I.

Types of business organizations

Two types follow the US law: Unincorporated organizations and Incorporated
organizations. - An unincorporated organization (unincorporated association). It may consist
of an individual or a group of people that have come together for a common purpose to start
a business, a nonprofit, set out on a joint venture, or for some other lawful purpose. An
unincorporated organization has not filed articles of association with the secretary of state
(William& Allan, 2008).

- Incorporated organization: the business is registered with a state so that it becomes a

separate legal entity. Legally speaking, incorporated has a narrower definition: A business
that registers as a “corporation” in a U.S. state is a specific type of legal entity that is owned
by shareholders and run by a board of directors. (Robert, 1991).

1.1. Unincorporated organizations

Consists of a single owner who manages and controls the business entirely.
No legal distinction between the business and the owner

A partnership is a legal arrangement where two or more parties, known as partners, agree to
cooperate to advance their mutual interests. The partners combine their resources, such as
money, skills, or property, to operate a business and share the profits and losses (LIT,
Cornell Law School).
Challenges regarding liability and legal standing:

Legal Position

Taxation

Life

Registration

Transferability of Ownership Interest

Dissolution

1.2. Incorporated organization

Limited Liability Company (LLC) is a non-incorporated business organization that retains
elements of both partnerships and corporations.
Allow a lot of flexibility in arranging the organizations to the specific needs of its investors
(LII, Cornell Law School)

A corporation may sue, be sued, lend, and borrow.

A company that has been incorporated can easily transfer ownership through stock sales and
exist indefinitely (LII, Cornell Law School
In the United States, two common legal structures for incorporated organizations are
Limited Liability Companies (LLCs) and C Corporations.
Both LLCs and C Corporations offer limited liability protection to owners
Taxation differs between the two structures
Dissolution can occur due to various events, such as owner death, bankruptcy, or voluntary
agreement by owners (members/shareholders). Both LLCs and C Corporations typically
require filing articles of incorporation with the Secretary of State in the state of formation
(SBA).

Transferability of ownership interest varies, with LLCs generally offering more flexibility.

The dissolution process for corporations involves winding down operations, settling debts,
selling assets, and distributing remaining assets to owners
 Consulting with legal or tax professionals can help determine the most suitable
option for specific needs.

II. Legal formation, management, and financing of different types of business organizations
2.1. Legal formation, management, and financing
2.1.1. Incorporate Organization
2.1.1.1. Sole proprietorship
The simplest form of business formation is the sole proprietorship, which requires minimal
registration with the government.
Select a business name that adheres to local regulations
Registration with the appropriate authorities is necessary

In a sole proprietorship, a single individual retains full ownership and control, making all
decisions regarding the business (Law Shelf, n.d.)

Successful management of a sole proprietorship

Proprietors must set deadlines, maintain discipline, and remain self-motivated to achieve
milestones and overcome challenges.
Continuously track progress, adapt strategies based on data insights, and stay informed
about industry trends and regulations to sustain long-term growth and competitiveness.
Optimize their management approach and drive their businesses toward sustained success.

In terms of financing, sole proprietorships primarily rely on personal savings, loans, or

credit lines (Wolters Kluwer, n.d.).
Funding typically comes from the owner, friends, and family, or loans from local banks.

2.1.1.2. Partnership
Partners must be carefully selected based on shared vision, complementary skills, and
mutual trust.
A distinctive name for the partnership should be chosen, aligning with regulatory guidelines
and reflective of the business's identity.
The drafting of a comprehensive partnership agreement, encompassing key provisions such
as profit-sharing mechanisms, decision-making processes, and dispute-resolution
procedures, is imperative.
 Adherence to tax regulations necessitates registration with the relevant tax authority,
ensuring compliance with fiscal obligations and securing any requisite licenses or
permits essential for lawful operation.

Management within a partnership is typically shared among partners based on mutual

agreement, which may entail equal authority or be determined by individual contributions
(UpCounsel, 2024).
Partnerships may establish hierarchical structures, designating managing partners or
specialized management committees to oversee specific functions (eCampus Ontario, 2024).

