A basic question facing anyone starting a business is which of several forms of business organization available will be most appropriate for that particular business endeavor.  In selecting a form, owners consider many factors, including the cost of forming and operating the entity, the difficulty of raising the capital necessary to launch the business, who manages the business, the tax implications of the form selected, how easy it is to transfer ownership, and, of course, the liability of owners.  Entity selection can significantly reduce the owner’s risk of liability to third parties.  This module examines these factors and introduces you to the traditional forms of business entities — sole proprietorship, general and limited partnership and corporation — as well as the limited liability company and the limited liability partnership.

Partners owe fiduciary duties of loyalty and due care to other partners, while officers, directors and controlling shareholders owe these same duties to each other and to the corporation.  The business judgment rule protects directors from liability for decisions that are later challenged as unwise or mistaken, so long as the directors acted in the honest and good faith belief that their actions were in the best interest of the company.

Some of you may already run your own business and others may want to form one someday.  In addition to readings and videos that explore the advantages and disadvantages of each type of business entity, this module links you to interactive websites that walk you through the steps in starting a business.  The Small Business Administration also has a “Learning Center” with a short “course” (20 minutes) with video instruction (and a written transcript) on Legal Requirements for Small Business. Your instructor may assign you to complete some of these “courses” or make them available for extra-credit – check your syllabus!