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PRDV205: Business Law and Legal Procedures

Unit 3: BUSINESS ORGANIZATIONS   *Corporations are legal entities that protect shareholders from certain legal liabilities.  For example, if you start a sole proprietorship and take out a small business loan to get started, you are personally liable for that loan.  If you do not repay the loan, the bank providing the loan can pursue the seizing of your personal assets.  If you are a shareholder in a corporation that fails to pay its loans, however, the bank providing the loan cannot pursue your personal assets.

The operation of a corporation faces certain restrictions and caveats.  For example, corporations are subject to more regulations and fees than most other business entities.  However, the corporate form is only one of many types of business organization that are available to a modern company.  In this unit, you will explore the various types of business entities in the United States, weigh the pros and cons of each, and consider the issues of liability and tax consequences as they relate to these entities.*

Unit 3 Time Advisory
This unit should take you approximately 3.75 hours to complete.

Unit3 Learning Outcomes
Upon successful completion of this unit, you should be able to:
- identify common forms of business organization; - describe how each type of business organization deals with issues of liability and taxation; and - identify the steps that are required in order to make a state filing for a business organization.

3.1 Forms of Business Organization   3.1.1 Sole Proprietorships   - Reading: The Legal and Ethical Environment of Business: “Chapter 11, Section 1: Sole Proprietorships” Link: The Legal and Ethical Environment of Business: “Chapter 11, Section 1: Sole Proprietorships” (PDF)

 Instructions: Read Chapter 11, Section 1 of the textbook.  *Sole
proprietorships*are the most common form of business organization,
with good reason: There are no formal requirements to start a sole
proprietorship.  As you read this section, consider the other
advantages of starting a business as a sole proprietorship.  (Also
note the disadvantages of this type of business organization.)  Be
sure to click on the hyperlink inside the box titled “Hyperlink:
Small Businesses Squeezed as Banks Limit Lending” to gain insight
into the challenges of borrowing money as a sole proprietor.  Also
be sure you understand the issue of liability in sole
proprietorships, as this discussion will provide you with a
foundation for future course discussions on limited liability forms
of organization.  

 Reading this textbook section should take approximately 30
minutes.  

 Terms of Use: This text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommercial-ShareAlike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution, as requested by the work’s original creator or
licensee.

3.1.2 Partnerships   - Reading: The Legal and Ethical Environment of Business: “Chapter 11, Section 2: Partnerships” Link: The Legal and Ethical Environment of Business: “Chapter 11, Section 2: Partnerships” (PDF)

 Instructions: Read Section 2 from Chapter 11 of the textbook.  For
various reasons, an individual may decide that it is better to run a
company with others than on his or her own.  A group of individuals
may decide to organize as a partnership in order to draw on the
experience and expertise of others.  Be aware that there are several
forms of business partnerships; the following subunits will outline
these various forms in more detail.  

 Reading this textbook section should take approximately 15
minutes.  

 Terms of Use: This text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommercial-ShareAlike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution, as requested by the work’s original creator or
licensee.

3.1.3 Corporations   - Reading: The Legal and Ethical Environment of Business: “Chapter 11, Section 3: Corporations” Link: The Legal and Ethical Environment of Business: “Chapter 11, Section 3: Corporations” (PDF)

 Instructions: Read Chapter 11, Section 3 of the textbook for an
overview of corporations.  As you read, consider the reasons that
the corporate structure is very attractive to businesses,
particularly large and growing companies.  

 Reading this textbook section should take approximately 45
minutes.  

 Terms of Use: This text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommercial-ShareAlike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution, as requested by the work’s original creator or
licensee.

3.1.4 Limited Liability Companies   - Reading: The Legal and Ethical Environment of Business: “Chapter 11, Section 4: Limited Liability Entities” Link: The Legal and Ethical Environment of Business: “Chapter 11, Section 4: Limited Liability Entities” (PDF)

 Instructions: Read Section 4 from Chapter 11 of the textbook. 
*Limited liability companies* (LLCs) are a relatively new form of
business organization in the United States, but they are already
used widely, particularly by small businesses.  In contrast with the
many formalities and structural limitations required of
corporations, LLCs offer a simpler alternative that is more suited
to small businesses.  An LLC can have a single member or multiple
members, and the registration and administrative requirements for
these businesses are much less complicated than those for
corporations.  Note, in particular, the similarities and differences
among LLCs, sole proprietorships, and corporations.  Why do you
think the textbook refers to LLCs as a “hybrid” entity?  Make sure
you familiarize yourself with the requirements that must be met to
form and organize an LLC.  Following your reading, complete the two
exercises below the “Key Takeaways” box at the end of the section.  

 Note that this reading also covers the material you need to know
for Subunit 3.1.5, found below.  You can refer to that subunit for
additional guidance on how to approach this reading.  

 Reading this textbook section and completing the exercises should
take approximately 30 minutes.  

 Terms of Use: This text was adapted by The Saylor Foundation under
a [Creative Commons Attribution-NonCommercial-ShareAlike 3.0
License](http://creativecommons.org/licenses/by-nc-sa/3.0/) without
attribution, as requested by the work’s original creator or
licensee.

3.1.5 Other Limited Liability Organizations   Note: This topic is covered by the Chapter 11, Section 4 textbook reading assigned under Subunit 3.1.4 (above).  For this subunit, focus on reviewing the discussion of limited liability partnerships (LLPs) within the last paragraph of the section.  Note that LLPs are organizations that provide limited liability and tax advantages to professional partnerships such as law firms and accounting firms.

3.2 State Business Registration Filing   - Reading: The Saylor Foundation’s “Filing a Registration for a New Business” Link: The Saylor Foundation’s “Filing a Registration for a New Business” (PDF)

 Instructions: In this reading, you will familiarize yourself with
the process of forming a corporation and an LLC. The creation of
limited liability organizations are regulated by states, and each
state has its own requirements for the formation of limited
liability organizations. However, different state regulations share
many of the same basic components.  

 Reading this resource should take approximately 1 hour.
  • Activity: Nevada Secretary of State’s “Articles of Organization – Limited-Liability Company” and “Articles of Incorporation” Link: Nevada Secretary of State’s “Articles of Organization – Limited-Liability Company” (PDF) and “Articles of Incorporation” (PDF)

    Instructions: In this activity, you will fill out forms for the formation of a corporation and an LLC in the state of Nevada. Use the interactive PDFs, available via the links above, to fill out the required information in each light-blue section. As you complete the forms, you may use any fictional names and information you desire for your corporation and LLC. However, be sure not to provide any factual information for a real corporation or LLC – remember that this activity is just practice! Carefully review the instructions for these forms prior to completing them, and try to be as specific and thorough as possible with the information you provide. If you run into any confusion or have trouble with the forms, you can consult the Nevada Secretary of State's website, which provides further assistance.

    Completing this activity should take approximately 45 minutes.