Business Law Lesson 2 PDF

Business Law LESSON 2 Nicoletta Michieli [email protected] A.Y. 2024-2025 1  BUSINESS AND THE DIFFERENT LEGAL STRUCTURES: SOLE PROPRIETORSHIPS AND PARTNERSHIPS 2  Business Law 1. It is the body...

Business Law LESSON 2 Nicoletta Michieli [email protected] A.Y. 2024-2025 1  BUSINESS AND THE DIFFERENT LEGAL STRUCTURES: SOLE PROPRIETORSHIPS AND PARTNERSHIPS 2  Business Law 1. It is the body of rules that dictates how to form and run a business. 2. It includes all the laws that govern how to start, buy, manage and close or sell any type of business (entrepreneurial law, company/corporation law, financial markets law, etc.). 3. In a broader view, business law establishes also the rules that all businesses must (or should…) follow (competition law, intellectual property law, environmental law, labour law, etc.). But, first of all, what is a business? 3  A possible definition of business 1/3 What is a business activity? Analyse these hypothesis: 1. Tim lacks a pen; his schoolmate Tom lends him one for free. 2. Tim still lacks a pen; Tom sells him one for € 1, that is the price Tom has paid for the pen. 3. Tim still lacks a pen; Tom – who is quite angry about Tim’s attitude – sells him a new one for € 2. 4. Everyone at school knows that Tom has always a pen to give. Tom buys a stock of 100 pens for a price of € 50 and then he resells them for a price of € 0.50 each. 5. Tom is exhausted for the never-ending requests of pens: he decides to resell them for a price of € 2 each. 4  A possible definition of business 2/3 In your opinion, when does Tom start to make a business? Is just one operation? Or is business necessarily an activity? Does business require an initial investment? Does business require a plurality of organized workers? Does business require again? 5  A possible definition of business 3/3 It doesn’t exist a supranational legal definition of business (there are some definitions in some national laws, but not always: e.g., it doesn’t exist in Italy). However, we can imagine that business: - is an economic operation, that is an operation oriented to balance costs and gains (e.g. also foundations can make business); not necessarily a profit is required. - is a continuous activity or also a single, complex operation (e.g. a stationery shop that sells pen day by day or a company created just to build a single skyscraper). - can involve a single person or many people (workers, officers, directors, etc.). - requires an investment of money or goods (a single worker doesn’t make business). 6 Some examples 7  Many kinds (and aspects) of businesses and laws Legal systems prefer to define who runs a business activity, or to regulate some problematic aspects of running a business. For example, company law establishes the rules of all business activities run by companies; antitrust law contains all the rules to assure that businesses are run in a competition regime, etc. Companies are creatures of the law: enterprises of persons and assets organized by rules (in some Countries company law is a synonym of corporate law, even if a corporation is a legal fiction that differs from a company). 8 ENTERPRENEUR 9  Legal business terms: Entrepreneur Entrepreneur: an individual who founds and runs a (normally small) business and assumes all the risks and rewards of the venture. The job of the entrepreneur isn’t risk free: commercial risk, financial risk, etc. The entrepreneur normally needs: - a marketable idea for new products or services to offer to the market; - personal savings as capital, or some investors funding his business idea (banks, investment funds, etc.) - people (workers, directors, etc.) and resources (a shop, an IT infrastructure, etc.) to manage the business. 10  The legal notion of “entrepreneur” in Italy 1/6 No universal or, at least, European notion of entrepreneur is available In Italy, Art. 2082 ICC: the entrepreneur is “the person [may be an individual or an entity] who engages professionally in an economic activity organized for the purpose of production or exchange of goods or services” 11  The legal notion of “entrepreneur” in Italy 2/6 Elements (art. 2082 c.c.) a) Economic Activity b) Organization c) Economic Method d) Professionalism 12  The legal notion of “entrepreneur” in Italy 3/6 Elements (art. 2082 c.c.) a) Economic activity Production of additional wealth This may occur through the production or exchange of goods or service Personal use or consumption does not amount to an economic activity 13  The legal notion of “entrepreneur” in Italy 4/6 Elements (art. 2082 c.c.) b) Organization Use of productive factors, i.e. capital and/or other people’s labor The principal’s own work activity is not enough per se to qualify as an entrepreneur, if lacking a minimum organization 14  The legal notion of “entrepreneur” in Italy 5/6 Elements (art. 2082 c.c.) c) Economic method The activity is carried out with the institutional purpose of making profits or, at the very least, covering up costs Of course, one does not cease to be an entrepreneur in case of losses. But no enterprise can be run systematically and purportedly to lose money (such is the case, instead, of philanthropic or charitable ventures) 15  The legal notion of “entrepreneur” in Italy 6/6 Elements (art. 2082 c.c.) d) Professionalism The activity is carried out on a regular (rather than occasional) basis This requirement is met also if the entrepreneur engages in other activities (she/he may even have a different main occupation) A seasonal activity as well as a single deal, if complex, may be run in a professional manner 16  Different categories of entrepreneurs 1/3 Dimensional and qualitative criteria Dimensionally, there are small enterprises and non-small enterprises Qualitatively, there are: - commercial enterprises - agricultural enterprises 17  Different categories of entrepreneurs 2/3 Commercial enterprises - non-small commercial enterprise It is defined residually, as any enterprise that is neither small, nor agricultural - Small enterprises: commercial and agricultural enterprises having just minimum organization (double prevalence: labor factors over capital factors; personal and family labor over third parties labor) 18  