Memrise is a free online learning tool uses flashcards augmented with spaced repetition to boost the speed and ease of learning. I’m in the process of creating a Memrise course to supplement BUS 263 and help you to learn the legal vocabulary that is such an important part of this class. The course is under construction, and at present I have completed only the vocabulary for the first chapter, but I’ll be adding to it as the semester continues. Give it a try; I hope you’ll find it helpful:
Last week we looked at sole proprietorships and partnerships, two forms of business ownership that share the advantages of easy formation and management flexibility, but which also share the disadvantages of a low ability to raise capital and unlimited personal liability. This week we turn to corporations and LLCs, which provide limited liability for business owners and make it easier to raise capital.
Corporations are a form of business ownership that allow for limited liability of the owners, known as shareholders. Corporations have some very significant advantages over sole proprietorships and partnerships. They have a perpetual duration, so that they can go on for generations, and they’re easy to transfer, so it’s simple to sell the business to a new owner. They also make it easy to raise a great deal of capital because shareholders aren’t liable for the debts of the business. Need more capital? Sell more shares. The biggest advantage of a corporation is limited liability. The owners of a corporation have some risk if the business fails—they can lose what they’ve invested—but their risk is limited. They can’t lose any more than they’ve invested and none of their personal assets are at risk. Corporations have the disadvantage of increased complexity, expense of formation, and regulation. To form a corporation, a business owner will usually hire an attorney to draft articles of incorporation to be filed with the secretary of state. Corporations also have a more complicated structure—shareholders are the owners of the corporation, but they don’t have direct control of the business. Instead, they elect a board of directors who hire corporate officers, and the officers, who are employees of the corporation, manage the company. To make sure that shareholders retain some control of their investment, a corporation is required to have a shareholders’ meeting once each year. The shareholders get a financial report and elect directors. If they don’t like the way the company is being run, they can elect a new board who will then hire new officers. That’s fine for a big corporation like Walmart, but what about a small, one-owner corporation? Seems kind of silly to send yourself notice of a meeting with yourself, then elect yourself to the board of directors so you can hire yourself as CEO, right? What if you just skip it? It’s not like you’re going to sue yourself in a shareholder’s derivative lawsuit, right? If the corporation gets sued, however, a plaintiff’s attorney may ask for minutes of annual meetings, and may ask the judge to rule that the business is a sham corporation and to pierce the corporate veil, holding the owner personally liable and removing the limited liability that was one of the main reasons for creating a corporation in the first place.
Almost every textbook warns of the dangers of double taxation for a corporation. While it is technically possible, in practice, it doesn’t happen much and is usually the result of poor tax planning. Most small corporations are subchapter S corporations, which don’t pay any tax at the corporate level, and large corporations use the tax code to eliminate most or all liability. In 2010, GE had $14Billion in profits (not revenue!) and still paid 0$ in US corporate income taxes. Many large corporations pay an effective tax rate of 0%, and some corporations even manage a negative tax rate of as much as -58%.
Finally, we have the limited liability company, or LLC. An LLC combines the best features of a partnership and the best features of a corporation. Like a partnership, LLCs provide flexible management and have no requirement for an annual meeting. An LLC can be managed by its owners (called “members”)—like a partnership, or managed by professional managers—like a corporation. Most importantly (as you’ve probably guessed from the name), LLCs provide their owners with limited personal liability. LLCs also have great flexibility when it comes to taxation. They can either be taxed as partnerships, avoiding any risk of double taxation. However, if corporate taxation is more advantageous, LLCs can be taxed as corporations in stead. Not only that, but LLCs can change from year to year, depending on which type of taxation is better.
- Tuesday, Sept. 29
- Good for up to half the points you missed on the test.
- Legal v. equitable remedies
- Court system
Hi everyone. Hope you’re having a good holiday weekend. Here’s what we’ll be doing in class when we return:
- In BUS 100-01, we’ll be discussing business law on Tuesday and Thursday. (Appendix 2 isn’t in your textbook, so click the link to download the pdf)
- In BUS 100-80, we’ll discuss business ethics and social responsibility.
- In BUS 263-01, we’ll look at constitutional law on Tuesday and Thursday.
- In BUS 263-80, discuss business ethics.
- In PRL 101, the final version of brief 1 is due on Tuesday. We’ll talk about technology and paralegals on Tuesday and constitutional law on Thursday.
Here’s what we’ll be doing in class this week:
- In BUS 100-01, we’ll talk about global trade on Tuesday and business ethics on Thursday.
- In BUS 100-80, we’ll be wrapping up business and economics and moving on to global trade.
- In BUS 263-01, we’ll discuss alternative dispute resolution on Tuesday and business ethics on Thursday.
- In BUS 263-80, we’ll finish up court systems and start discussing alternative dispute resolution.