The POCCC framework guides partnership management, emphasizing the importance of

setting agreements, defining goals, strategizing, and organizing roles and communication
channels (eCampus Ontario, 2024).
Establishing clear agreements outlining roles, profit-sharing, decision-making processes,
and conflict-resolution strategies
Set collective goals, both short and long-term, and devise strategies to achieve them
Roles are clearly defined, communication channels are established, and tasks are delegated
based on individual strengths
Expectations are articulated, leadership is fostered to motivate and hold partners
accountable, and progress is monitored closely to adapt plans as circumstances evolve

Financing in partnerships involves contributions from partners, potential loans, and

reinvestment of profits (Nolo, 2024). Sources of capital include initial investments,
additional contributions, retained earnings, bank loans, and lines of credit, with profits and
losses shared among partners (Nolo, 2024)
2.1.2. Incorporated Organization
2.1.2.3. Limited Liability Company (LLC)
Selecting a unique and fitting name for the company, ensuring compliance with state
regulations.
Appointing a registered agent, who serves as the company's official representative for legal
and administrative matters, is imperative
Filing the articles of organization according to the specific requirements of the state in
which the LLC is being formed is crucial.
The structure of the LLC must be determined.
Crafting a comprehensive LLC Operating Agreement is then essential, outlining the internal
workings, rights, and responsibilities of members.
Compliance with tax and regulatory requirements follows suit, ensuring adherence to fiscal
obligations and legal standards.
Filing annual reports to maintain active status and registering the LLC to conduct business
in other states

Management of an LLC is typically handled by its members, who can either directly
manage the LLC or appoint managers, offering greater flexibility compared to corporations
(Justia, 2024)

Implementing the POCCC framework is crucial

Planning through an Operating Agreement, setting goals, and developing strategies.
Defining member roles, establishing communication channels, and delegating tasks based
on strengths.
Command, control, and coordination involve setting expectations, fostering leadership, and
tracking progress with key performance indicators (Wolters Kluwer, 2024).

LLCs can obtain financing through various avenues, including member contributions, loans,
investments, and government-sponsored programs (Nolo, 2024)

2.1.2.4. Corporation
The appropriate business structure for the corporation must be chosen, considering factors
such as liability, taxation, and ownership.
The drafting of the Company Charter, also known as the Articles of Incorporation, is
imperative.
Holding a founding meeting is then necessary, during which shareholders and directors are
appointed, and the Company Charter is adopted.
Opening a bank account in the corporation's name follows suit, facilitating financial
transactions and management.
Obtaining the requisite business licenses and registrations from relevant authorities ensures
compliance with legal and regulatory standards.
Ongoing legal compliance, including tax filings, annual reports, and adherence to corporate
governance norms, is vital for the corporation's sustained operations within the bounds of
the law

Planning begins with the establishment of the Articles of Incorporation, setting the legal
foundation and strategic objectives.
The board then formulates long-term goals and devises a roadmap for their achievement.
Management planning breaks down these strategies into actionable plans across departments
like Marketing, Finance, and HR.
Organizational structure is vital, with a clear hierarchy ensuring accountability and efficient
functioning

Corporations have various sources of finance, including issuing stocks or bonds, obtaining
bank or commercial debt, reinvesting earnings, and raising capital through equity or debt
securities

2.1.2. Specific example: (Apple Inc.)

- Apple Inc. was formed legally following the US law:
Choose a business structure

Apply to establish a business

Drafting the Company Charter

Holding the founding meeting

Open a bank account

Obtain business license and registration

Legal Compliance

- Structure:
+ Functional structure is divided into major divisions based on key products and services,
from iPhone, iPad, Mac, and Services to Wearables, Home, and Accessories
+ Board of Directors: Apple's corporate culture places a heavy emphasis on secrecy,
perfectionism, and a focus on innovation, creating a stressful but competitive work
environment.
+ Management structure is flat- a management model with few hierarchical layers, where
power and responsibility are widely distributed among employees rather than concentrated
in top-level management, with decentralized authority and an emphasis on operational
efficiency

- Managed:
Apple's management approach follows the Planning, Organizing, Leading, and Controlling
(POLC) framework, contributing significantly to its success in the technology industry.

