WEEK 2, CH11 Flashcards
(32 cards)
Businesses can take different legal forms, which affects:
- how the business is set up and operated
- who is responsible for debts
2 types of companies
unincorporated company
incorporated company
Unincorporated Company
*Made up of natural persons with no separate legal identity.
*The owners are the company.
*Governed by normal contract laws.
*Personal Liability: owners are personally and fully responsible for business debts.
2 types of unincorporated companies
Sole proprietorship: Owned by one person, who is fully liable for all debts. Easy to set up, with few formalities or registrations. Business income is treated as personal income (taxed accordingly). Disadvantage: Owner carries all financial risk.
Partnerships: A partnership is a business form with two or more individuals who are personally liable for company debts.
Common in professional and small business settings.
types of partnerships
1.General Partnership (Hapmyung Hoesa in South Korea):
o Partners are actively involved in management and are personally liable.
o Any type of business activity can be run.
- Limited Partnership (Hapja Hoesa):
o Same rules as a general partnership, but includes partners with limited liability.
o Limited partners invest money but don’t manage the business.
In some legal systems (Germany), a distinction is made between:
*Professional partnerships (lawyers, doctors, etc.)
*Commercial partnerships
What is an incorporated company?
A company that is a separate legal entity from its owners.
incorporated company is a separate legal entity from its owners and has the following five key features:
1.Legal personality – company has the same rights as a person.
2.Limited liability – shareholders are only responsible for their investment.
3.Transferable shares – ownership can change hands.
4.Centralized board of directors – manages the company on behalf of shareholders.
5.Ownership by shareholders – based on the number of shares held.
What does legal personality mean for a company?
The company has the same legal rights as a person — it can own property, sue, and be sued.
What is limited liability?
Shareholders are only liable for the amount they invested — not the company’s debts.
What does transferable shares mean?
Ownership of the company can change by buying or selling shares.
Who manages the company in an incorporated business?
A centralized board of directors runs the company on behalf of the shareholders.
Who owns an incorporated company?
The shareholders, based on how many shares they hold.
What is the benefit of separating ownership and management?
Shareholders can own the company without being involved in day-to-day management.
How do companies get funding from shareholders?
By selling shares to raise capital.
What is a private limited company?
A company where shares are owned by a small group of private investors.
What is a public limited company?
A company that is funded by public investors through shares sold on the stock market.
What is another name for a Private Limited Company in some legal systems?
A limited liability company (LLC).
What are Public Limited Companies designed for?
Large businesses funded by the general public.
What’s a key feature of PLCs regarding management?
There is a clear separation between owners (shareholders) and managers.
What is a foundation used for?
pursue social goal, its meaning and structure vary by country.
What is a company limited by guarantee typically used for?
Non-profits — shareholders guarantee to pay a fixed amount if the company goes bankrupt, but don’t own shares.
What is a Societas Europaea (SE)?
A legal form that allows a company to operate across the EU under one legal identity.
What is a joint venture?
A temporary partnership between businesses for a specific project, often used in international or research contexts.
Does a joint venture always require a new company?
No — but it’s often structured as a limited company.
