Ch 17: Business Org Flashcards
(53 cards)
3 forms of business
Sole proprietorship
Partnership
Corporation
Sole proprietorship
1 owner
Sole proprietorship advantages
- can gain all the profits
-flexible and can make any decision they want
-only pay personal inc tax
-easier and less costly starting out
-Can transfer all/part of bus to another without approval
Disadvantages
-unlimited liability (prop bears all the burden of loss/liabilities)
-can end up putting owner in debt not affecting the bus
-no continuity after death
-ability to raise cap is based on funds of prop and anyone willing to give loans
-lenders less likely to give it to sole proprietors
Partnerships
-An agreement (express or implied) btw 2 or more ppl to carry on a business for profit
-Partners = co owners of business and have joint control over operation/right to share in profits
how is agency relationship similar to partnership
bc each partners is deemed to be the agent of the other partners and of the partnership and are bound by fiduciary ties (trust and loyalty
how is agency relationship diff than partnerships
Diff bc each partner contributes failure and agree to share profits/losses and the agent doesnt usually own part of the business
UPA defines partnership as
an association of 2 or more persons to carry on as co-owners a business for profit”
Under UPA- corp = person
t of. f
key element of partnership is intent to associate meaning one cannot become a partner w/o consent form all existing partners
t
3 essential elements of partnership from UPA
Sharing of profits/losses
Joint ownership of business
Equal right to be involved in mgmt of business
t or f
Joint ownership of property, does not in and of itself create a partnership. In fact the sharing of gross revenues and even profits from such ownership is usually not enough to create a partnership
true- but sharing profits AND losses is enough to prove
what is a pass thru entity
business entity that has no tax liability as income is passed thru owners and owners pay tax on income
(partnerships)
partnerships + tax
Partnerships only need to file info return w irs, not tax return and each partners share of profits is taxed as personal inc.
Partnership formation
Agreement to form a partnership can be oral, writtem, or implied by conduct
Articles of partnership
written partnership agreement which can include any terms unless illegal or contrary to pub. Policy
Usually specifies name of business, location, duration, purpose, and how shares and assets will be distributed
Rights of partners (6)
mgmt, interest in partnership, compensation, inspection of books, accting, and property
partnership for term
specified duration of partnership stating it will continue until said date or upon completion of smth
( withdrawing before agreed date is considered a breach)
Partnership at will
no fixed duration, can leave anytime
mgmt rights
All partners have equal rights in managing partnership
Each party has 1 vote in mgmt regardless of their size of interest at firm
For business matters decisions are made by majority rule but decisions that significantly alter partnership or fall outside reg business activities must have consent form all partners (ex admiting new partners)
Interest in relationship
each partner is entitled to the proportion of profits and losses that is designated in the agreement
what if not profits or losses are agreed in the agreement
If no profit is agreed - it will be shared equally
If losses not agreed - it will be shared the same as profits
Compensation for partners
not compensated for their time/ efforts but instead they earn income (comepnsated) thru the profit distributions
Some exceptions - for ex a managing partner may receive salary + profit share
Inspection of books
books/records required to be kept at firm and accesable to all Ps
partners have right to receive and produce info concerning business
Each partner can inspect books/records on deman & make copies
Accounting of Partnership Assets or Profits
Required to determine the value of each partners share in the partnership
Can be voluntary or court ordered
