Silicon Valley Business School

Contents of SVBS Course: Business Organizations

Limiting liability for company founders and investors is an issue for all business people to consider. Another topic of interest for entrepreneurs is the balance of power between the shareholders, directors and officers. In this module, the legal aspects of agency are presented, and the various forms of business entity, including sole proprietor, partnership, corporations, and LLCs are compared and contrasted. Students learn the principles of limited liability, corporate formation, the appointment and powers of officers of directors.

Learning Objectives and Outcomes

Upon completion of this course you will be able to:

Select the most appropriate form of business organization for a new startup venture. The student will be able to determine whether a sole proprietorship, partnership, LLC or corporation is most suitable for a particular type of business.
Organize a corporation, assigning powers and duties to the corporate directors, officers and shareholders.
Form a corporation or LLC.

Course Sections

The course is organized into the following sections:

Business Organizations: Sole Proprietor
Business Organizations: Agency
Business Organizations: Partnerships
Business Organizations: Limited Liability Companies ~ LLC's
Business Organizations: Corporations ~ Introduction to US Corporations
Business Organizations: Corporations ~ Formation
Business Organizations: Corporations ~ Shares
Business Organizations: Corporations ~ Officers
Business Organizations: Corporations ~ Shareholders
Business Organizations: Corporations ~ Directors
Business Organizations: S-Corporations & Other Variations
Business Organizations: Corporations ~ Duties and Conflicts
Business Organizations: Corporations ~ Piercing the Corporate Veil
Business Organizations: Derivative Lawsuits
Business Organizations: Corporate Fraud
Business Organizations: Introduction

Business Organizations: Introduction
  • Video ~ Summary of Reasons to Incorporate a Business
  • If you are starting a new small business, you're likely considering a series of legal questions, such whether to incorporate the business or operate it as a sole proprietorship or a partnership. If you concluded it makes sense to incorporate, a new round of considerations come into play -- whether to form a limited liability company, called an LLC, or a regular business corporation, and if so, what type of corporation?

  • Reading ~ Business Organizations
  • The article provides information regarding Business Organization law. Business organization law refers to the numerous ways a business may be legally formed under state laws. In addition to incorporating as a corporation, businesses may also be formed as partnerships, limited liability companies (LLCs), S Corporations, and other business forms.

  • Reading ~ Why Delaware Corporations are so Popular
  • The article provides information regarding why Delaware continues to be the favored state of incorporation for U.S. businesses.

  • Book ~ Zero-to-IPO
  • The book, Zero-to-IPO, written by David Smith, plots out the life of a high-tech startup in the context of a journey. The journey starts at Zero with the formation of a private company to commercialize a new technology or invention. This journey terminates when the company reaches its destination, and ceases to exist as a private, independent corporation—at IPO, Acquisition or Shutdown.

  • Reading ~ Book: Zero-to-IPO ~ Form a Corporation
  • Your corporation is a business entity that’s separate and distinct from yourself. It can conduct business, sue and be sued in its own name. As an officer of the company, this limits your personal liability from creditors and legal claims.

  • Reading ~ Book: Zero-to-IPO ~ Select a Good Company Name
  • A good name for your company is easy to remember and creates a positive image.

    Business Organizations: Sole Proprietor
  • Video ~ Sole Proprietor
  • The Sole Proprietor (or “Sole Trader”) is a business organization that is “one and the same” with the owner. There is no legal distinction between the owner and the business. This is the simplest form of business organization.

  • Video ~ What is a Sole Proprietorship
  • Video explains what a Sole Proprietorship is.

  • Video ~ A Couple Key Reasons to Create a Business Entity
  • Video shares three key reason to create a business entity. These reasons will give you an understanding as to why a business entity can benefit you.

  • Slideshow Handout ~ Sole Proprietor
  • PDF slides for the learning material titled: "Video~Sole Proprietor".

  • Reading ~ Sole Proprietorships
  • Sole proprietorships are the simplest of all legal structures but they also lack many of the legal and financial protections of other business forms. If considering starting a business as a sole proprietor, remember there are various advantages and disadvantages. Sole proprietors experience the key advantage of being their own boss, but concurrently shoulder the burden of being responsible for the business's success and failure.

