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ACCT notes from Oct. 12 - 30

by: Maddi_Jones

ACCT notes from Oct. 12 - 30 ACCT 324 002

GPA 3.4
Survey of Commercial Law
Julius David Johnson (P)

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About this Document

These are the rest of the notes from October 12th until today (Oct. 30). They include slide summaries and in class examples!
Survey of Commercial Law
Julius David Johnson (P)
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This 11 page Bundle was uploaded by Maddi_Jones on Friday October 30, 2015. The Bundle belongs to ACCT 324 002 at University of South Carolina taught by Julius David Johnson (P) in Fall 2015. Since its upload, it has received 63 views. For similar materials see Survey of Commercial Law in Accounting at University of South Carolina.


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Date Created: 10/30/15
Monday Oct 12 Notes Ch 35 Agencies 0 Major Forms of Business Organizations 0 Sole proprietorship unincorporated business owned by one person where the owner has all of the control and bene ts but has unlimited liability Pro ts are taxed as income Exibit 355 Pg 779 Advantages easy start up you get all of the control in decisions and you get all of the pro ts Disadvantages you39re personally liable for any debts your business may have and funding is limited to out of your own bank account and loans 0 General partnership unincorporated business owned by 2 people where each partner has 5050 control and each owner has unlimited liability from the business Pro ts again are taxed as income to both people Advantages easy start up the income is partner income business losses qualify for tax deduction You should probably get all of the responsibilities liabilities and bene ts for each partner in writing Disadvantages personal liability including those incurred by other partners even if it wasn39t your fault but your partner s 0 Limited partnership unincorporated business with at least one general partner and one limited partner where the general partner has managerialoperational control and the limited partner39s liability is limited to their own contributions and they have no managerial control in the business 0 Corporation Statesanctioned business with legal identity separate from its owners shareholders Owners shareholders39 liability is limited to the amount they invest in the business Pro ts are taxed as income to corporation AND to shareholders double taxation Advantages limited liability for shareholders and it s easy to sell stocks Disadvantages doubletaxation and all of the things required in establishing and maintaining corporate existence a lot of attorney fees 0 quotSquot Corporation business considered a corporation but is taxed like a partnership 0 Formed under federal law 0 You can t have more than 100 shareholders o Shareholders must report income on their tax forms 0 Limited Liability Company LLC Business with limited liability of a corporation but taxed like a partnership Best of Both Worlds 0 Formed under state law 0 There aren39t limits on the number of owners allowed 0 Special Forms of Business Organizations o Cooperative usually a nonpro t organization where owners use their own resources to bene t from the market i Farmers help each other out to continue their business a Electric company 0 loint Stock Companv partnership agreement where they hold transferable shares old times 0 Business Trust business owned by a group of trustees who operate trust for bene ciaries 0 Syndicate an investment group that39s made speci cally to fund large projects 0 loint Venture two companies of different products that come together for one service or product Ex Pensky moving trucks Ex Dorito Tacos at Taco Bell are two companies Doritos and Taco Bell to make one product 0 Franchise agreement between owner of the company and person who uses their name to sell their products Different locations of McDonald39s 0 Advantages and Disadvantages of Franchise to franchisee 0 Advantages Help from franchisor in starting up a new location You get the recognizable namelogo Franchisor advertising 0 Disadvantages 0 Advantages and Disadvantages of Franchise to franchisor 0 Advantages low risk in owning a new location o If you suck at running that new location McDonald39s doesn39t care as much because they have other locations to rely on Increased income from more locations the more the merrier o Disadvantages Little control over franchisee other than contractual You can become liable for the franchise if the franchisor is too controlling 0 Types of Franchises o Distributorship car dealerships 0 Manufacturing arrangement local bottling company pays coke to let them bottle for them they get the syrup 0 ChainStyle business operation 0 Top 10 Global Franchises 2013 0 Hampton Hotels Subway Jiffy Lube 7Eleven Supercuts Anytime Fitness Servpro Denny39s McDonald39s Pizza Hut Wednesday Oct 14 Notes Ch 36 Partnerships Nature Formation and Operation 0 Uniform Partnership Act quotthe association of two or more people to carry on as coowners a business for pro tquot 0 Characteristics 0 Voluntary and consensual You can t