Business Law Sole Proprietors, Partnerships, Corporations, LLC

What events can cause dissolution?

(1) by express will of any partner (2) by expiration of its term/undertaking is completed (3) mutual assent (4) expelled partner (5) illegal partnership activity (6) partner's death (7) bankruptcy (8) court decreed dissolution of any partnership

How is a partnership taxed?

-A partnership is taxed in a manner similar to a Sole Prop. -The income and losses flow through the partnership and become part of the personal tax returns of each partner -Single taxation-they are flow-through tax entities. Each partner reports his or her share of partnership income or loss on his own form

Duties of Partners-Fiduciary Relationship

-Duty of loyalty -Duty of care -Duty to inform -Duty of obedience

Dissolution of Limited Partnership:

-End of the life of the partnership -Written consent of all partners -Withdrawal of general partner - retirement, death, insanity, bankruptcy, etc -Decree of judicial dissolution - no longer practicable to carry on business -Assets paid out in usual order

Sole Proprietor bears the personal liability of the business:

-If the business fails, he loses all his investment -If the business incurs a debt, the owner incurs the debt to the limit of all he owns -Therefore a creditor may recover what he is owed by taking (or causing the sale of) the owner's house, car, bank account.

Limited Liability Company

-LLC's are an alternative to a general or limited partnership. -All members of an LLC have limited liability for LLC's debt -Treated as a corporation for liability purposes, but as a partnership for federal tax purposes. -No limitation on the # of members nor the type of entity that can be a member

Characteristics of Corporation

-Limited liability of shareholders -Free transferability of shares -Perpetual existence -Central management -Chief reason to incorporate is to limit the liability of the owners. -Liability limited to the loss of their investment. -No individual liability for torts or other judgments against the corporation

General Partnership Agreement

-May be written, Oral or Implied by conduct of the parties -Without an agreement, it may be difficult to determine exactly how rights, duties and liabilities are to be allocated. -Generally, its good to have in writing

Rights of General Partners

-May or may not have a Partnership Agreement. Regardless each partner has the following rights and duties: -Share in management and profits -Right to compensation/reimbursement and return of loans and capital -Right to information

Liability of Partners

-Personal liability for contracts and torts of partnership, regardless of which partner was responsible -Jointly and severally liable - even if did not participate in tortious act. -Release of one partner does not affect liability of the others -Partners are jointly liable on partnership contacts - name all partners and collect against any or all.

RULPA

-Revised Uniform Limited Partnership Act -Creatures of statute -Under the Revised Uniform Limited Partnership Act, limited partners may engage in certain "safe harbor" activities without losing their protection from liability. These activities include being a contractor for, or an agent or employee of, the limited partnership or of a general partner

Corporations

-The law treats a corporation as a legal "person" that has standing to sue and be sued, distinct from its stockholders. The legal independence of a corporation prevents shareholders from being personally liable for corporate debts. -most dominant form of business organization.

Uniform Partnership Act (UPA)

-This act governs partnerships -establish consistent partnership law among the various states -based in the English common law of partnership -adopted the entity theory of partnership which considers a partnership a separate legal entity -allows person to transact business under the names of the partners or a trade name -does not have to be followed to have a valid partnership

Limited Liability Partnership (LLP)

-Used for professional services (accountants, doctors, lawyers) -No General partner. -All partners have limited liability with respect to the debts and obligations of the partnership. (-It gives liability protection to general partners? )-All partners enjoy the flow through tax benefit.

General Partnership

-When two or more competent parties combine their money, labor, and skills for the purpose of carrying on a lawful business -General partners are personally liable for all the debts and obligations of the partnership -no real formalities required aside from the intent to form a partnership -ALL PARTNERS HAVE UNLIMITED LIABILITY

S-Corporation

-a corporation taxed as a partnership. - Must be a domestic corporation, have less than 75 shareholders, elect to be under Sub-Chapter S Revision Act of 1982

Sole Proprietors

-a form of business that is owned and operated by one person-operated by a person as own personal property-extension of the owner-all responsibilities -simplest form of business-no formalities -owner bears sole risk of liability and is liable to full extent of his assets

Partnerships

-an association of two or more persons to carry on a business for profit -creates certain rights and duties among partners -General Partnership -Limited Partnership

Certificate of Limited Partnership:

-filed with the Secretary of State of the appropriate state. -document that two or more persons must execute and sign that makes a limited partnership

General Partners:

-invest capital -manage the business -are liable for debt

Limited Partners:

-invest capital -not liable for debts beyond their investment

Considerations in selecting a business form

-limited liability -tax considerations -formalities to be observed -financing -management -life of the business -liquidity

New limited partners can be admitted upon:

-written consent of all partners -the same is true of new general partners

A limited partnership involves:

1 or more general partners and 1 or more limited partners

what are the exceptions to the general rule of liability of limited partners?

1. defective formation 2. participation in management 3. personal guarantee

Formation of general Partnership:

4 criteria: -association of 2 or more people -carrying on a business -as co-owners -for profit All must agree to participation of each as a co-partner. Most important factor in determining partnership is whether the parties share profits and management responsibility. -Share of profits= prima facie evidence of partnership as employees get wages, not profits.

Duty of loyalty

Basic breaches are: -Self-dealing -Usurping partnership opportunity -Competing with partnership -Secret profits -Breach of confidentiality & misuse of property

Limited Partnership

One or more limited partners are only liable for their contributed capital. Legally, all limited partnerships have at least one general partner. LIMITED LIABILITY

Share of profits

Prima facie evidence of partnership as employees get wages, not profits.

How is a sole proprietorship taxed?

Single taxation. It is not viewed as a separate taxable entity but rather, flows through to the owner's ?

Franchises

The owner of a trademark licensing an independent business person to use the Trademark name, usually independent of the franchisor

When does the dissolution in a partnership occur?

When there is any change in the individuals who make up the partnership

Unlimited Liability

a business owner is responsible for all losses experience by the business

Foreign Corporation

a corporation incorporated in another state.

Domestic Corporation

a corporation incorporated in this state

Alien Corporation

a corporation incorporation in a foreign country

Professional Corporations

associations of professionals formed to limit personal liability

Private Corporations

conduct business

Profit/Nonprofit Corporations

conduct business for profit or for charitable, educational, etc. purposes

Public Corporations

formed to meet a specific governmental purpose

The creation of a limited partnership:

is formal and requires public disclosure. Comply with RULPA

general rule of liability of limited partners of a limited partnership

limited partners are not individually liable for the obligations of the partnership beyond the amount of their capital contribution

foreign limited partnership

limited partnership in all other states besides the one in which it was formed

domestic limited partnership

limited partnership in the state in which it was formed

Publically Held v. Closely Held

lots of shareholders v. few shareholders, normally family members

Liability of general partners

unlimited personal liability, just like any other general partner of a limited partnership for the debts and obligation of the general partnership

Duty of care

use reasonable care and skill in transacting business