Establishing a Business - Sole Proprietorship, Partnerships and Corporations.

This topic aligns with the objective of explaining a corporation's legal structure and differentiating it from other forms of the business organization, the meaning of limited liability for the owners and describing the relationship of the various stakeholders.

The law affects every aspect of business. Wise and successful entrepreneurs know how to use the law to their advantage. Entrepreneurs must select a form of organization. The correct choice can reduce taxes, liability, and conflict while facilitating outside investment.

Case: Matter of Jeffery M. Horning v. Horning Constr. L.L.C. Misc. 3d 402 (N.Y. Sup. Ct. 2006)

Jeff Horning, if only he had understood business law. Horning owned a thriving construction company, which operated as a corporation. Horning Construction Company Inc. To lighten his crushing workload, he brought in two partners to handle some day-to-day responsibility. It seemed like a good idea at the time.

Horning transferred the business Horning Construction L.L.C. and then gave one-third ownership each to two trusted employees. Klimowski and Holdsworth. But Horning did not pay enough attention to the legal formalities associated with the business. This new L.L.C. had no operating agreement.

Nothing worked out as he had planned. The two men did not take on extra work. Horning's relationship with them went from bad to worse, with the parties bickering over every petty detail and each man trying to sabotage the others. It got to the point where Klimowski sent Horning a letter full of insults and swears. At his wit's end, Horning proposed that the L.L.C. buy out his share of the business. Klimowski and Holdsworth refused.

Totally frustrated, Horning asked a court to dissolve the business on the grounds that Klimowski despised him, Holdsworth resented him, and neither of them trusted him. In his view, it was their goal to "make my remaining time with Horning, L.L.C. so unbearable that I will relent and give them for a pittance the remainder of the company for which they have paid nothing to date."

Although the court was sympathetic, it refused to help. Because Horning Construction L.L.C. did not have an operating agreement that provided for a buyout, it had to depend on the L.L.C. statute, which only permitted dissolution "whenever it is not reasonably practicable to carry on the business." Unfortunately, Horning Construction L.L.C. was very successful grossing over $25 million annually. Jeffery Horning was stuck in purgatory, with two business partners he loathed and no way out.

Business Entity Formation - Video: 14:55

Review the video on Legal Basics and Business Entity FormationLinks to an external site. to learn about the different ways to establish entrepreneurship. This information aligns with the learning outcome, compare and contrast the legal ramification of alternative business decisions. Answer the study questions provided for understanding.