    Business Organizations: Agency
  • Video ~ Agency
  • Agency is a three party relationship whereby a principal appoints and authorizes an agent to engage with the third party on the principal’s behalf.

  • Video ~ Agency by Ratification
  • What is agency by ratification? This video introduces circumstances where a principal subsequently ratifies the activity of a person who was not acting on her behalf at the time.

  • Slideshow Handout ~ Agency
  • PDF slides for the learning material titled: "Video~Agency".

  • Reading ~ Agency Law
  • Agency law refers to the relationship between a person, or “agent,” that acts on behalf of another person, company, or government, usually called the “master” or “principal.” An agency is formed when a principal asks an individual to make a delivery or names someone as an agent through a contract leading to the responsibility of the principal for actions made by the agent while the agent’s actions are akin to those of the principal. This form of agency can be, and often is, enforced by written agreements made through a power of attorney.

    Business Organizations: Partnerships
  • Video ~ Partnerships
  • A Partnership is an association of two or more to carry on as co-owners of a business, for profit. Partners (owners) share with each other the profits or losses of the business.

  • Video ~ What is a General Partnership?
  • Video discusses what a general partnership is. This information will help out small business owners when thinking of starting a general partnership.

  • Video ~ Sole Proprietorship vs. General Partnership
  • Video discusses the features, advantages and disadvantages of Sole Proprietorships as well as General Partnerships. This information will help small business owners understand the pros and cons of a sole proprietorship as well as a General Partnership.

  • Slideshow Handout ~ Partnerships
  • PDF slides for the learning material titled: "Video~Partnership".

  • Reading ~ Partnerships
  • Partnerships are the simplest type of legal structure to form for businesses with two or more principles; but while partnerships have no formal paperwork requirements, they usually don't protect partners from liability.

  • Reading ~ Partnership Rules
  • While starting a partnership is much easier than incorporating, there are rules and best practices that should be adhered to. In this article, you will find answers to some of the most frequently asked questions with regard to Partnership rules.

  • Reading ~ How to Form a Partnership
  • Step-by-step guide to forming a partnership.

    Business Organizations: Limited Liability Companies ~ LLC's
  • Video ~ Limited Liability Companies (LLC's)
  • A Limited Liability Company (LLC) is a hybrid combining features of a Corporation with features of a Partnership.

  • Video ~ What is a Limited Liability Company or LLC?
  • Video explains what a Limited Liability Company (LLC) is.

  • Video ~ Advantages of an LLC vs S Corp
  • Slideshow Handout ~ Limited Liability Companies (LLC's)
  • PDF slides for the learning material titled: "Video ~ Limited Liability Companies (LLC's)".

  • Reading ~ Limited Liability Companies
  • A limited liability company, also known as an LLC, is a business structure that has features similar to both corporations and partnerships. LLCs protect owners from certain liabilities, including business debts, while the legal structure allows for a flexible management arrangement. This article provides an overview of limited liability companies.

    Business Organizations: Corporations ~ Introduction to US Corporations
  • Video ~ Corporations: Introduction
  • This voice narrated slideshow provides an introduction to U.S. Corporations. A corporation is a distinct legal entity separate from its owners. The corporation pays its own taxes. It can sue and be sued in its own name. It can buy, sell and own property. The corporation lives on after the death of its owners.

  • Video ~ What is a C Corporation?
  • Silicon Valley Trends Podcast ~ Forming the Startup Company and Partnering with Co-Founders
  • David talks to Mark Cameron White, Harvard-educated lawyer who founded and financed hundreds of Silicon Valley startups, about forming the company and forming the founding team.

  • Slideshow Handout ~ Introduction to US Corporations
  • PDF slides for the learning material titled: "Video ~ Corporations: Introduction".

  • Reading ~ Corporations
  • Reading ~ Corporation versus LLC
  • This article is designed to help you figure out whether a corporation or a limited liability company (LLC) is best for your business.

    Business Organizations: Corporations ~ Formation
  • Video ~ Corporations: Formation
  • A corporation is formed when a state grants a “charter” for the company to operate as a corporation.

