What do businesses do and what do lawyers for businesses do
Why does someone own a business
i. Author’s View
ii. Views of other big shots
iii. Views of courts & Legislators
1. Smith v. Barlow
1. Defendant corporation made a donation to Princeton. Shareholders sued arguing that he was not authorized by the articles of incorporation to be able to make this gift.
2. Court said that laws enacted after incorporation that allowed directors to make charitable gifts without approval from shareholders applied to this corp, and as long as the gifts contributed to the corporate interests, they were appropriate.
1. Cannot challenge acts of corporation on the grounds that it doesn’t have the powers to act.
How do you know how much a business is worth
i. Income Statement
1. Shows the profit for a corporation over a given period
2. Formula = Income – Expenses – Depreciated value of assets – Taxes= Net Income
ii. Cash flow statement
1. Shows how much cash a business has at the end of the year than the beginning
2. Formula = Profit after tax + depreciation taken out – cost of investment in that year.
3. in other words, it’s the income statement over a year without allowing the business to depreciate the cost of investments
4. A more accurate calculation taking into account balance sheet:
1. Formula= profit after tax + depreciation +/- net change in balance sheet asset accounts other than cash +/- net change in liabilities
iii. Balance sheet
1. A snapshot of the value of a business at a particular time
2. Assets on one side
3. Liabilities on the other
4. Assets = Liabilities + Stockholder Equity
5. Thus, profits accrue to equity
What are the basic business structures?
i. What are the primary driving forces behind structure choice?
1. Taxes – how profits are taxed
2. Liability – the exposure of the owners to liability for the corporation’s actions
ii. Sole Proprietorship
1. A single person
2. For taxes and liabilities, the person and the business are treated as the same person
3. Profits are taxed as personal income
4. Liability of the company goes straight to the owner
5. Note that a sole proprietor doesn’t need to file with the state
6. Don’t need an atty to form a sole proprietorship
iii. C- Corporation
1. Owners of corp are protected from personal liability
2. The corp pays taxes on income, and the recipients of dividends pay taxes on them (known as double taxation).
3. The incentive for forming a c-corp is that if you can pay out all of your income as salaries, then that income is deductible, and you can avoid the double taxation problem.
iv. S-Corporation – SC 33-18-103
1. This entity is taxed like a partnership but has the liability protection of a corporation.
2. Profits are distributed directly to partners, and as such are taxed only as the income of the partners – no double taxation problem.
3. IRS places a bunch of restrictions on who can be an S-Corp
1. Can only have one class of stock
2. Must be domestic, and wholly owned by US citizens
3. No more than 80% of revenue can come from non-us sources
1. Ex – Shrimp boat business in Charleston fishing in international waters.
4. No more than 75 stockholders
5. No more than 25% of revenue from passive sources (rent, interests, royalties).
6. Only individuals, estates, and certain trusts can be shareholders.
v. Limited Liability Company – (LLC)
1. Just like the S-Corp
ieve that the principal wants the agent to act on the principal’s account
4. Apparent Authority – RSA § 27
1. Created by manifestations of the principal to a 3rd party which reasonably causes the 3rd party to believe that the principal wants the purported agent to act for him.
2. The information can come to the 3rd party directly from the principal, through authorized statements by the agent, or from other indicia of authority.
3. Giving an agent a job that typically carries an authority can create apparent authority
1. Ex – hiring an atty grants the atty the apparent authority to act in the clients bests interests to protect the client.
5. Disclosure of Principal – When the agent is liable for a contract
1. RSA § 320 – If the principal is known to the 3rd party, the agent is not liable for any contracts entered on behalf of principal.
2. RSA § 321 – If there is partial disclosure of the principal (3rd party knows agent is an agent, but doesn’t know who he is an agent for) then the agent is liable for the contract.
3. RSA § 322 – if the agent is purporting to act on his own behalf, but is in fact acting on behalf of an undisclosed principal, the agent is liable for the contract.
ii. Master/Servant – Creates Tort Liability
1. Must create a master/servant relationship to have tort liability
2. RSA § 220 – Creation of a servant
1. Master has a right to control the actions of the agent