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    Two Business Law Problems

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    #1 Provide 4 sentences: what advantages
    and disadvantages are associated with each major business forms or how does a franchising relationship arise?

    #2 Provide 4 sentences: In light of all the corporate scandals (Enron, Marth, etc), what are the duties (tort word) of corporate directors and officers? How about what do you do as a director to avoid liability for an hones mistake of judgment or poor business decision?

    © BrainMass Inc. brainmass.com September 26, 2022, 8:50 am ad1c9bdddf
    https://brainmass.com/business/business-law/two-business-law-problems-22409

    SOLUTION This solution is FREE courtesy of BrainMass!

    Hi there,

    Advantages of sole proprietorship:

    A sole proprietorship is an unincorporated business that is owned by one individual. It is the simplest form of business organization to start and maintain.

    Disadvantage:
    The business has no existence apart from you, the owner. Its liabilities are your personal liabilities and you undertake the risks of the business for all assets owned, whether used in the business or personally owned.

    Partnerships:
    A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business.

    A partnership must file an annual information return to report the income, deductions, gains, losses etc., form its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return.

    Corporations:
    In forming a corporation, prospective shareholders transfer money, property, or both, for the corporation's capital stock. A corporation generally takes the same deductions as a sole proprietorship to compute its taxable income. A corporation can also take special deductions.

    The profit of a corporation is taxed to both the corporation and to the shareholders when the profit is distributed as dividends. However, shareholders cannot deduct any loss of the corporation.

    Limited Liability Partnership (LLP)
    A limited liability partnership is created to protect partners from liability caused by other partners. (E.g. a partner gets into an at-fault accident while running errands and the company is sued.) However, it does not generally shield the partner who caused the liability. A limited liability partnership can operate more informally and flexibly than a corporation, and is accorded full partnership tax treatment. Some states such as California impose limitations on who may form an LLP. In California, with few exceptions, only attorneys, certified accountants and architects may form an LLP.

    Franchising:
    This relationship arises when the owners of a corporation sells the rights to another corporation to operate a business on behalf of that first corporation.

    What are the duties of corporate directors and officers?
    The fundamental statutory duty of the Board of Directors is to supervise the management of the business and affairs of the corporation. The board recognizes the importance of the protection and enhancement of shareholder value, and maintains and regularly evaluates a system of corporate governance to achieve this.

    As a general rule, few state laws or court decisions specifically address the fiduciary duties owed by a mutual board. Nevertheless, it should be assumed that mutual boards owe duties to their company and members that are the same as the duties owed by directors of stock corporations to their companies and shareholders. In most states, these duties consist of the duty of care and the duty of loyalty.

    source:
    http://www.namic.org/policy/focus/focus0.asp

    How do you avoid liability?
    Have a good board insurance policy in place. Also, full disclosure of company dealings in its annual report.

    I hope this helps.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com September 26, 2022, 8:50 am ad1c9bdddf>
    https://brainmass.com/business/business-law/two-business-law-problems-22409

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