required
- Assignment doesnt necessarily relieve of duties
- Notice should be given
Novation if all parties agree to assign, a new contract may be formed.

Test Chapter 13 to 20

Terms, defining things, different between. If is not on the notes, not on the test.

FOR LAST TEST FROM NOW ON

October, 31, 2014

Basic Principles of Agency

Common Law: Agency

Law that applies when one person is acting on behalf of or control of another/
- Person in control is the principal
- Person acting on behalf is the agent
Most agency law is based on common law
- Agency law is important to principals, agents and third parties.

Types of Principals and Agents

Principals
- Disclosed
- Undisclosed
- Partially disclosed
Agents
- Brokers/Factors
- General Agents
- Special Agents
Independent Contractor
- Degree of control

Agency Relationships

Capacity
Formal Requirements
- Consent
- Written or Oral

- Express or Implied
Power of Attorney
- Attorney in fact

Duties of Agents

Fiduciary Relationship
Duty of loyalty
Duty to protect confidential information
Duty of obedience
Duty to inform
Duty of care
Duty to account
November, 3, 2014

Duties of Principals

Duty to compensate
Duty to reimburse
Duty to indemnify

Termination

By operation of law
- Death
- Insanity
- Bankruptcy
By parties actions
- Mutual agreement
- Unilateral action
Agency Liability Concepts
Liability in Tort and Contracts

Contract Liability
Actual Authority
- Express
- Implied/Incidental
Apparent Authority
- Also called Ostensible Authority
- Depends on actions/words of the principal
- Form of Estoppel
Ratification

November 5, 2014

Contract Liability of Principals

Disclosed Principal to Agent

Disclosed Principal to Third Party
Undisclosed Principal to Agent
Undisclosed Principal to Third Party

Tort Liability
Agents, employees and independent contractors are always liable for their
own torts.
Respondeat Superior principal/employer is liable for torts of
agents/employees acting in the course and scope of employment
- Called vicarious liability
- Principals and agents are jointly and severally liable for
agent/employee torts.
- Frolics, detours.
Independent Contractors

Independence rights to direct the manner/details of the work

- Jury question
- Contract does not determine
- Principals not liable for torts of independent contractors
o Professionals
o Inherently dangerous work
November 7, 2014
Employment and Labor Law

Employment

Employment At-Will
- Freedom of contract
- Market controls
- Reciprocity
o No set duration
Legal doctrine allows employer to terminate an employee for any reason (or
no reason) and allows the employee to quit at any time for any reason
- Also allows employers to change terms

Wrongful Discharge

Exceptions to employment at-will

- Contract (express agreement)
o Duration, conditions, handbook?
- Public policy
o Discrimination (race, gender)
o Exercise of legal rights

Whistleblower statutes
Workers Compensation claim
Harassment complaints
Good Cause

Conditions of Employment

Pay
-

Fair Labor Standards Act (1938)

o Applies to almost all employers
o Limits use of child labor
o Sets minimum wages & maximum hours
Exempt employees (white collar).

November 11, 2014

Benefits
- Employee Retirement Income Security Act ERISA (1974)
o Governs pensions, health, disability and other benefit plans
- COBRA (1985)
o Requires extension of health coverage if job eliminated
- Family Medical Leave Act FMLA (1993)
o Requires employee leave for medical emergencies
- Unemployment Insurance
o SSA (1935) state programs funded by federal payroll tax
Worker Safety
- Occupational Safety and Health Act (1970)
o General duty to keep workplace reasonably safe
o Comply with OSHA regulations
- Workers Compensation
o Each state has its own injured at work
o Benefits for employees injured at work
Arose out of employment/course and scope
o No fault insurance/exclusively remedy
Privacy
- Drug testing
- Genetic information
- Medical information (HIPPA)
- Monitoring

Labor Law

National Labor Relations Act (1935) Wagner Act

- Protects rights to organize unions
- Protects collective bargaining rights
- Protects the right to strike