hold a gun to someone39s head telling them they have to be partners with someone 0 Must have two or more parties Can be people corporations partnerships or an LLC pretty much any 2 things 0 Share pro ts and management You split it 5050 unless in a written agreement you say otherwise 0 Engaged in a lot of business transactions Not just a onetime thing you have to continue business with each other for a period of time 0 There39s not a partnership when 0 Employer shares pro ts with employee as a payment for work Work bonus 0 Landlord accepts share of pro ts for payment of rent Instead of paying rent you give them 25 of your business39 pro ts 0 Party receives share of pro ts for payment of debt 0 Party receives share of pro ts for payment of annuity to widow of deceased That39s a payment of a debt 0 Party receives share of pro ts for payment of interest on a loan If you have a loan you owe money and you can use pro ts to repay it 0 Formation of Partnerships 0 Here39s what39s in your written partnership agreement Name of each person and the name of the partnership How long the partnership will continue for How the pro ts and management responsibilities are divided What each partner contributes to the partnership 0 Duties o Duty of loyalty can only work for the bene t of the partnership You can t sell Nike shoes in your partnership then go across the street and sell the same shoes in another business 0 Duty of obedience follow the partnership agreement 0 Duty of care perform your responsibilities to the best of your ability If you make a mistake that39s detrimental to the partnership it39s okay As long as you showed that you tried to the best of your ability showed you cared 0 Rights 0 Right to share pro ts and management 0 Right to compensation 0 Right to inspect books Partnership records 0 Right to an accounting 0 Right to the property in the partnership 0 Circumstances quottriggeringquot partner39s right to accounting 0 When the partnership agrees to provide it 0 When one partner keeps partnership books away from the other partner 0 When a partner keeps extra pro ts 0 When circumstances render accounting quotjust and reasonablequot quotCatch allquot means that this seems to be a circumstance that requires accounting 0 Interactions between Partners and 3rd parties 0 You have unlimited personal liability quotjoint and severalquot liability quotjoint and severalquot liability 3rCI party can sue the partners separately or together 0 You39re liable for the other partners39 tort committed in the name of the partnership 0 It39s implied that as a partner of such and such company you have the right to go buy supplies for the partnership 0 Revised Uniform Partnership Act RUPA 0 Revised form of the UPA that is different in different states Friday Oct 16 Notes Ch 37 Partnerships Termination and Limited Partnerships o Partnership Life Cycle 0 Formation formed by written agreement articles of partnership or by estoppel 0 Performance longest stage of life cycle when business is actually conducted 0 Dissolution partnership dissolves bc of an act of court or partners or operation of law 0 Winding Up business is completed assets are distributed take inventory 0 Termination or Continuation it can end or continue by creating a continuation agreement saying both parties wish to continue in their partnership 0 Partnership Termination o This starts when the partnership quotdissolvesquot 0 After they distribute assets and they wind up it is terminated o Partnership Dissolution o Partnership cessation o What triggers dissolution Partner actions Operation of law Court action 0 Events resulting in dissolution If it39s not one of these it39s an quotwrongful dissolutionquot o Duties are ful lled 0 Deadline stated in agreement passes 0 Partner withdraws from quotpartnership at willquot partnership where there39s no speci c objective or deadline 0 Partner leaves but rst makes an agreement with the other partner that it s okay 0 Partner is expelled One partner is stealing from the company 0 Operation of law examples 0 Partner dies 0 Partner claims bankruptcy o Partnership does something illegal 0 Court Action examples 0 Partner is adjudicated insane 0 Partner is incapable of continuing their duties Construction worker suddenly has a physical disablement they can39t be expected to lift and work through physical labor 0 Impractical to continue business When the partnership is no longer able to be pro table and all partners agree 0 Partners disagree on everything 0 quotWinding Upquot 0 Complete un nished business handle debts distribute assets and take inventory All of these apply but now you can go across the street and compete with the winding up partnership 0 Order of distribution 0 Payment to partnership creditors o Repayloans o Repay partner for invested capitol o Distribute pro ts 0 Limited Partnership 0 Must have at least one limited partner and one general partner 0 They sit back and don39t get involved in managerial decisions 0 Allows investor limited partner to share in the pro ts 0 Their liability is limited to the amount that they invested into the company 0 Requirements for limited liability of limited partner 