  • Video ~ Forming a Corporation
  • Video ~ How to Register your Employee ID Number
  • Video explains why you need an EIN and how to register one.

  • Podcast ~ Forming the Startup Company and Founding Team
  • David talks to Mark Cameron White, Harvard-educated lawyer who founded and financed hundreds of Silicon Valley startups, about forming the company and forming the founding team.

  • Video ~ Delaware Franchise Tax Calculator
  • If you authorized a large number of shares, in the Silicon Valley cookie-cutter style of doing business, then you definitely need to use the Assumed Par Value Capital Method--otherwise you will get a shockingly large tax bill.

  • Video ~ Distributing Shares to Startup Founders and Other Team Members
  • How to divide shares among founders, employees and other team members. Note: the numbers in the column "Vesting Monthly over 4 Years" refer to the shares that vest monthly, not yearly.

  • Why Choose a C-Corporation for Your Startup Journey
  • In this podcast you will learn why C-Corporations are the vehicle of choice for tech startups in Silicon Valley and the tech sector. You’ll learn why it doesn’t make sense to operate as an S-Corporation, or an LLC, and how you can escape paying taxes when you sell your C-Corporation shares.

  • Video ~ Forming a Delaware Corporation--Silicon Valley Style
  • Video shows you how to form your own Delaware corporation in the cookie-cutter style familiar with venture capital investors. The video explains how much stock to authorize, and the steps in the incorporation process.

  • Slideshow Handout ~ Corporations: Formation
  • PDF slides for the learning material titled: "Video ~ Corporations: Formation".

  • Slideshow Handout ~ Forming a Corporation
  • PDF slides for the learning material titled: "Video ~ Forming a Corporation".

  • Reading ~ How to Incorporate
  • This article provides an outline of the general steps regarding how to incorporate a business.

  • Reading ~ Promoter
  • Reference ~ Sample Vesting Stock Purchase Agreement
  • Sample vesting stock purchase agreement with 48 month vesting.

  • Reference ~ Sample Articles & Bylaws
  • Certificate of Incorporation for Delaware Corporation from Series Seed/Fenwick & West. Note: this was designed by lawyers represeneting to protect the preferred stock investor's interests. These bylaws are unsuitable for a startup that does not plan on issuing preferred stock.

  • Reference ~ Sample First Organizational Meeting
  • Sample template for company's first organizational meeting.

  • Reference ~ Sample Equity Incentive Plan
  • Business Organizations: Corporations ~ Formation

  • Reference ~ Sample Bylaws for Delaware Corporation
  • Bylaws template for Delaware corporation.

    Business Organizations: Corporations ~ Shares
  • Video ~ Corporations: Shares
  • Owners of the corporation hold shares of stock. A share is a fraction of ownership of the corporation.

  • Slideshow Handout ~ Corporations: Shares
  • PDF slides for the learning material titled: "Video ~ Corporations: Shares".

    Business Organizations: Corporations ~ Officers
  • Video ~ Corporations: Officers
  • Video ~ How Was Steve Jobs Fired From Apple?
  • Slideshow Handout ~ Corporations: Officers
  • PDF slides for the learning material titled: "Video ~ Corporations: Officers".

  • Reading ~ Corporate Structure
  • The roles and responsibilities of directors, corporate officers and shareholders of a corporation are presented in this article.

  • Reading ~ Why Purchase Directors' and Officers' Insurance?
  • Business Organizations: Corporations ~ Shareholders
  • Video ~ Corporations: Shareholders
  • This voice narrated slideshow presents information regarding the rights and authority of corporate shareholders.

  • Slideshow Handout ~ Corporations: Shareholders
  • PDF slides for the learning material titled: "Video ~ Corporations: Shareholders".

    Business Organizations: Corporations ~ Directors
  • Video ~ Corporations: Directors
  • This voice narrated slideshow presents information regarding the appointment, authority and responsibilities of the Board of Directors of a corporation.

  • Video ~ Corporations: Directors 2
  • This voice narrated slideshow presents information regarding the roles and responsibilities of the Board of Directors of a corporation.

