Forms of Business Flashcards
Why does the form of business entity matter?
- creation
- control
- continuity
- liability
- taxation
What are the basic forms of business
- Sole Proprietorship
- Partnership
- Limited Liability Partnership
- Joint Venture
- Corporation
- Limited Liability Company
Sole Proprietorship
-only one owner, business is extension of its owner
- not a legal entity, you just sue owner
- advantages: 100% control/profit
- disadvantages: owners bears all risk, cannot continue past owner’s life
Partnership
-two people working together who have a common interest in business and shares profits and losses
- may be created without the people in it expressing any clear intent to create one
- default arrangement by law is that partners share profits and losses equally AND partners are personally liable for torts
- legal entity but not federal tax paying
- advantages: individual taxation
- disadvantages: sometimes too easy to create, bear all risk jointly
Limited Liability Partnership
- you do not have liability for LLP’s torts
Joint Venture
partnership for limited purpose, treated like a partnership
Corporation
- owned by shareholders who elect a board of directors who then hire officers to run the company
- ownership and management may be separate from each other
Basic Formula for Corp
- limited liability for owners
- free transferability of shares of ownership
- separation of management from ownership
- legal status distinct from owners and managers
- pays taxes on corps income
- perpetual existence
Limited Liability Company
- combined the limited liability and management advantages of corporation with favorable tax treatment of partnerships
- Delaware - owned by members
- create an operating agreement
Background Law of LLC
if someone wants to leave they can and are owed their contribution in 90 days
Non-Managing members do not owe….
Fiduciary duties to the LLC
LLC’s can have _____
single or multiple owners
Corporations can only be formed under
Statutes
Steps to form a Corporation
- Draft articles of incorporation
- incorporators sign the articles
- file the articles with the secretary of state, and pay fees
- get filed copy back from S.O.S
- hold organizational meeting to adopt bylaws and elect
- annual reports moving forward and pay franchise fee to avoid dissolution
How to amend articles of incorporation?
shareholder approval, bylaws, supplements, incorporators or initial board can adopt initial bylaws, and board can repeal or amend
