BUS 260- Exam 2 Notes.docx

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Colorado State University
BUS 260
Ralph Switzer

INTRO TO BUSINESS ASSOCIATIONS I. The Legal Environment (Cage Fight) A. Bridge: Administrative Law B. Door: Micro-Frame C. Floor: Ethics, Religion D. Base: Constitution E. Plane: Business Associations/Entities: Form/Type of Business F. Side: Macro-Environment II. Agency: Humans through which corporations/companies do things A. Principal-Agent: Employer-Employee  Power to create contracts  Creates Vicarious Liability: liability through another person a) Example: IBM Contracted Driver hits a pedestrian B. Master-Servant: Do what your told without questions  No power to create contracts  Creates vicarious liability a) Example: Blacksmith’s apprentice III. Vicarious Liability = Respondeat Superior A. “On The Job” vs. “Frolic”  On The Job: Company should have to pay because employee was on the job.  Frolic: Employee was not on the job, employer not liable IV. Apparent Authority: If an employer puts an employee in a position that has apparent authority (to customers), the employer has vicarious liability. V. Holding Out: If you hold out to be something, you must accept the liability that comes with it. A. Example: Joe partnership- not on commission COMPARATIVE TAXATION OF BUSINESS FORMS I. Taxation A. Sole Proprietorship: Owner & Business are one and the same  Licensed professionals B. Partnership: General Partnership: each partner has equal power/ownership of company 1  Partnership Agreement: Not required to form partnership, but highly recommended  Not a separate entity- divide income among partners- individual tax return C. Regular Corporation: Have to go to state government to get a state charter- to the minute accuracy of when corporation was formed  Go to IRS and get Tax ID Number  Corporate Income Tax because corporation is a separate entity from stockholders  Entity Concept: D. Example: Partnership Taxation E. Example: Corporate Taxes II. A. Corporation B. Partnership Partnership Corporation Torts Employees, Partners Employees, Directors Contracts Agents Agents Limits Unlimited Limited Ethical: Limited Liability? o Otherwise people won’t go into business- for the greater good C. Limited Partnership: Limited partners; easier to raise cash  Rule 1: Still have to have a minimum of at least 1 general partner (promoter) a) Promoter: General partner; uses other people’s money b) Typically used for oil/gas revenue c) Promoter gets 20%; partners get 80%  Rule 2: Limited Partners cannot participate in management a) If they break this rule, they become general partners and lose protection D. “S” Corporation  Exempt from Corporate Income Tax a) File as a corporation (1) Wait 75 days – then send 253 Form to IRS b) Cannot have more than 100 stockholders (1) Essentially a limit to how much money you can have E. Limited Liability Company (LLC)  IRS hasn’t ruled if employee stock options can exist 2  Investment bankers don’t want to take LLC’s public a) Because not enough stare decisis cases exist b) Don’t understand the law- too new  To file for IPO- have to convert LLC to a regular corporation a) No competitive advantages because everyone has double taxation CONTROL & CONTINUITY OF BUSINESS FORMS Control: Who is running the business? Continuity: How long can this business live? I. Intro A. Control  General Partnership a) Equal ownership, but specific roles  Limited Partnership a) General Partner (promoter)  Regular Corporation & S-Corporation a) Annual meeting with stockholders, vote for Board of Directors  LLC a) Not governed by Board of Directors, but Board of Managers b) Stockholders are called Managers B. Continuity  Partnership a) The people who are the partnership b) When a partner dies/withdraws  Terminate  Evaluate- accounting  Liquidate- give money to partners c) Buy-Sell Agreement: Written agreement about what will happen when a partner dies; how to pay off the family  Do not go into a closely held business without one  Corporation & LLC a) No lifespan because it’s a separate entity b) Like property- in last will/entity  Different people but the same entity c) Key Person Life Insurance: Insurance pays the partnership, and then pays the family. 3  Ethical Considerations SECURITIES REGULATION I. Introduction A. SEC (Securities Exchange Commission)  State Blue Sky Laws: Refers to the intangible thing bought- hoping it will be worth something,  Blue Sky Recorder: Laws for securities in all 50 states B. CFTC- Commodities II. Definition A. “Investment Contract”- People put in their money and don’t expect to do anything— instead led solicitor do all of the work  Example: Howey Case- Oranges III. The 1933 Securities Act- Stock Market Crash 1929- Great Depression A. “Going” Public  IPO (Initial Public Offering) B. Registration  “Full Disclosure Act”- Demands full disclosure about company  Prospectus- written by Issuer Company- business plan format a) Explain Product b) Who’s In Charge- Biography c) Competition d) Financial Projection  2 Rules for Prospectus a) Everything has to be true b) Cannot omit any information that can be material  Issuer Company writes 1 draft- send to SEC- look for full disclosure- back and forth until SEC is satisfied with full disclosure C. Ethics  SEC “approves” prospectus- used for leverage by stockholders  Customers led to believe SEC thinks it’s a good investment a) Not the case- only speaking about disclosure, not the value  Rule: Stockbrokers must give customers prospectus before accepting money  The 1933 Rule says nothing about value!!!! D. Registration (3 Stages) 4  Pre-Fili
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