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The Legal Environment of Business
A Critical Thinking Approach
6th Edition
Nancy K. Kubasek
Bartley A. Brennan
M. Neil Browne
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-1
CHAPTER 17
Law and Business
Associations - I
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-2
Objectives
1. Factors Influencing a Business Manager’s
Choice of Organizational Form
2. Some Common Forms of Business
Organization in the United States
3. Specialized Forms of Business Associations
4. Global Dimensions of Business Associations
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-3
Forms of Business Organization
Sole Proprietorship
Partnership
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-4
Sole Proprietorship
 Few
legal formalities
 Minimal
government regulation
 Owner-proprietor
has complete control,
profits, and
 Full
liability
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-5
Partnership
 A voluntary association of two or
more persons to carry on business
for a profit

Limited Partnerships

General Partnerships
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-6
General Partnerships
Unless otherwise specified in partnership
agreement:

All partners equally liable

Equal management power

Equal division of profits/losses
Partnership is not taxed; partners are
taxed

Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-7
Limited Liability Partnerships
A partnership that has one general partner,
who is responsible for managing
the business, and one or more
limited partners, who invest in the
partnership but do not participate
in its management and whose
liability is limited to the amount of
capital they contribute.
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-8
Limited Liability
 LP
 LLP
 LLLP
 distinguished from a limited partnership in that
liability is the same for a general partner(s) as for
a limited partner(s).
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-9
Limited Partnerships

Must say the word “Limited”
One

general partner
One or more limited partners
Limited partners are liable only up to
the amount invested

General partner manages day-to-day
business


Governing law: RULPA
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17-10
Creating Partnerships


If not written agreement: RULPA
controls
In partnership agreements, partners
control:

capital contribution

profit distribution

management responsibility

duty of loyalty, good faith, and fair
dealings
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-11
Termination of Partnership

Death of partner

Merger

Bankruptcy

Expiration of partnership
agreement

Winding-up

Dissolution
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-12
Specialized Forms of Partnership
A joint stock company is a
partnership agreement in which
members agree to stock ownership
in exchange for partnership
liability.
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17-13
Specialized Forms of Partnership
 Syndicate
 investment group that makes a private
agreement
 to come together for the purpose of
financing a large commercial project
 that the individual members
(partnerships or corporations) could not
finance alone
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-14
Specialized Forms of Partnership
 Joint Venture
 relationship between two or more
persons or corporations
 set up for a specific business
undertaking or a limited time period
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17-15
Specialized Forms of Partnership
 Franchising
 relationship is based on a private
commercial agreement between
 the franchisor, who owns a trade
name or trademark, and the
franchisee,
 who sells or distributes goods using
the trade name or trademark
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-16
Global Dimensions of
Business Associations
 worldwide trend toward marketoriented economies
 raise the demand for investment
capital
 manufactured goods and services
of the industrialized world
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-17
Covered Objectives
1. Factors Influencing a Business
Manager’s Choice of Organizational
Form
2. Some Common Forms of Business
Organization in the United States
3. Specialized Forms of Business
Associations
4. Global Dimensions of Business
Associations
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-18
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.
Copyright © 2012 Pearson Education, Inc.
Publishing as Prentice Hall
Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall
17-19