Business Law Ch 20 Hybrid Business Forms

Limited liability company

: it allows all its owners (members) insulation from personal liability and pass-through (conduit) taxation. (1) limited liability, (2) centralized management, (3) continuity of life, or (4) free transferability of interests. statuted for creation

Limited partners

General partners owe fiduciary duties to other general partners, the firm, and the limited partners; limited partners who do not exercise control do not owe fiduciary duties. IS not an agent of partnership The limited partners are only liable up to the amount of their capital contribution, provided the surname of the limited partner does not appear in the partnership name (unless his name is coincidentally the same as that of one of the general partners whose name does appear) and provided the limited partner does not participate in control of the firm.

Creation of Limited Partnership

The act requires that the firm's promoters file a certificate of limited partnership with the secretary of state; if they do not, or if the certificate is substantially defective, a general partnership is created. Must be signed by all general partners, include the name of the business with the name Limited Partnership in the title, and the owners addresses General partner can be a corporation.

Dissolution

The following events may cause dissolution: (1) termination of the partnership as per the certificate's provisions; (2) termination upon an event specified in the partnership agreement; (3) the unanimous written consent of the partners; (4) the withdrawal of a general partner, unless at least one remains and the agreement says one is enough, or if within ninety days all partners agree to continue; (5) an event that causes the business to be illegal; and (6) judicial decree of dissolution when it is not reasonable to carry on. If the agreement has no term, its dissolution is not triggered by some agreed-to event, and none of the other things listed cause dissolution. First step in termination. Dissolution requires the filing of a certificate of cancellation with the state if winding up commences.

Limited partnership

The limited partnership is attractive because of its treatment of taxation and its imposition of limited liability on its limited partners. a partnership formed by two or more persons under the laws of a State and having one or more general partners and one or more limited partners. Unlike a general partnership, a limited partnership is created in accordance with the state statute authorizing it. There are two categories of partners: limited and general. The limited partners capitalize the business and the general partners run it.

Termination

The limited partnership's termination involves the same three steps as in a general partnership: (1) dissolution, (2) winding up, and (3) termination.

Captitalization

The money to capitalize the business typically comes mostly from the limited partners, who may themselves be partnerships or corporations.

Rational for Hybrid

The rationale for the invention of these hybrid business forms, then, is (1) risk reduction and (2) tax reduction.

A limited partnership

comes into existence when a certificate of partnership is filed and is not likely to be the business form of choice if a limited liability limited partnership option is available

Control

generally NOT shared by both classes of partnersh

Winding up

he assets are distributed (1) to creditors, including creditor-partners, not including liabilities for distributions of profit; (2) to partners and ex-partners to pay off unpaid distributions; (3) to partners as return of capital contributions, unless otherwise agreed; and (4) to partners for partnership interests in proportion as they share in distributions, unless otherwise agreed. When it is completed termination is done.

Puentes is a limited partner of ABC, LP. He paid $30,000 for his interest and he also loaned the firm $20,000. The firm failed. Upon dissolution and liquidation,

if Puentes holds partnership property as collateral, he can resort to it to satisfy his claim if partnership assets are insufficient to meet creditors' claims.

Reference to "moral hazard" in conjunction with hybrid business forms gets to what concern?

that the trend toward limited liability gives bad actors little incentive to behave ethically because the losses caused by their behavior are mostly not borne by them

One of the advantages to the LLC form over the sub-S form is

the LLC form requires fewer formalities in its operation (minutes, annual meetings, etc.).

General partners

the control is in the hands of them. Is an agent of partnership and owes fiduciary duty to limited partners. Most likely management Often, general partners are paid for their management work on a sliding scale, receiving a greater share of each dollar of cash flow as the limited partners' cash distributions rise, thus giving the general partner an incentive to increase limited-partner distributions. Is liable in a general partnership

Peron and Quinn formed P and Q Limited Partnership. Peron made a capital contribution of $20,000 and became a general partner. Quinn made a capital contribution of $10,000 and became a limited partner. At the end of the first year of operation, a third party sued the partnership and both partners in a tort action. What is the potential liability of Peron and Quinn, respectively?

unlimited and 10,000

Taxation

usually pass through