Business Law 4540 - Introduction To Business Organizations

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Sole proprietorship

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(SP) An individual engaged in business as owner of the business.

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General Partnership

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(GP) 2 or more persons engaged in business as joint owners of the business for profit.

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Limited Partnership

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(LP) A partnership registered under a limited partnership statute having at least one general partner and one limited partner.

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Corporation

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(Corp.) An artificial entity created by registration a state statute providing limited liability to it's owners, the shareholders and governed by an elected board of directors.

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Limited liability corporation

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(LLC) An artificial entity registered under a state statute providing limited liability to its owners, the members and providing a choice between corporate and partnership characteristics.

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Limited liability

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Absent a personal guarantee, an owner is liable for business debts only to the extent of his investment. The owner's personal assets cannot be affected or sold to pay a business debt.

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Unlimited liability

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Personal liability: the businesses creditors may attach peronsonal assets to pay the business debt.

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Double taxation

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The business entity is taxed on income and distribution to owners are also taxed.

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Flowthrough taxation

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Business profits and losses are recognized on the owner's tax return.

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Centralized management

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Management is made by the owners

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Decentralized management

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Management decisions made by a vote of the owners

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Perpetual life:

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An owner's death or actions do not automatically dissolve the business.

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Limited Life:

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Owner's death, withdraw or other actions can dissolve the business entity.

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Free transferability

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Absent agreement otherwise, the owners may transferfull rights of ownership without approval of the other owners.

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Limited transferability

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Approval of the other owners is required to transfer full rights of ownership.

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Sole proprietorship - liability

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Unlimited

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General Partnership liability

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Unlimted

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Limited Partnership liability

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Unlimited liability for the general partner

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Corporation liability

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Limited liability for the shareholders

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Limited liability company

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limited liability for the members

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Sole proprietorship taxation

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Flow through taxation to the sole proprietor

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General partnership taxation

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Flow through to partners

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Limited partnership taxation

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Flow through to partners

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Corporation taxation

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double unless the owners qualify for and make an S corporation election.

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Limited liability compant taxation

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Owners may choose flow through or double

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General partnership management

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decentralized unless changed by the partnership agreement

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Limited partnership management

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Decentralized in that it is by vote of the general partners, who are not elected by other owners

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Corporation management

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Centralized in the board of directors, who are elected by the shareholders

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Limited liability company management

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Owner may choose centralized or decentralized

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Problems in maintaining control - corporations

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Selling greater than half of the voting stock to someone else causes a loss of control. Some corp.s sell non voting stock to eliminate this problem.

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Problems in maintaining control: Partnerships

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Even one other partner eliminates control, absent agreement to contrary.

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Problems in maintaining control:
Limited Partnerships

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A great form of business to maintain control in one person or a small group of people in that the general partners make all business decisions.

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Problems in maintaining control: Limited liability companies

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Owners may choose the type of control structure and could even choose similar to a limited partnership.

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Duration of a sole proprietorship

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Limited - dissolves with the death or withdraw of the owner

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Duration of a general partnership

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Limited - dissolves with the death or withdraw of the owner

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Duration of a Limited Partnership

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Limited - dissolves with the death or withdraw of a general partner

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Duration of a corporation

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Perpetual - artificial entity continues despite changes in ownership

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Duration of a Limited Liability company

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Owners may choose - it is an artificial entity which may continue despite changes in the ownership if the owners so choose.

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Transferability of a sole proprietorship

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Free transferability

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Transferability of a general partnership

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Limited transferability in that the other partners must consent before the transferee gains full rights as partner.

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Transferability of a limited partnership

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Limited transferability in that the other partners must consent before the transferee gains full rights as a partner.

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Transferability of a corporation.

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Absent agreement the owners have free transferability - a sale of stock transfers all rights as an owner.

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Transferability of a limited liability company.

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Owners may choose free or limited.