+ Planning: Visionary leadership under figures like Steve Jobs and Tim Cook, who provide
a clear direction for the company's future endeavors

+ Organizing: use functional structure that organizes employees into teams based on their
expertise related to specific products or services. Additionally, while decision-making is
centralized around key leaders like Tim Cook, there is also decentralization within
functional and regional teams, allowing for agility and responsiveness

+ Leadership: The company's culture places a premium on secrecy to maintain a

competitive edge and foster an intense focus on product development, ensuring that Apple
remains at the forefront of technological innovation (Duhigg, 2014).

+ Controlling: SMART goals and 360-degree feedback to evaluate employee performance

and ensure alignment with company objectives. Moreover, the company maintains a robust
internal control system to ensure legal compliance, effective risk management, and ethical
use of company resources

Apple Inc. has gone through three stages of capital raising: (Jason D. O'Grady, 2008)
Self-sufficiency period (1976-1977)

Angel Investor and Venture Capital Phase (1977-1980)

Initial Public Offering (IPO) (1980)

III. Advantages and disadvantages of the formation of different types of business

organizations

3.1. Sole Proprietorship

- Advantages

Easy to Set Up

Full Control

Less Paperwork

Profits Taxed as Personal Income

Owner's Information Protection

- Disadvantages
Unlimited Liability

Limited Capital

- SWOT analysis

Strengths (S): Complete control

Weaknesses (W): The owner’s assets may be at risk

Opportunities (O): Easy to penetrate the retail market

Threats (T): Limited capital

3.2. General Partnership

- Advantages:

Low Costs

Share responsibilities and risks

Combination of capital and ideas

- Disadvantages:

Unlimited liability

Challenges in resolving disputes

Lack of professionalism

- SWOT analysis:

Strengths (S) Shared Risk Mitigation

+ Weaknesses (W): Unlimited Liability Exposure

Slow Decision-Making Processes

+ Opportunities (O): Business Expansion Opportunities

Enhanced Competitive Capabilities

+ Threats (T): Internal Conflict and Image Damage

3.3. Limited liability company

- Advantages:

Limited Liability

Less Establishment Requirements

- Disadvantages:

High Taxes Due to Profits, Not Capital Requirements

Conflict Between Directors and Shareholders

- SWOT analysis:

+ Strengths (S): Limited Liability Protection

+ Weaknesses (W): Tax Implications and Potential for Lower Retained Earnings

+ Opportunities (O): Exploiting Niche Markets and Catering to Specific Needs

Specialization and Offering Unique Value Propositions

+ Threats: Internal Conflicts and Member Disputes

3.4. Corporation

- Advantages

Limited liability

Ability to raise capital

- Disadvantages

Double taxation

Complexities of formation and maintenance

Potential for shareholder disputes

- SWOT analysis:

Strengths (S): Limited Liability Protection

Enhanced Ability to Raise Capital

+ Weaknesses (W): Double Taxation

Potential for Shareholder Disputes

+ Opportunities (O): Access to New Markets and Expansion Opportunities

Leveraging Brand Recognition and Reputation

+ Threats (T): Economic Downturns and Market Fluctuations

3.5. Apple's business organizations

- Advantages:
Centralized Decision-Making

Secrecy and Intellectual Property Protection

Strong Brand Identity and Customer Loyalty

Vertical Integration

- Disadvantages:

Limited Agility

High Dependence on Key Personnel

Potential for Innovation Bottlenecks

High Manufacturing Costs

- SWOT analysis:

+ Strengths (S):

Unwavering Brand Identity and Loyal Customer Base

Centralized Decision-Making for Efficient Execution

Culture of Secrecy to Protect Intellectual Property

+ Weaknesses (W):