0 Limited partner doesn39t partake in managerial roles 0 Limited partner39s last name can39t be in the business name If ProfessorJohnson is a limited partner the name can39t be quotSmith Jones and Johnsonquot 0 General Partners vs Limited Partners 0 General Partner Controls business Unlimited personal liability Acts as agent of partnership 0 Limited Partner No control over business Limited liability They39re not an agent of the partnership 0 Reasons for dissolution of limited partnership 0 Deadline passes o Duties are ful lled o Unanimous written agreement from all partners limited and general 0 Withdraw of a general partner unless agreement states otherwise 0 Court action 0 LLC 0 Similar to limited partnership bc they both have limited liability 0 Tax advantages single taxation 0 Created based on agreement between members LLC people are always called quotmembersquot 0 Each member can participate in management Monday Oct 19 Notes Ch 37 continued amp Ch 38 Corporations Formation and Financing 0 Corporation Characteristics 0 Legal entity rights as a person and citizen limited liability of shareholders Does have rights as any living breathing person would Can be sued like a real person would be sued o Perpetual existence centralized management corporate taxation double Even when a manager dies the company will go on o Unrestricted transferability of corporate shares 0 Corporate Powers 0 Express Powers perpetual existence right to litigate make contracts borrowloan money and make donations o Implied Powers whatever is necessary that s legal to get what needs to be done done Ultra Vires Act 0 Classi cations 0 Next few slides D 0 Public vs Private Corporations 0 Public created by govt to administer law with govt duties to ful ll Ex FDIC 0 Private created for private purposes Ex Coke Clorox anyone just in it to make money o For Pro t vs Non Pro t Corporations 0 For Pro t Just in it to make pro t including shareholders when they buy stocks 0 Non Pro t Can earn pro ts but don39t distribute them to shareholders Ex Gamecock Club churches 0 Domestic Foreign and Alien 0 Domestic Does business within the state of the corporation 0 Ex lf McDonald39s was incorporated in SC then the one in the Vista would be considered domestic 0 Foreign Does business in other states outside of the corporation 0 Ex lf McDonald39s was incorporated in SC then the Raleigh NC McDonald39s would be considered foreign 0 Alien McDonalds was formed in the US but if they franchise in another country they39re an quotalien corporationquot over there 0 Publicly Held vs Closely Held 0 Publicly Held stocks available to public 0 Closely Held they have stocks but don39t sell it to the public More likely to have a shareholder39s agreement 0 quotSubchapter Squot Corporation 0 Must be a domestic corporation of this country 0 Members can39t be illegal immigrants o Named after the IRS who provides for it o Closely held corporation 0 Has limited liability and single taxation 0 Formation of Corporation 0 Promotors organize formation 0 Subscribers offer to buy their stocks 0 A state is chosen for incorporation home base 0 What to ask a state before incorporating there 0 How exible with the state be with managerial power 0 What rights do the state statutes give to shareholders 0 Does the state offer protection from quottakeoversquot Make everything public by adding names and info to articles of incorporation to cover your company in case someone tries to sue o What state restrictions apply to distribution of dividends 0 Legal Process of Incorporation 0 Make up a corporation name 0 Do all the paperwork for articles of incorporation 0 Hold your very rst organizational meeting 0 Remedies for defective incorporation 0 quotDe iurequot corporation Corporation from law that met all requirements to become a corporation Not even the state can question their status in court If you accidently put down the wrong address you39re good just x it 0 quotDe factoquot corporation You haven39t met the requirements but the courts call it a corporation anyways to avoid unfairness to the 3rd party that believed that they were in fact a corporation 0 Corporation bv estoopel courts will bar corporation from denying its corporate status 0 Piercino corporate veil shareholders are personally held liable when they have used the corporation to do something illegal When does court pierce corporate veil 0 When shareholders personal and corporate interests are commingled no separation Debt Securities vs Equity Securities 0 Debt Securities bonds loans 0 Equity Securities stocks Types of Debt Securities bonds 0 Unsecured Bond quotDebenturequot o Secured Bond quotMortgage Bondquot 0 Income Bond 0 Convertible Bond 0 quotCallablequot Bond Equity Securities 0 Preferred Stock get rst priority of shareholders during liquidation phase 0 Common Stock doesn39t get any preferences but still owns part of company Wednesday Oct 28 Notes Ch 39 Continued Ch 40 0 Right to le derivative suit if corporation has been harmed the shareholders can le a complaint against themselves requires a board action o If shareholder wins then the award goes back to the corporation and not back to the individual