  • Slideshow Handout ~ Corporations: Directors
  • PDF slides for the learning material titled: "Video ~ Corporations: Directors".

  • Reading ~ Are You Getting All You Can From Your Board Of Directors?
  • This article provides information regarding the role of corporate boards in guiding and overseeing public companies.

    Business Organizations: S-Corporations & Other Variations
  • Video ~ Corporations: Variations
  • Video ~ What is an S Corporation?
  • Video explains what an S Corporation is. This information will help you in understanding some of the benefits and restrictions of an S Corporation.

  • Slideshow Handout ~ Corporations: Variations
  • PDF slides for the learning material titled: "Video ~ Corporations: Variations".

  • Reading ~ Tax Differences Between C and S Corporations
  • This article provides a basic summary of the tax differences between C corporations and S corporations.

  • Reading: How to Distribute Net Profits Before Year's End for an S Corp
  • This article explains how any distribution of an S corporation's net profits before year's end does not affect the tax liability of the corporation's shareholders. The entire profit or loss of an S corporation is passed through to shareholders' tax returns, whether distributed or not.

  • Reading ~ S-Corporations Pay Distributions, not Dividends
  • Shareholders of a corporation are entitled to a share of the corporation's profits. The way profit distributions are classified and handled depends on the way the corporation pays taxes. An S corporation's special tax status requires it to allocate profits to shareholders every year, but does not require the corporation to distribute the profits.

  • Reading ~ S-Corporations by the IRS
  • S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income. S corporations are responsible for tax on certain built-in gains and passive income at the entity level.

    Business Organizations: Corporations ~ Duties and Conflicts
  • Video ~ Corporations: Duties & Conflicts
  • Silicon Valley Trends Podcast ~ Who Holds the Power in your Company?
  • The powers of shareholders, the board of directors, officers, the CEO and how decisions are made in startups and other companies.

  • Slideshow Handout ~ Corporations: Duties & Conflicts
  • PDF slides for the learning material titled: "Video ~ Corporations: Duties & Conflicts".

    Business Organizations: Corporations ~ Piercing the Corporate Veil
  • Video ~ Corporations: Piercing Corporate Veil
  • Forming a corporation is intended to create a veil of protection for the shareholders. However, creditors sometimes are able to break through the limited liability shield of the corporation and hold the owners personally liable for the corporation’s debts. This most often occurs when the corporation lacks separation from the owner(s), especially where the owner and the corporation are virtually one and the same. The veil of limited liability is pierced most often where the corporation has a single shareholder. It sometimes takes place when there are two shareholders, and seldom takes place when there are three or more owners. A key factor in these “piercing the corporate veil” cases is intermingling of bank accounts and assets. If the owner treats corporate assets as his or her own, the court will do the same and hold the owner personally liable. The court is looking to see if the corporation is merely a “shell”. Courts will not allow corporate liability shield to be manipulated to defraud or create injustice.

  • Slideshow Handout ~ Corporations: Piercing Corporate Veil
  • PDF slides for the learning material titled: "Video ~ Corporations: Piercing Corporate Veil".

  • Reading ~ Officer and Director Liability: "Piercing the Corporate Veil"
  • This article provides a brief summary of what it means to "pierce the corporate veil" and instances when officers or directors may be held liable.

  • Reading ~ Piercing the Corporate Veil; (Read pages 1036-1043.)
  • Business Organizations: Derivative Lawsuits
  • Video ~ Corporations: Derivative Suits
  • Slideshow Handout ~ Corporations: Derivative Suits
  • PDF slides for the learning material titled: "Video ~ Corporations: Derivative Suits".

  • Reading ~ Shareholder Derivative Suit
  • Business Organizations: Corporate Fraud
  • Video ~ Corporations: Fraud
  • Reading ~ Securities Fraud
  • This article provides information on common forms of securities fraud.

  • Slideshow Handout ~ Corporations: Fraud
  • PDF slides for the learning material titled: "Video ~ Corporations: Fraud".

    Certificate Course
    This certificate tracks your progress and tests you in each section. Once you have passed all the quizzes, submitted an assignment and reviewed all the materials, you will be awarded a certificate of completion.