-SOLE PROPRIETORSHIP: One person, easy to form, taxed as individual | Personal liability, nontransferable, difficult to raise capital.

-PARTNERSHIP: Two or more persons, easy to form, taxed as individuals | Personal liability, nontransferable, difficult to raise capital
-Partnership: Two ore more persons in business together. Agreement can either be oral (hey, lets go
into business together), written (could alter the 50-50 rule termination at will as well as other
statutory provisions), or implied any sharing of profits; or the appearance of a partnership.
Termination at will means either party quits. Term written agreement. Debts paid and proceeds
distributed according to statute or written agreement.
-Limited Partnerships: Statutory. Owners limited and general partners (managed by general
partner). Investors are not liable. All are taxed individually. | Generals have personal liability. If limited
party participates then they are personally liable. Must file certificate with the state.
-Corporations: Limited liability, transferable, great for raising capital. | Must file with state, expensive
to create and maintain, corporations pay taxes.
Close Corporations: Operate without a board and other formalities. | Transfer restrictions.
S Corp: Taxed as individuals. | 75 or less, one class of stock, must be citizens, unanimous
voting rules.
-Limited Liability Companies: Limited liability, unlimited members/owners, member or managermanaged, pass through tax status, may have corporations as members. | File with the state
Shareholders of S corps have both the limited liability of a corporation and the tax status of a
partnership. S Corp is not taxableall the companys profits and losses pass through to the
shareholders, who pay tax as their individual rates.
*shareholders must be individuals, estates, charities, pension funds, or trusts, not partnerships
or corporations
*all shareholders must agree that the company should be an S-corp
CORPORATIONS
Promoter Organizer
Liable before corp is formed
Agent the person who is served with papers
Incorporator signs the articles
Board of Directors are elected by shareholders, may vote for themselves. Directors elect officers,
may elect themselves. May hold more than one office.
Officers: President, Vice President, Treasurer, Secretary, Day to Day operations, Hiring/Firing;
Purchases; Expenses; Marketing; Production
Annual meeting dates, number of directors, officers, fiscal year, all of the details of how corporation
operates (BYLAWS)
LIABILITY: Piercing the corporate veil. Failure to observe formalities, commingling of assets,
inadequate capitalization, fraud. Piercing the corporate veil or lifting the corporate veil is a legal
decision to treat the rights or duties of a corporation as the rights or liabilities of its shareholders.
"Piercing the corporate veil" is a legal phrase that describes the owners of a corporation losing the
limited liability that having a corporation provides them.
Officers Liability: Fiduciary duty: loyalty self dealing, duty of care rational business
purpose; legal; informed
Shareholders rights: voting proxies, information annual report, annual meeting, major changes,
derivative lawsuits.
"The business judgment rule is a presumption that in making a business decision, the directors of a
corporation acted on an informed basis, in good faith and in the honest belief that the action taken was
in the best interests of the company. "The business judgment rule is a presumption that in making a
business decision, the directors of a corporation acted on an informed basis, in good faith and in the
honest belief that the action taken was in the best interests of the company.
BANKRUPTCY
*The bankruptcy court system is a federal court system
*Chapter 7 is a liquidation proceeding in bankruptcy
A trustee is appointed over all of the assets
The trustee is charged with the responsibility of: assembling the assets, reducing them to cash
as expeditiously as possible (liquidate), delivering the dividend as payments of claims in accord with
their priorities under the code (divide up)
An involuntary petition requires: 1) Three or more creditors if more than 12 total with claims that
aggregate $15,325 or more OR 1) One creditor if there are less than twelve creditors whose claim is at