- In PRL 101, the draft of our first brief assignment is due on Tuesday, when we’ll also discuss legal ethics and professional responsibility. On Thursday, we’ll look at paralegal workplaces.
Here’s a quick round-up of what’s going on in class this week:
- In BUS 100-01, we’ll form teams and begin our study of business on Tuesday and look at economics on Thursday.
- In BUS 100-80, we’ll wrap up our goals matching discussion and start a discussion on business and economics.
- In BUS 263-01, we’ll form teams and begin our study of law and legal reasoning on Tuesday and move on to court systems on Thursday.
- In BUS 263-80, we’ll wrap up our goals matching discussion and start a discussion on law and legal reasoning and court systems.
- In PRL 101, we’ll talk about the paralegal profession on Tuesday and start learning about legal research on Thursday.
This week we begin studying small business organizations, or forms of business ownership. There are four forms of ownership that you need to know about: sole proprietorships, partnerships, corporations, and partnerships. Today we’ll look at sole proprietorships and partnerships, and next Tuesday we’ll look at corporations and LLCs.
Sole proprietorships are the simplest and most common form of business ownership in the US. Sole proprietorships have the benefit of being easy to form (you don’t have to do anything) and very flexible in the way they can operate. There are some downsides to sole proprietorships, however. One is that because there is only a single owner, it can be hard to raise startup capital—the business only has access to the funds that the owner can save or borrow. Given that the number one reason for new businesses to fail is lack of startup capital, capitalization can be a problem for a sole proprietorship, and it’s probably not a good business organization for a business that requires a good deal of capital. The biggest disadvantage of a sole proprietorship, however, is unlimited personal liability. Because the business has no existence apart from the owner, the owner is personally liable for all the debts of the business. Any money the business owes, whether it’s for unpaid bills, loans, or lawsuits, is a debt of the owner, and the business owner can lose everything. See the Simpsons episode “When Flanders Failed” for an illustration of what happens when a sole proprietorship doesn’t work out.
Partnerships are an agreement among two or more persons to operate as co-owners a business for profit. Partnerships have much in common with sole proprietorships: they’re easy to form and flexible in how they can operate. Partnerships can make it easier to raise capital than a sole proprietorship because there are multiple owners who can save and borrow capital, and multiple owners means more sharing of the responsibility of business ownership and a greater range of knowledge, talent, and skills. Like a sole proprietorship, partners feature unlimited liability, so the partners are personally liable for the debts of the partnership. Additionally, partnerships feature joint and several liability for partnership debts. That means that in addition to being liable for the debts together, each partner is personally liable for the entire amount of the debt. Remember the fable of the grasshopper and the ants? What happens if you have a partnership with three grasshoppers and an ant? The grasshoppers blow all their profits on cars and vacations and living a life of luxury while the ant lives frugally and saves up a big nest egg for retirement. When the partnership gets sued, the grasshoppers don’t have any money so the plaintiff collects the entire judgment from the ant, who is now broke. What happens if one partner gets disgruntled, takes out a huge loan in the name of the partnership, and skips town? Who has to pay back the loan?
Next, complete the following assignment to be turned in at the beginning of class on Tuesday, April 21:
We talked about Stella Liebeck’s case against McDonald’s after she suffered serious burns. Here’s a short video from the New York Times about the case, including some photos of Ms. Liebeck’s injuries—be warned, the images are brief but graphic.
Here’s what we’ll be doing in class this week:
- In BUS 100-01, we’ll study small business and entrepreneurship on Tuesday and accounting on Thursday.
- In BUS 100-80, It’s midterm week. Take your exam sometime between this Wednesday, February 25 and midnight next Tuesday, March 3.
- In BUS 263-01, we’ll finish up contract breach and remedies on Tuesday and start on the UCC on Thursday.
- In BUS 263-80, we’ll look at the UCC.
- In PRL 101, I’ll give feedback on your complaint assignment drafts, we’ll discuss tort law, and then review for next week’s test.
Happy Presidents’ Day everyone. Here’s what’s happening in class this week:
- In BUS 100-01, we have our first test on Tuesday, and then on Thursday, we look at small businesses and entrepreneurship.
- In BUS 100-80, We’ll look at small business and entrepreneurship.
- In BUS 263-01, we’ll finish contract formation on Tuesday and then on Thursday we’ll start looking at contract performance, breach, and remedies.
- In BUS 263-80, we’ll look at contract formation and contract remedies.
- In PRL 101, we’ll look at civil litigation and criminal law and procedure. We’ll also get started on the draft of the complain assignment.
Presidents’ Day trivia: the official federal holiday is Washington’s Birthday, but never falls on Washington’s actual birthday; the holiday in Alabama is George Washington’s and Thomas Jefferson’s (but not Lincoln’s) Birthday, even though Jefferson was born in April.