PART SEVEN
BUSINESS ORGANIZATION
Teaching Suggestions
1. Obtain a copy of the form used for filing a fictitious name in your state. Have the students
imagine a business they would like to organize and fill out the registration form for the
4. Have the students prepare a list of various businesses. Discuss the advantages and
disadvantages of the sole proprietorship, partnership, and limited liability company form of
business organization for the various businesses.
5. Present an example of a partnership to the class. Have each student give an example of how it
might be dissolved and what steps should be taken to terminate it properly.
.
Group Projects
1. Have each group in the class meet to decide on what kind of business to form and what kind
of partnership to set up to run it.
CHAPTER 31
INTRODUCTION TO BUSINESS ORGANIZATION
Answers to Learning Objectives
1. A sole proprietorship is a business carried on by one person who directly owns the business.
It has the advantages of flexible management and ease of organization, but has the significant
disadvantage of unlimited liability of the owner for the debts of the business.
3. The limited liability company form of business organization is important because the liability
for members is limited to the amount of their investment and members can choose different
tax classifications for the business.
Lesson Outline
1. A sole proprietorship is a business owned and carried on by one person, the proprietor.
2. The proprietor owns every asset of the business. A sole proprietorship is very simple to begin
and also very easy to end.
3. The major advantages of a sole proprietorship are flexible management and ease of
organization.
6. Partnerships are classified as:
a. Ordinary or general partnerships
b. Limited partnerships
c. Trading and nontrading partnerships
7. Any person who is competent to contract may be a partner.
management or profits
9. The partnership type of business may lead to greater profits through increased capital, more
efficient labor, and improvement of management over sole proprietorships.
10. There are several disadvantages to a partnership:
a. Unlimited liability of each partner for the debts of the firm
b. The relative instability of the business
14. A limited liability company is a type of business organization that combines the
management features of a partnership with limited liability for members.
15. Limited liability companies are important, because they offer members limited liability and
the flexibility to choose how the company will be classified for tax purposes.
Comments on Cases
(p. 376) The court pointed out that Long settled the lease for 43% less than IKON originally
demanded. As a general partner, Long was an agent of the partnership and was
empowered to bind the partnership. In winding up the business he had the authority to
settle the partnership’s obligations. Long v. Lopez, 115 S.W.3d 221 (Tex. Ct. App.)
(p. 379) The court said that a “corporate veil” protects the member of an LLC from personal
liability for the LLC’s debts, so long as the LLC is maintained as a separate legal entity
from the member’s personal affairs. Because the LLC property remained distinct from
Brunson’s personal affairs, Brunson could not be held liable for the LLC’s debt. Bonner v
Brunson, 585 S.E.2d 917 (Ga. Ct. App.)
Answers to Questions
(Page 381)
1. The law does not require any formalities to form and operate a sole proprietorship; an
individual simply needs to begin doing business.
2. Although a sole proprietorship is owned and run by one individual, the business may have
any number of employees and agents
3. The advantages of a sole proprietorship are flexible management and ease of organization.
6. A partnership may be formed for the purpose of operating a lawful trade, business, or profession for
profit.
7. A limited liability partnership is a partnership registered with the appropriate state office
whose members take an active role in managing the business but do not have unlimited
liability for business debts and normally no liability for other partners’ misconduct or
negligence.
Answers to Case Problems
(Page 381)
1. No. The court stated that DLZ and United did not exercise joint or mutual control over the
project, as would be required to prove a joint venture. While the scope of United’s
responsibility and liability under the agreement was all-inclusive, DLZ’s liability and
responsibility was limited to its own services. In addition, DLZ and United did not share
profits from the project. DLZ Indiana, LLC v. Greene County, 902 N.E.2d 323 (Ind. Ct. App.)
4 No. The court said Lora and Pignone did not own or manage the WDJ Realty in such a way as to
eliminate the legal distinction between the company and its members. That Pignone signed her
individual name as a contact person for the company did not make her personally liable. Matias v.
Lora, 841 N.Y.S.3d 279 (N.Y. App.Div.)
6. No. The court said that it would be improper to “pierce the corporate veil,” because Patriot
maintained sufficient corporate formalities to preserve the distinction between the company and Judge.
Judge did not exert such control over Patriot that the company was a shell company with no legitimate
purpose. Breen v. Judge, 4 A.3d 326 (Conn. App.)