Labor
-

Protects unfair labor practices

NLRB
Management Relations Act (1947)
Limits certain practices by unions
Allows states to pass right to work laws
o Illegal to mandate union membership/due payments

Collective Bargaining
Representation Election
Exclusive bargaining representative
Duty to bargain in good faith
Job actions
Strike
Lockout

November 12, 2014

Anti-Discrimination Laws

Civil Rights Acts of 1866

- Section 1981 prohibits employment discrimination based on race or
color.
Equal Pay Act of 1963
Civil Rights Act of 1964
- Title VII prohibits employment discrimination based on race, color,
religion, national origin or gender.
Age Discrimination in Employment Act 1967
Pregnancy Discrimination Act of 1978
Americans with Disabilities Act of 1990
Genetic Information Nondiscrimination Act of 2008

Title VII

Applies to employers with 15+ employees engaged in interstate commerce

Equal Employment Opportunity Commission
- Investigation (upon filing of a charge)
- Settlement or Right to Sue letter
Disparate Treatment
Disparate Impact
Causation
Remedies
- Equitable relief, injunctions, damages

Americans with Disabilities Act

Disability broadly defined (examples)

- A physical or mental impairment that substantially limits one or more
life activities
- A record of such an impairment (cured)
- Regarded as having such impairment (rumor)
Reasonable accommodations
- Undue hardship

Discrimination

Adverse Actions
- Hiring
- Promotion
- Discharge
Defenses
- Seniority
- Merit
- Bona fide occupational qualification
Constructive Discharge
Retaliation

Harassment
Sexual Harassment
- Unwelcome advances, requests for favors, inappropriate jokes,
comments, etc.
Quid pro quo
Hostile environment
- The workplace is permeated with unwelcome sexual conduct that
creates an offensive work environment.
DEFINITIONS FOR TEST

Final test from here on

11/17/2014
Types of Business Organizations

Proprietorships
General Partnerships
Limited Partnerships
Limited Liability Companies
Corporations
- Professional Corporations
- Subchapter S Corporations

Closely Held Corporations

Proprietorships

Sole proprietorship are the simplest form of business organizations

Sole proprietorship has a single owner
- 100% control
- 100% liability for debt, torts, contracts, taxes, etc.
- Business can be any size and have any number of employees.

General Partnerships

Business organization involving two or more owners who agree to operate a

business together.
- Partners share control and ownership
- Partners share the profits and losses
o May be specified in Partnership Agreements
- Partners share liability

Advantages of Partnerships

Easily formed by individuals

- Contractual, simple
- No state involvement
- Minimal costs involved in formation
Partnerships are not taxable entities
May operate in multiple jurisdictions without state recognition
Subject to less state regulation/supervision (than corporations)

Disadvantages of Partnerships
Limits the number of owners/investors
Each new (or departed) partner dissolves reforms the partnership
Partner liability is unlimited (contract ad tort)
May be taxed on income not received (reinvested)
Joint Ventures

Similar to partnerships
- Share profits/losses
Usually of limited duration or for a specific transaction
- Not an ongoing business concern
No separate legal status

Limited Partnership

Entity
-

composed of both general and limited partners

Creature of statute (hybrid entity)
Always involves an agreement
General Partners operate the business and have unlimited liability for
debts

Limited Partners do not exercise control; they make a limited capital

contribution and share profits & losses (like a corporate shareholder)

Limited Liability Company

Newest option; another hybrid
- Great for small businesses
- Limited liability
o Unless individually guaranteed
- Easy formation and operation
- Tax conduit
Corporations

Artificial entity created by State formed by multiple owners (shareholders)

which has the power to own property, conduct business and incur liability for
itself.
- State issues a charter
- Tennessee Code 48-11-101 et seq.
- Treated like a legal person, separate from its owners
- Taxable entity

Advantages of Corporations
Able to have more investors/raise capital
Favorable tax provisions
Control vested in small group (board/officers)
Investors have limited liability
Perpetual existence
Shareholders may also be employees
- Tax advantages, workers comp

11/19/14

Disadvantages of Corporations

Formal, legal requirements from State

- Added cost of formation and operation
Additional licensing/fees may be owed
Double taxation (income and dividends taxed)
Must qualify in each state where business operates
Subject to more regulation (securities, etc.)

