Sole Proprietorship: One Owner
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Sole proprietorship: One Owner; Extension of owner – NOT a legal entity – cannot sue or be sued, so creditors sue the owner directly – owner bears all risk.Partnership: Not a federal tax paying entity. All income or loss is reported on individual partners tax return whether or not distributed or allocated to the partners. Partners bear all of the risk of loss jointly and severally – diff levels of liability to partners depending on sub-form may be created as a general partnership as by default; RUPA is model partnership statute – revised uniform partnership actCorporation: Shareholders have limited liability for the obligations of the corporation – subchapter S corps is the exception to a legal tax-paying entity. Great formality, double taxation and complex LLC: Combines nontax advantages of corporations with favorable tax treatment of partnerships; owned by members who may manage themselves or retain a manager to run the business – member shave limited liability for the obligations.RUPA: Association of tow or more persons to carry on as co-owners as a business for profit – partners share profit and loss – a partnership is a voluntary and consensual relationship and may exist by law even if the parties entered into it inadvertently without considering whether they had created a ship.PARTNERSHIP EXCEPTIONS: Sharing profits usually indicates a partnership except for – payments of debt, rent, wages, annuity or other retirement benefits, interest on a loan, sale of goodwill of business. Partnership or Joint Venture: Partnership law applies to joint ventures but a court may distinguish the two if the business purpose is limited to a single project rather than series of related transactions – joint ventures are usually held to have less implied and apparent authority than partners due to limited scope of the enterprise. Property in a partner: Property acquired in a partners name without an instrument indicating transfer of title to the partnership is “presumed to be separate property even if used for partnership purposes. – INTEREST: The partners may restrict the transfer of a partners transferable interest of impose negative consequences on a partner who transfers their interest or suffers a charging order. – BUT any restrictions must not unreasonable limit the ability of a partner to transfer their property interest.
Dissociation: A change in the relation of partners caused by any partner ceasing to be associated in the carrying on of the business – a partners retirement, death or expulsion; filing bankruptcy. – starts process of dissolution, winding up (liquidation) and termination of a partnership.Dissolution: Next step – not automatic. Orderly liquidation of partnership assets and the distribution of proceeds to those having claims against the partnershipDistribution of assets: Partners account is credited – increased – for the capital contributions partner made to the ship plus partners share of profits. Partners account is charged – decreased – for partners share of losses. – after assets distributed termination of partnership occurs automatically. – liability may be eliminated by the process of NOVATION. – WHEN Parternship continues, partnership is required to purchase dissociated partners partnership interest (buyout) – new partner liable for stuff AFTER joinPartnership interest includes partners: Management and other rights participation; share of profits and losses and right to receive partnership distributions. John is a partner of aegon services, a LLP. He committed fraud and embezzled $1 million from a client. The other partners would not be personally liable for Johns malpractice – FALSEWhat business form allows personal liability for the owner? – Sole ProprietorshipSue has transferred her transferable interest of the partnership business to her creditor to discharge her debt. However, Sue is an efficient manager and still manages the business, even after the transfer – is she still a partner? – YESDonna is a partner in a general partnership. While moving a lawn using a partnership mower, Donna negligently runs over a piece of metal. One piece hits the clients patio door and shatters the glass. Is Donna liable to the client? Are Donnas partners liable to the client? – YESF and R are partners. F contributes 30k to the partnership and R contributes 10k. They agree F will assume 70% of the losses and R will assume 30%. They make no agreement on how to share the profits. The partnership has a profit of 60k in the first year. How much of the profits will F receive? – 30K.