Limited Agility in Adapting to Market Changes

Higher Manufacturing Costs Compared to Some Competitors

+ Opportunities (O):

Expanding into New Product Categories and Emerging Markets

Leveraging Brand Loyalty to Develop New Service Offerings

Increasing Focus on Environmental Sustainability to Attract Eco-Conscious Consumers

+ Threats (T):

Intense Competition from Established Players and Innovative Startups

Economic Downturns that Could Decrease Consumer Spending

IV. Specific case. - Hoa

Case 3: Guth v. Loft, Inc. (Supreme Court of Delaware, 23 Del.Ch. 255, 5 A.2d 503 (1939).
Charles Guth was the president of Loft, Inc., a candy and syrup manufacturer, which served a
cola drink at its fountain stores. Loft Inc's soda fountains purchased cola syrup from The
Coca-Cola Company, but Guth decided it would be cheaper to buy from Pepsi after Coke
declined to give him a larger jobber discount. Pepsi went bankrupt before Guth (and Loft
Inc.) could inquire about obtaining syrup from Pepsi.
Guth then personally bought the Pepsi company and its syrup recipe. With the aid of Loft Inc
chemists, he reformulated the recipe and soon purported to sell the syrup to Loft Inc.
He was sued by Loft Inc.'s shareholders, who alleged that he breached his fiduciary duty of
loyalty to the company by failing to offer that opportunity to Loft Inc., instead appropriating
it for himself.

IRAC analysis:
- Issue:
Breach of duty of loyalty: Did Guth breach his duty of loyalty to Loft by concealing
information about the Pepsi-Cola acquisition and using company assets for personal gain?
Ownership of the business opportunity: Who does the Pepsi-Cola business belong to: the
individual Guth or the Loft?
Use of Company Assets: Did Guth's use of Loft's assets to develop Pepsi-Cola violate the Use
of Assets Rule?

- Rule
+ Rules of loyalty:
Delaware General Corporation Law: Article 141(a) provides that executives and directors
have a duty to act "honestly, responsibly, and prudently" in the best interests of the public
company.

Require executives and directors to act in the best interests of the company and not to use
their positions for personal gain. Includes tools that can:
Duty to disclose: Disclose to the company any information about a business opportunity that
may benefit the company.
Avoid conflicts of interest: Avoid engaging in activities that could create a conflict of interest
between themselves and the company.

+ Opportunity rule:
Delaware General Corporation Law: Article 141(a) provides that the chief executive officer
and directors have a duty to "disclose to the corporation all information about business
opportunities that may present benefits for the company".

+ Rules for using assets:

Delaware General Corporation Law: Article 141(a) states that executives and directors may
not use "property of the corporation for personal purposes."
- Analysis:
+ Violation of loyalty:
Based on the court's ruling, Guth breached his duty of loyalty to Loft.
Guth did not disclose Loft's management agreement to acquire Pepsi-Cola. Guth used Loft's
assets, including employees, time and money, to develop Pepsi-Cola without the permission
of the board of directors. The court determined that Guth acted in his own personal interests
instead of Loft's best interests.

+ Ownership of business establishments:

The court decided that the Pepsi-Cola business belonged to Loft. Guth discovered Pepsi-
Cola's location information business at the Loft. Guth used Loft's information and assets to
evaluate and develop the Pepsi-Cola business. The court determined that Guth could not use
Loft's position and assets to pursue his own business opportunities.

+ Use of company assets:

The court decided that Guth had violated the Property Use Rules.
Guth used Loft's assets, including employees, time, and money, to develop Pepsi-Cola
without the permission of the board of directors. The court determined that Guth used Loft's
assets for his personal purposes, in violation of the Property Use Rules.

- Conclusion:
Guth committed a crime of loyalty to Loft by concealing information about the commercial
acquisition of Pepsi-Cola and using company assets for personal gain.
The Pepsi-Cola business belongs to Loft, not Guth personally.
Guth violated property use rules by using Loft's property for personal purposes.