Corporate Taxation

Income Taxes

C corporations are double taxed

o Losses are not deductible by shareholders
- S corporations pass thru taxes (like partnerships)
Deductions
- Can deduct health insurance premiums/cost
- Retained earnings not taxed to shareholders
- Allowed deferred compensation plans
Partnerships

Formation

Elements
- 2 or more parties
- Common interest in conducting business
- Understanding to share profits and losses
Ideally, the partnership is formed upon the execution of a partnership
agreement
Express oral or written
Implied by the conduct of the parties
By estoppel like apparent authority

Partnership Agreement

Name
Parties
Purpose
Duration
Division of profits and losses
Advances (draws)
Method of accounting
Liability on death or withdrawal
Procedures for dissolution

Rights of Partners

Equal right to participate in management

Compensated for services/expenses
Interest
Information/inspection
Accounting
Interest in property

November 21, 2014

NEED NOTES!

December 1, 2014
Limited Liability Partnership

TCS 61-1-1001
Register with TN Secretary of State
Mostly for law firms, accountants, etc.

Limited Liability Companies

Key features
- Limited liability
- Pass through income tax treatment
Creature of state law
- TCA 48-201-101
- File Article of Organization with the Secretary of State
Differences with corporations
- Name must include LLC
- Members instead of shareholders
- Operating agreement instead of bylaws
Must choose 1 of 2 methods of management
- Member managed (like a partnership)
- Manager managed (like a corporation)
Corporations

Incorporation

Process by which a person or persons create a legal entity called a

corporation
- Corporation is considered a separate person for most legal purpose
Governed by state law
Types
- For profit
- Not for profit

Obtaining a Charter

Charter is issued by the secretary of State after Articles are filed.

Articles of Incorporations is the basic governing document of the corporation
- Name
o Must include incorporated, corporation or company in the name
(or abbreviation)
TCA 48-14-101
- Registered agent and office
- Stock structure

December, 3, 2014
Organization

Organizational meeting
- Elect directors
- Adopt bylaws
o Internal rules governing corporation
- Authorize sale of stock

Stock

Articles of Incorporation authorizes a set of number of shares of stock

- Common stock equity, vote, dividends
- Preferred stock propriety on dividends or assets
Par value: Value the corporation set for the stock
Dividends:
Securities law: selling stocks and bonds.

Stock: Ownership
Bond: Borrowing debt.
Treasury stock: Corporation buy shares.
Corporate Governance

Shareholders
- Own corporation
- Annual meetings
- Dividends
- Elect directors
- Proxies: power to vote for another shareholders
Directors 3 minimum often required
- Set policy
- Elect officers
Officers president and secretary
- Run the corporation

Corporate Powers

Powers may be listed in the Articles

- Otherwise provided by statute
- TCA 48-13-102
Ultra Vires acts acts beyond the power/authority of the corporation
Limited liability
- Piercing the corporate veil

Dissolution
Voluntary

Requires the action of the shareholders

o If initiated by the BoD, requires 2/3 vote of s/h
- Payment of creditors, then distribution to s/h
Involuntary
- By state, for failure to comply with the law
o Annual reports, franchise taxes, registered agent
- Equity proceeding by shareholders or creditors
Mergers and Acquisitions (M & A)

Consolidation two corporations join into a new corporation

Merger one corporation absorbs another, the second is dissolved
- Both require shareholder approval
- Require filings with the state
- Assumes debts of old corporation(s)
Antitrust Laws

TEST.
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Terminology
Discussion Questions. > given facts, what is the best business
organization for that situation (it should be a corporation).
Adv and disv of Business Organizations