shareholders Rioht to le direct suit same but can 00 back to the individual shareholders o Impr0per holding of dividends the board is the one causino trouble Corporations Terminology o Quorum De nition Minimum number of directors necessary to validate corporate directors39 meeting 0 Proxy De nition Provides authorization for third party to vote in place of shareholder at shareholders meeting 0 Voting Trust De nition Agreement between stockholder and trustee in which stockholder transfers hisher legal share titles to trustee trustee is then responsible for voting for those shares 0 Business Judgment Rule De nition Provides that directors and of cers are not liable for decisions that harmed corporation if they were acting in good faith at time of decision o Other Relevant Terminology 0 Stock Subscription Agreement contract saying that an individual has to buy their stocks ParValue Shares xed face value NoPar Shares shares without a par value Watered Stock stock issued below fair market value Preemptive Rights right to buy more stocks to keep your for example 20 stake 0 Stock Warrants mehh he didn39t really care about this one o Other Relevant Terminology Cont o Dividends income from pro ts that shareholders get 0 Inspection Rights right to look at business records with reasonable notice and without compensation 0 Right to First Refusal when stocks are resold corporation gets rst offer and if they don39t want it they can resell it elsewhere 0 Shareholder39s Derivative Suit 0000 Ch 40 Corporations Mergers Consolidations Terminations o Merger 0 Contract that combines corporations with the result that one corporation continues to be a thing One corporation quotabsorbsquot another Ex Serious radio amp XM radio merged o Consolidation 0 Two or more corporations combine resulting in a whole new corporation Neither original corporation continues to exist If Coke and Pepsi consolidate you can39t use either of those names anymore 0 Procedures for Mergers and Consolidations 0 State corporate law controls these combinations 0 BOD and shareholders in any corporation involved must approve the plan through votes 23 vote 0 Submits their plan to secretary of state where they review the plan to either approve or deny movement 0 Other Terminology 0 Rights of shareholders shareholders vote only on exceptional matters regarding the corporation 0 Shortform merger Parentsubsidiary merger parent corporation merges with a subsidiary corporation and doesn39t require shareholder approval 0 Appraisal right shareholder39s right to have shares appraised and receive compensation for the actual share value 0 Purchase of AssetsPurchase of Stocks 0 Purchase of Assets corporation grows by buying another companies39 assets Corporate assets intangible things goodwill brand name logos patents and tangible things buildings property inventory Corporation that buys the assets of another corporation does NOT take on their liabilities too 0 Purchase of Stocks taking control of another corporation by buying a huge amount of its voting stock You DO take on their abilities when you buy stocks from another company 0 quotHostilequot Takeover o Takeover where management of the target corporation objects Ex Pepsi wants to take over Coke Coke says absolutely not that my friends is a hostile takeover 0 Types of Takeovers 0 Tender offer the buying company offers a higher price than stock market value 0 Exchange offer exchange current stock for other companies39 stock Every time we get one of your stocks you can have 1 12 of ours 0 Cash tender offer offers cash for their stocks 0 quotBeachheadquot acquisition aggressor gradually accumulates target company39s shares Coke buying a little Pepsi stock here a little Pepsi stock there it takes forever but it39s little by little so not all at once 0 Leveraged Buyout 0 Group within the corporation buys all outstanding stock that was held by the public to gain control and become a privaterheId corporation 0 quotLegal Deathquot of Corporation 0 Two phases Dissolutiontermination Liquidation either the board or a 3rd party trustee converts corporation39s assets into cash and gives them to the creditors and then shareholders Preferred stockholders have priority when it comes to shareholders 0 Voluntary vs Involuntary Dissolution 0 Voluntary when directors or shareholders initiate it Shareholders must unanimously vote on it o Involuntary state govt forces the corporation to close 0 Reasons for Involuntary Dissolution 0 Company didn39t pay their taxes Didn39t le their annual report Doesn39t have a registered agent or of ce Didn t notify secretary of state that their agent or of ce has changed Duration has expired All above are within 60 days 0 Reasons for Court Ordered Involuntary Dissolution 0 Got their articles of incorporation illegally 0 They39re insolvent 0 Directors abuse powers quotuItra viresquot acts 0 Life Stages of Corporation 0000 O Incorporation beginning of the corporation Conducts Business normal corporation stage that we see as a functioning company Dissolution egay terminated Liquidation assets turn into cash and are distributed


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