Transcript
Chapter 41 Business Organization
1. A sole proprietorship comes to an end at the owner's death, and all business interests pass to the proprietor's heirs.
2. A partnership may be created by an oral or written agreement of the parties, by an informal arrangement between them, or by their conduct.
3. The principal disadvantage of a partnership is that every partner is liable for the debts and wrongdoings caused by every other partner while transacting partnership business.
4. General partners manage the business and are personally liable for its debts and obligations. Limited partners invest money or other property in the business, but are not liable for the debts or obligations of the partnership.
5. Silent partners are ones who may be known to the public as partners, but who take no active part in the business. Dormant partners are not known to the public as partners and take no active part in the business. Secret partners take an active part in the business but are not known to the public as partners.
6. When a partnership is dissolved, a winding-up period first occurs. During this time the partnership assets are liquidated, debts are paid, an accounting is made, and any remaining assets are distributed among the partners or their heirs of deceased partners according to the terms of the partnership agreement. At the conclusion of the winding-up period, the partnership is terminated.
7. A corporation comes into existence when the state government issues a certificate of incorporation or charter.
8. Corporation owners are not personally responsible for the debts and liabilities of the corporation and can lose only the amount they paid for the stock.
9. When stockholders die, their shares of stock pass to their heirs, and the corporation continues in existence. When a partner dies, the partnership comes to an end.
10. In a close corporation, a stockholder who wishes to sell stock to someone else must first offer it to the corporation to purchase.
11. Common stock is stock with no preferences whose holders have the right to vote and to receive dividends if they are declared by the board of directors, and the right to receive a proportionate share of the capital when the corporation is dissolved. Preferred stock is stock that has a superior right to dividends and to capital when the corporation is dissolved and whose holders usually have no voting rights.
12. Directors manage the corporation, officers are responsible for the daily operation of the corporate business.
13. A joint venture differs from a partnership in that it involves only one undertaking and comes to an end at the completion of the undertaking.
Understanding Legal Concepts
1. F, least 6. F, de jure
2. F, need not be 7. T
3. T 8. T
4. F, are not liable 9. T
5. F, no active 10. T
Checking Terminology (Part A)
1. m 5. a, e, d 9. z 13. k 17. r 21. n
2. s 6. p 10. b 14. i, y, z, aa 18. j 22. g
3. h 7. l 11. v 15. c 19. t
4. u 8. r 12. o 16. x 20. f
Checking Terminology (Part B)
1. m 5. g 9. v 13. f 17. s, w 21. n
2. i, k 6. r 10. a, l 14. e 18. b
3. u 7. d 11. t 15. h 19. x
4. c, o, p 8. y 12. q 16. z 20. j
Using Legal Language
Julio and Juan became good friends while working for the Senor Tacos restaurant chain. The chain used a(n) franchise method of operation because its owner licensed others to use its tradename in making and selling tacos. Julio and Juan worked under the direction of Carmen, the franchisee who had the license to operate the business, given to her by Senor Tacos, the franchiser. Every evening after work, Julio and Juan spent their time together inventing a greaseless taco fryer. Because this relationship involved two people combining their labor and property for a single business undertaking, it was known as a(n) joint venture, which is also called a(n) joint enterprise, a(n) co-venture, or a(n) syndicate. When the fryer was completed, Juan left his job with Carmen and opened a taco shop of his own. It was a(n) sole proprietorship because Juan owned and operated it himself. The business thrived, and although he had no further money to invest, Juan felt it necessary to expand. His friend, Julio, offered to invest money in the business but did not want to be liable for its debts or obligations. The two formed a(n) limited partnership, making Juan a(n) general partner and Julio a(n) limited partner. Because she was well known in the trade, Carmen lent her name to the business, but because she had no real interest in it. She was a(n) nominal or ostensible partner. Soon it became necessary to expand again, and Juan and Julio decided to establish a(n) corporation, which is a legal entity created under state law with the power to conduct its affairs as though it were a natural person. Juan and Julio were the incorporators because they applied for the certificate of incorporation, which is also called articles of organization, or charter. The organization was established in strict compliance with the law; therefore, it was a(n) de jure corporation. Miguel, a friend of Juan and Julio, invested in the business, and all three became stockholders, which are also known as shareholders. Because restrictions were placed on the transfer of shares, the business was a(n) close corporation. Miguel, Juan, and Julio received stock certificates as evidence of the ownership in the business. The stock they received was common stock, which had no preferences and gave each owner the right to vote. All three were elected as directors to manage the business.
was a(n)
close corporation
. Miguel, Juan, and Julio received
stock certificates
as
evidence of the ownership in the business. The stock they received was common
stock
,
which had no preferences and gave each owner the right to vote. All three were elected as
directors
to manage the business.
Puzzling Over What You Learned
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Caveat: Allow squares for spaces between words and punctuation (apostrophes, hyphens, etc.) when filling in crossword.
Across Down
A form of business that is owned and operated by one person.
Partnership with one or more general partners and one or more limited partners.
Legal entity created under state law with powers of a natural person.
6. Liability that has no bounds.
People who organize a corporation.
Corporation that is established in compliance with the law.
Corporation with a defect in its establishment but recognized as valid.
Association of two or more persons to carry on a business.
Document that gives authority to a corporation to do business.
Profits distributed to the stockholders of a corporation.
People who begin a corporation by obtaining investors.
