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Business Entities
Stetson University School of Law
Chatman, Carliss

Business Entities Professor Chatman Spring 2016

Corporate Lawyer- What do they do?

Act as a counselor- give advice to the client.
Act as a conciliator- helps resolve conflicts between the client and another often regarding a potential transaction. (uses analytical powers)
Act as a facilitator- negotiate substantive elements of a transaction, draft documents, ensuring the transaction complies with applicable regulations.

Where do corporate lawyers work?

Private Practice-Lawyer works in a law firm that is hired BY the client
Corporations (in-house lawyers)-Lawyer works as an employee OF the client

What substantive legal knowledge do corporate lawyers need to know?

Business Entities- law governing corporations, partnerships, and LLCs.
Agency- almost entirely common law
Tax/Securities regulation/secured transactions- UCC Article 9
Employment and labor law and contract law
Intellectual property; international law
Business, economics, finance and accounting

Business Basics

What is a business? Engages in sustained profit-seeking efforts

Different parts of a business: customers, suppliers, employees, management, lenders, owners
Business entity- business owned by more than one person.
Horizontal Integration

One type of product in NUMEROUS MARKETS (ex: phone companies all over the country)
One company in the same industry and in the same stage of production is being TAKEN-OVER or MERGED with another company at the same stage of production
Ex: When ONE company takes over another. (typically comes with problems

Vertical integration- (own every part of the chain from production to distribution)

Ex: Oil and gas operation or how Banks operate (they do private wealth management, commercial banking, loans etc.)
United through a hierarchy and share a common owner
Each member of the hierarchy produces a DIFFERENT product or service
The products combine to satisfy a COMMON NEED (too big to fail- think auto market- bail out that just happened bc the failing of the company would have been detrimental to our economy)

Development/rise of big business

Why Corporations rose rather than partnerships?

Protection of the money
Protection from debt (limited liability)
Separation of ownership
Entity status for buying/selling/suing

Entity credit rating (own identity that doesn’t mess with owner’s credit etc.)

Perpetuity (protects company from futureheirsdestroying)
Ability to raise money is easier as a corp. (sell shares, fundraise etc.)

Different Business Forms

Sole Proprietorship

Business owned by a single person that has not opted into a different form.
No legal distinction bw the owner and the business
Owner personally liable for all the obligations of the business
Business income/losses reported on owner’s personal federal income tax return
Name of business would be the name of the person until they register the company with the state with a fictitious name

General Partnerships

Business owned by two or more people that has not opted into a different form
Governed by State’s partnership statute
Each partner has management rights
Most have a written partnership agreement (if there is no written agreement then the assets and money is split evenly between the parties- no matter if one person contributed more etc.)
Owners are called partners, and they own partnership interests/shares
Partners are personally liable for obligations of the partnership
Pass-through taxation

Limited Liability Partnership (LLP) – most common form for law firms

A partnership that filed a “statement of qualification”
Provides a “liability shield” to partners- they are not personally liable for partnership obligations (if one other attorney commits malpractice then you are not on the line too- you are protected)
Governed by the same statute as partnerships
Taxed the same as a partnership

Limited Partnership (LP) – hybrid of general and llp all in one

A partnership that has one or more “general partners” and one or more “limited partners” and has filed a “certificate of limited partnership”
General partners have management rights but no liability shield
Limited partners get a liability shield but no management rights
Owners are called partners (general or limited) and they own partnership interests (general or limited)
Governed by State’s limited partnership statute

ts a business’ cash inflows and outflows over the specified period
Basically “Money in money out”

Where do you look to see if a company is profitable?

Income statement for that period. (Net income number)

Where do you look to see if a company’s business’ assets exceed its liabilities?

Balance sheet: Total assets – total liabilities = ?


Economic Agency

Idea: the agent and principal agree that the agent will use judgment for the principal’s benefit- but neither have control nor make decisions for the other.

Legal Agency

Dictates when a business is bound to a contract between the business and a third party

AKA: dictates how an “artificial entity” (LLC, corp. etc.) enters into a contract.

Contract can be expressed or implied. Doesn’t need to be a written contract.
ABCCs of Agency Relationship- How you get an agency relationship.

An agency law applies only to an “agency” relationship. An agency relationship arises when:

Manifests ASSENT
Agent acts on BEHALF of principal…principal has some CONTROL
The agent manifests assent or otherwise CONSENTS. (they agree)

Agency CANNOT be contracted around. Just because a contract clause says there is no agency relationship… so long as there is a manifestation of assent or a consent, an agency relationship exists.

Agency has a higher duty to fulfill (fiduciary duty) compared to a contract relationship.

Duty of loyalty (don’t be a dick)

No material benefit from 3rd party for actions
No conflict of interest transactions
No competing with the principal
No misuse of principal property

Duty of Care: (don’t be negligent/fck up)

Act with care, competence and diligence