?1 Types of business organizations Vary in their specific details from one jurisdiction to another. However the general breakdown of business into sole proprietorships, partnerships and companies is very widely used. Sole proprietorship(not legally)- easily to perform, dissolve and inexpensive. No legal distinct entities. Liability is unlimited. Must have proper capacity and be registered with the appropriate state agency. Disadvantages: limited borrowing, limited capital, problems with holiday and sickness, limited scope for expansion. Partnership(not legally)- business associations formed by two or more persons to run a business for profit. Key document- partnership agreement, set out the duration of the partnership, name, how profits and losses are to be shared. Joint and several liability for all debts of the business, partners are agents and have fiduciary relations with each other, may be general(no formal papers are signed of filled) and limited(written agreement among the parties, formal document is filled with state officials). Limited liability partnership-legal identity separate from it’s members. 2 Corporations Corporation- USA, company- England Corporation- business entity, separate from it’s members and has: limited liability of it’s shareholders, centralized management, continuity of life and free transferability of interests. Features: Legal independence: Corpor is separate from its members Has its own life and existence Has the same rights and obligations as natural person Can lend, borrow money, enter into contracts, sue and be sues, acquire, convey and hold property Continuity of life: Distinctive feature Live its own life even if the member dies .Centralized management Board of directors Huge company – hold by shareholders but managed by the board of directors Closely held corp – shareholder can manage company on their own Free transferability of interests: Open corporations – shareholders can sell, gift, his shares freely Close corp – there must be the consent of other shareholders Limited liability creditors will be liable for debts of the corporation’s creditors Corporations can be: open or closed, public or private, profit or non-profit, domestic or foreign. 3 Articles of incorporation For a corporation to become legal, the state must authorize its creation. So, there always must be a person(s) to pull the capital, certain officers to run the business, and an individual(s) who function as incorporator or promoter. Functions of incorporator: To find invesrors who will buy shares To assemble people(directors) and assets To fulfill legal requirements( to register the company) > to draft and file Articles of Incorporation, bring it to the Secretary of states Closely held- usually in the state where the corp’s principal place of business is located Publicly held- usually Delaware(freedom and liberty) Articles of incorporation provides: the name of corporation – must not be in use/similar to an already existing corporation; must use certain words(ltd, plc) purpose must be stated very widely, such as “to engage in any lawful activities” to avoid any ultra vires activity. (ultra vires – act which is beyond the purposes of the corporation) duration – perpetual(not necessary to write in articles), limited(have to state in writing, after 2 years the company stop existing) capital stock - number of authorized shares(par value, rights of shareholders), name and address of registered agent(receives all legal notices on behalf of corporation) number and names of the initial board of directors, name and address of each incorporator. 4 Bylaws. Duties of directors. Piercing the corporate veil. Internal management of corporation is regulated by bylaws. Bylaws details such matters as: meetings of shareholders voting rights majority necessary to pass resolution issuing shares or bonds directors (appointing, remove) Annual general meeting of shareholders- main body to run a corporation and to take decis