BASIC BUSINESS LAW

05.01 Understand the Types of Ownership“The business of America is business,” said Calvin Coolidge

Essential Questions?

What is the definition of a sole proprietorship. What is the definition of a partnership. What is the definition of a corporation.

005.01 Principal Form of Business Organization-Sole Proprietorship

Characteristics of Sole Proprietorship Requirements for Organizing - none Legal Status – owner is the business and it is

not a separate entity. Liability - unlimited Management – owner makes the decisions

005.01 Principal Form of Business Organization-Sole Proprietorship, continued

Characteristics of Sole Proprietorship Dissolution – owner decides and the business

terminates upon the owner’s death Ease of formation – just do it! Duration – death or disinterest of owner Ability to attract professional managers - poor

 

005.01 Sole Proprietorship

I am conducted out of my home.

I am conducted in my basement.

I am conducted in my car. I need three or four

employees. I must have a computer.

I have to purchase inventory with cash.

I don’t need a charter. I don’t need a license. I must have a permit to

collect sales tax.

Is the statement (T)rue or (F)alse DIRECTIONS: Please label your paper and write the statements below. If the answer is “false,” what word or words would make it ‘true?”

005.01 Sole Proprietorship

True-I can set up in my home. True-My basement is a good

place. True-My car is used for

selling products and services. False-I don’t have to (can)

hire employees. False-I don’t have (need) to

buy a computer.

False-I can (cannot) purchase goods/services on credit.

True-I don’t need a charter. False-I (don’t) need to obtain

a local business license. False-I may (not) need a

permit to collect sales tax in my state.

Answer Key to Activity

005.01 Principal Form of Business Organization-Partnership

Requirements for Organizing – agreement of the parties.

Legal Status – not a separate entity in many states

Liability – unlimited liability (except limited partnership

Management – partners have equal say in management unless otherwise specified in agreement.

005.01 Principal Form of Business Organization-Partnership, continued

Dissolution – terminates by agreement of partners or

upon a partner’s death, withdrawal, bankruptcy. Ease of Formation – moderately difficult Duration – death, bankruptcy, or withdrawal of

any partner Ability to attract professional managers –

moderate.

005.01 Types of Partners

Kinds of Partner

Participation in the

Business

Relationship to the Public

Degree of Liability

General Active Known Unlimited

Secret Active Unknown Unlimited

Silent Not active Known Unlimited

Dormant Not active Unknown Unlimited

Limited Not active Known Limited

005.01 Partnership Agreement

There are more than 42 inclusions for a partnership Agreement. Make certain that it includes the following information:

Parties to the agreement Specific nature, scope, and limits of the business Planned duration of the business Amount of each partner’s original investment and

procedures for future investments Provisions regarding salaries, withdrawal of funds, and the

division of profits; and Terms under which a partner may withdraw from the

partnership.

Articles of Partnership are not always legally required but is desirable.

005.01 Legal Issues

1. Do business people have to check zoning laws before opening a business?

2. Is it always necessary to sign papers for a partnership to exist.

3. Can a secret partner participate in the management of the partnership?

4. Does tenancy in partnership mean partners are co-owners of partnership property?

5. Does joint liability extend to all partners?6. How are the assets of a partnership divided when

partnership dissolve?

Student Activity

005.01 Legal Issues-Answer Key

1. Yes, business people must check zoning laws before opening a business.

2. No, an agreement is desirable but is not a requirement.3. Yes, they are general partners. They have active roles in

management, but their connections are kept secret from the public.

4. Yes, partners are co-owners of all partnership property. They can use partnership property for partnership business only unless they receive permission for personal use from the partners.

5. Yes, joint liability means that, in the event of a lawsuit, all the partners must be sued together.

6. The firm’s assets are distributed in the following order: (a) creditors other than partners, (b) loans made by partners to the firm, (c) the original money paid into the partnership, and (d) surplus owed to the partners.

005.01 I.Q. Checkup!Sole Proprietorship/Partnership

1. In general, sole proprietors must have what type of liability for the debts of the business and for the negligent acts of all employees

2. How many formal requirements are there in in setting up a sole proprietorship. Is a partnership agreement is express or implied? Explain . Can Partnership property be used for personal business? Justify your answer.

3. Is each partner’s voice in management proportional to his or her investment.

4. Can a partner be held financially responsible for the wrongdoing of the other partners?

5. Who gets paid first when a partnership dissolves?

6. What is limited partnership?

Directions: Provide the correct answer for the questions below.

005.01 I.Q. Checkup!Sole Proprietorship/Partnership-ANSWER KEY

1. In general, sole proprietors have unlimited liability for the debts of the business and for the negligent acts of all employees.

2. There are a few formal requirements in setting up a sole proprietorship. 3. Although a partnership agreement is usually express, it can be implied. 4. Partnership property can be used for partnership business without permission

from the other partners. 5. Unless the partnership agreement says otherwise, each partner’s voice in

management is equal to his or her investment. 6. A partner can be held financially responsible for the wrongdoing of the other

partners. 7. The creditors are the first people to get paid when a partnership dissolves. 8. Persons who invest in a business, share in the profits, have little voice in

management, and have restricted liability are involved in a limited partnership.

Directions: Mark true statements TRUE. If the statement is false, change the underlined word or phrase to make the state true.

005.01 Principal Form of Business Organization - Corporation

Requirements for Organizing – state charter, organizational fees Legal Status – separate entity from owners Liability – limited liability of shareholders Management – directors (elected by shareholders) set

policy and appoint officers Dissolution – ends when charter terminated Ease of Formation – assistance of legal counsel required Duration – can be perpetual Ability to attract professional managers - excellent

005.01 Types of Corporations

Domestic-chartered in a specific state

Foreign-chartered in one state but doing business in another state

Alien-chartered in another nation but doing business in a state

005.01 Classification of Corporations

Public-established for a governmental purpose.

Private-established by individuals for business or charitable purposes.

005.01 Eight Elements of a Corporation

1. Name of corporation

2. Duration

3. Purpose for which the corporation is organized

4. Number and kinds of shares of capital stock to be authorized for issuance

5. Location of the principal office and name of its agent

6. Number or names and addresses of initial directors

7. Name and addresses of each incorporator

8. Any other provision consistent with the law

005.02 Types of Intellectual Property

Intellectual

Property

What is

Protected

Registration

Required?

Duration Examples

Patent Ideas, designs or

processes that are novel, nonobvious, and useful

Yes 20 years Industrial

Chemical

Manufacturing

Processes

Prescription

drugs

Copyright Fixed Expressions of creativity

No, but recommended

50 years

(aka 70 years past the death of the creator)

Novels, Poems, Songs, Photographs

Trademark Distinctive mark, word, or symbol associated with a particular product

No,

but recommended

Indefinite Logos, Emblems, Catch phrases

005.02 Useful Websites for Patents, Copyrights, and Trademarks

 

http://www.uspto.gov/main/patents.htm

http://www.uspto.gov/web/offices/pac/doc/general/whatis.htm (Compare and contrast patents, copyrights, and trademarks)

http://www.thetrademarkcompany.com/