least $15,325 THEN the debtor has 20 days within which to respond to the complaint. If the debtor
agrees that the debtor is not paying its debts as they become dues, an order for relief will be entered.
A bankruptcy proceeding commenced involuntarily will be a Chapter 7.
*A Chapter 11 proceeding is denominated as a reorganization proceeding.
There is an appointment of a creditors committee to 1) monitor the operation of the debtor
during the bankruptcy proceeding and 2) to ensure that the best dividend becomes available for the
unsecured creditors (make sure they get their $$$)
*Chapter 13 Individual Reorganization relates to the reorganization of the financial affairs of
individuals not business entities. These individuals are required to have regular income. Chapter 13
plans are sometimes referred to as wager earner plans.
Section 707(b) Trustee can force someone into Chapter 13 instead of 7 by MEANS TESTING
(if debtor can make significant repayment to creditors over 3 years)
An unsecured creditor is a creditor other than a preferential creditor that does not have the benefit of
any security interests in the assets of the debtor.
(A secured creditor is a creditor with the benefit of a security interest over some or all of the assets of
the debtor.
In the event of the bankruptcy of the debtor, the secured creditor can enforce security against the
assets of the debtor and avoid competing for a distribution on liquidation with the unsecured creditors.
In most legal systems, secured creditors also have the option of releasing their security and proving in
the liquidation, although, in practice, they would rarely do so)
Automatic Stay: The filing of a bankruptcy petition operates as an injunction against many kinds of
actions. Provided by the filing of the petition prevents pre-petition creditors from taking any action to
collect their debts and allows the bankruptcy court to maintain control over the property of the estate
The automatic stay remains in force until the earliest of: The time the case is closed, the time
the case Is dismissed, or when a discharge is granted or denied.
Discharge and Dischargeability: Generally, the purpose of filing a liquidation bankruptcy, and even
a reorganization bankruptcy, is the discharge or limitation of pre-petition debt. In general, most debts
are automatically discharged during the course of a bankruptcy proceeding, unless otherwise ordered
by the court.
An impartial trustee is appointed to oversee and administer cases.
UCC
"Goods" means all things (including specially manufactured goods) which are movable at the time of
identification to the contract for sale other than the money in which the price is to be paid, investment
securities (Article 8) and things in action. Goods must be both existing and identified before any
interest in them can pass. Goods which are not both existing and identified are "future" goods. A
bona fide purchaser (BFP) referred to more completely as a bona fide purchaser for value without
notice is a term used in the law of real property and personal property to refer to an innocent party
who purchases property without notice of any other party's claim to the title of that property.

Title Problems & the BFP (Innocent Buyer)

Valid, Void, Voidable?
Valid no issues here
Void i.e. Theft then the BFP is NOT protected
Voidable i.e. Goods obtained by FRAUD or DECEPTION then buyer must prove they are a
BFP (gave value, acted in good faith)
Imperfect Title
*If a bad guy steals someones car (he obtains a void title) and resells it and the cops find
the car, the car is returned to the original owner
*If a bad guy fraudulently bought the car from the owner, the title is voidable and the
owner of the car should be able to recover the car from the bad guy, but not from anyone
else who ends up with it. If the bad guy sells the car before the owners learns about the
fraud, the car belongs to the person the bad guys sold it to if he can prove that he bought it
in good faith.
*Bona Fide Purchaser: a person with a voidable title has power to transfer valid title for
value.
*Entrustment: Entrusting a merchant with goods. Example, your piano needs repairs and
you take it to a merchant to fix it and you leave it there and the merchant sells it. The piano
would belong to the buyer.
UCC Section 2-403(2) any entrusting to a merchant who deals good of that kind gives

him power to transfer all rights of the entruster to a buyer in the ordinary course of business
(BIOC)
BIOC: is one who acts in good faith without knowing that the sale violates the
owners rights.
The merchant is still reliable for the loss and you could recover the value of the loss (if they
are still in business)
FOB free on board, FAS free alongside, CIF cost, insurance, freight
In the United States, the perfect tender rule refers to the legal right for a buyer of goods to
insist upon "perfect tender" by the seller. The perfect tender rule states that a buyer is
permitted to reject goods shipped or delivered to it from a seller if the seller's tender of the
goods is in some way not perfect.
Sale on Approval: Individual or company allowed to use item before purchasing. If satisfied
with item, will purchase. Unsatisfied, they are able to return the item and not committed to
purchase it.
Sale or return: an arrangement by which a retailer pays only for goods sold, returning
those that are unsold to the wholesaler or manufacturer