Different categories of entrepreneurs 3/3 Agricultural enterprises: - Engaged in developing at least one animal or vegetal biological cycle or a necessary phase of it; - They may also engage in connected activities (per se commercial by nature) without losing the qualification as agricultural, if carried out using, in prevalence, products from the main agricultural activity 19 SOLE PROPRIETORSHIP 20  Sole proprietorship 1/2 The most basic way of running a business It does not require any formality to be established The qualification as an entrepreneur triggers the application of the relevant rules (accounting records, mandatory registration in the “business register”) 21  Sole proprietorship 2/2 No limited liability: - debts accrued while running the business are debts of the sole proprietor - business creditors may attach her/his personal assets No entity shielding - The principal may use the business assets for personal purposes - Personal creditors (and creditors whose claims arose in connection with another venture) may attach the business assets 22  PARTNERSHIPS A) General partnerships B) Limited liability partnership 23  PARTNERSHIPS A) general partnerships 1/2 No limited liability partners are jointly and severally liable for the partnership’s debt but ≠ from sole proprietorship: creditors may attach personal assets only after the partnership’s assets have been exhausted Weak entity shielding - Partners are not entitled to take assets from the partnerships, unless they qualify as dividends - Personal creditors may never directly attach the partnership’s assets (in certain cases, they may demand the liquidation of their debtor’s share) 24  PARTNERSHIPS A) general partnerships 2/2 As a default rule, the right to manage the business and bind the partnership vis-à-vis third parties is several among partners Each partner is individually entitled to take decisions and assume obligations on behalf of the partnership If one partner dissents, she/he may require to put the challenged decision to the vote, provided that it has not yet been carried out Most rules concerning how to manage a general partnership can be derogated by will of the partners For example, providing joint or majority administration 25  PARTNERSHIPS B) Limited liability partnership Similar to the general partnership The main feature is the existence of a class of partners that enjoy limited liability Passive partners: do not have administrative rights This is the application of a grounding principle of corporate law: power stays with risk are entitled to monitor operative partners regarding the way they handle the business and to periodically receive financial statements 26  LEGAL BUSINESS TERMS: FIRM Firm: a form of business organisation that sells or distributes goods or services. The term firm is often associated with business organisations that practice law (particularly those involving hundreds of attorneys), but the term can be used for various business operation units, and is normally interchangeably with “business”, “undertaking ”, and “enterprise”. A single firm can consist of one or more establishments, as long as they fall under the same ownership and use the same commercial name (e.g. Amazon Inc. has many factories and offices across the U.S., but it ’s just one firm). 27  LEGAL BUSINESS TERMS: COMPANY Company: an enterprise formed by persons and assets, that are organised by rules and they are finalized to produce or distribute goods or services. These rules are determined by: - law; - contracts or other forms of agreements; - unilateral actions of corporate organs or officials; - market forces. Companies are creatures of the law: each form has its own liabilities and benefits. 28  The choice of the form of business activity - Sole Trader/Entrepreneur: the natural person that sets up and runs the business (illimited risks and benefits). - Partnership: an association of natural people that provides an initial capital, sets up and manages the business together (illimited risks and shared benefits). - Limited Liability Company/Corporation: an association of natural people that is a «Legal person», i.e. a legal fiction that sets up and manages the business with its own patrimony: the natural persons are not personally liable for the company's debts or liabilities (limited risks and shared benefits). 29  A PIECE OF HISTORY: THE EAST INDIAN COMPANIES The first corporation in the history was the British East Indian Company: it received a royal Charter from Queen Elizabeth I on 31th December 1600. The second corporation was the Dutch East Indian Company, founded in 1602: it introduced the first permanent joint stock exchange from 1612, where its shares could be traded everyday. They were created for the commerce to Asia and they had a legal personality: they had their own armies and fleets and they ruled directly on vast territories of India and Far East. 30 31  PRIVATE VS. PUBLIC COMPANIES A private company: - The firm is held under private ownership. - The company may issue stock and have shareholders, but their shares are not issued through an initial public offering and aren’t traded on public exchanges. - The shares of these businesses are less liquid, and their price is more difficult to determine. A public company: - The company has issued securities through an initial public offering, and is traded on at least one stock exchange or in over-the-counter markets (e.g. NYSE, NASDAQ). - Becoming a public company allows the market to determine the value of the entire company through daily trading. 32  FOR PROFIT VS. NOT FOR PROFIT ORGANISATIONS For profit: the entity aims to get a profit (egoistic purposes). At the end of the financial year, the profit (or part of it) is distributed among the owners of the business: sole traders; partnerships; corporations; cooperatives. Not for profit: the entity aims not to get a profit (altruistic purposes). At the end of the financial year, the profit is not distributed among the owners, but is used for the objective of the organisations. 33  THE SIZE OF THE ENTERPRISES The EU recommendation 2003/361 defines the Small and Medium-sized Enterprises (SMEs). In EU 99% of enterprises are SMES (often family-based business). 34