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Flashcards in Business Entity: Intro Deck (11)
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1

Business Entity
Introduction

- limited liability was invented for corporate formation so that investors could take more risks with their money
- corporations suffer detriment of "double taxation"
- partnerships have single "pass through" taxation
- LLC gets both limited liability and single taxation

2

Business Entity
Introduction
Definitions
Sole Proprietorship

Sole Proprietorship
- single-owner business
- no formal legal action
- owner personally liable
Advantage
- total control
- simple
- single taxation
Disadvantage
- general liability

3

Business Entity
Introduction
Definitions
General Partnership

General Partnership
- association of 2+ persons as co-owners for profit
- no formal legal action
- all owners personally liable
- "pass through" profit and owners are taxed
Advantage
- pass through taxation
- simplicity
Disadvantage
- general liability

4

Business Entity
Introduction
Definitions
Joint Venture

Joint Venture
- agreed to work together just for one instance
- governed by general partnership law
Advantage
- pass through taxation
- simplicity
Disadvantage
- general liability

5

Business Entity
Introduction
Definitions
Limited Partnership

Limited Liability Partnership
- at least one general partner and one limited partner
- limited partners give up some management rights in exchange for limited liability (cannot manage or GP)
- certain legal steps must be taken
Advantage
- pass through taxation
- limited liability
Disadvantage
- formality: legal documents must be filed with state
- authority: limited partner forfeits right to manage
- general liability

6

Business Entity
Introduction
Definitions
Limited Liability Partnership

Limited Liability Partnership
- created to protect professionals from undue malpractice liability from errors of their partners
- LLP partners liable for own malpractice and malpractice of those they supervise
- many states require malpractice insurance
Advantage
- pass through taxation
- limited liability
- authority: limited partner forfeits right to manage
Disadvantage
- formality: legal documents must be filed with state
- malpractice insurance requirement

7

Business Entity
Introduction
Definitions
Limited Liability Limited Partnership

Limited Liability Limited Partnership
- gives all partners limited liability
- places burden of protection on third parties
- includes an online statement of election in its certificate of limited partnership
- general and limited partners are liable for own torts
Advantage
- pass through taxation
- limited liability
Disadvantage
- only 25 states authorize this type
- formality: legal documents must be filed with state

8

Business Entity
Introduction
Definitions
Corporation

Corporation
- artificial legal entity
- owners have limited liability
- purpose is to encourage people to invest in other's business ideas
- "double taxation"
Advantage
- limited liability
- legal person
- perpetual duration
Disadvantage
- double taxation
- formality: legal documents must be filed with state

9

Business Entity
Introduction
Definitions
S Corporation

S Corporation
- eliminates double taxation
- no more than 100 shareholders
- unanimous agreement to use S Corp status
Advantage
- limited liability
- single taxation
Disadvantage
- formality: legal documents must be filed with state
- taxed on income not yet received
- Subchapter S Requirements
- domestic
- all shareholders must consent
- no more than 100 shareholders
- shareholders must be individuals, estates, exempt organizations, or trusts
- only one class of stock

10

Business Entity
Introduction
Definitions
Professional Corporation

Professional Corporation
- special statutory accommodations
- limited liability
- double taxation
- extra benefits for employees

11

Business Entity
Introduction
Definitions
Limited Liability Company

Limited Liability Company
- limited liability
- single taxation
Advantage
- pass through taxation
- limited liability
Disadvantage
- formality: legal documents must be filed with state

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