INTRODUCTION TO THE BUSINESS FORMS Flashcards
Basic Legal forms of business organizations
- Sole Proprietorships
- The partnerships
General partnership
limited partnership - Corporation aka C Corp
Limited Liability aka LLC
Sole Proprietorship
the individual and the business are one and the same for tax and legal liability purposes.
General Partnership
Partnerships are businesses that consist of two or more owners.
Partnerships are treated like a sole proprietorship for tax and liability purposes. Earnings split between partners or according to their partnership agreement.
For liability purposes, each partner is liable for partnership debts. ** Some states use joint or several liability that allows them to pursue a single partner for the entire debt.
Limited Partnership
It is like a partnership or sole proprietorship for tax purposes.
It also has limited or general partners.
A limited partner looks like a shareholder in a corporation.
The general partner assumes management responsibilities and unlimited liability. The limited partner has little voice in management is not individually liable for the companys debt.
Limited Liability Company
It protects from liabilty of a corporation and the protection from double taxation of a partnership. Owners of LLC are not individually liable.
The LLC is not a tax paying entity. The income tax are only paid once at the individual level as in a partnership.
S corporation
It is afforded tax status of a partnership but protection from liability of a corporation.
In order to qualify for S corporation the business must meet restrictive conditions in the IRS code.
1. a domestic corporation
2. owned by humans citizens of the United States with 100 or fewer stockholders
How do you choose which business is right for you?
- who will own the business
- who will manage it
- who will reap profit
- who will bear the risk of loss
- who will pay income tax on any business profit
Non Profit Organizations
Do not pay taxes becasue they are an entity that serves the public good under 5013c.
If owners create a business, but do NOT file
paperwork to be a corp- default is
Sole proprietorship OR
* partnership
Is there a business flow chart
STEPS
IS there a business?
No
No business
entity*
Yes –is there an
entity?
Did owners file paperwork to
form a CORPORATION or an
LLC?
Yes
It’s a corp
or an LLC
NO
One owner – it’s a sole
proprietorship (not really an
entity)
2 or more owners - it’s a partnership
** If neither it defaults to sole proprietorship or partnership
Partnerships Part A What is partnerships
Only partners pay taxes on their business profits and it is called a flow-through taxation
Shareholders then pay taxes on distributions they receive called double taxation
A partnership can to be a sole proprietorship
However a partnership can not b e corporation but a corporation can be a partnership
Partnership Part B What is partnerships law?
Deals with rights and obligations of partners
RUPA is the revised uniform partner ship act
W.S.A. §178.0105.3 Partnership agreement; scope, function, and limitations(1)Except as otherwise provided in subs. (3) and (4), the partnership agreement governs all of the following:(a)Relations among the partners as partners and between the partners and the partnership.(b)The business of the partnership and the conduct of that business.(c)The means and conditions for amending the partnership agreement.**88(2)To the extent the partnership agreement does not provide for a matter described in sub. (1), this chapter governs the matter.(3)A partnership agreement may not do any of the following: **(q)restrict the rights under this chapter of a person other than a partner.
Operating without a partnership agreement RUPA states
Unless, a partnership agreement is in place - that management decisions are to be made by majority vote of the partners and that profits will be shared equally. according to RUPA
Example:
A contributes 70 percent
B contributes 15 percent
c contributes 15 percent
Unless there is an agreement all parties split the profit.
When is business a Partnership Part C
Every business is either a sole proprietorship
corporation, or a limited liability company
If a business has one owner and does not file paperwork then they are a sole proprietorship by default.
If a business has two owners and does not file paperwork it is a partnership by default.
Case: Murry v Murray 2011
*** if a partnership can be enforced when it is oral between family.
When no agreement exists, the court looks at certain factors, profits, shared equally… time worked and weekly pay
Example 9 factors used for the court to decide:
(1) Sharing of profits
(2) Sharing of losses
(3) Ownership of partnership assets
(4) Joint mgt and control
(5) Joint liability to creditors
(6) Intention of the parties
(7) Compensation
(8) Contribution to capital, and
(9) Loans to the organization.
Plaintiffs contend, in substance, that Timothy Murray, Michael Murray and Eileen Coyle (collectively “the individual parties”), all siblings, discussed moving the delicatessen from its previous location at 76 South Broadway to the premises on various occasions. Timothy claims that the individual parties ultimately entered into a partnership agreement concerning the ownership and operation of Murray’s Deli of Nyack, Inc. d/b/a/ Murray’s Delicatessen. They also agreed to keep the name Murray’s Delicatessen because it possessed a license from the New York State Liquor Authority as well as family name recognition. Beginning in late 2006 and continuing through February 2007, Timothy renovated the building located on the premises for use as a delicatessen at a cost of approximately $225,000. From early 2007 through the Fall of 2008, the individual parties worked at Murray’s Delicatessen. In 2008, Timothy asked Michael and Eileen to begin making monthly payments towards their capital contribution of $225,000 each pursuant to the partnership agreement. Michael and Eileen refused to do so and denied the existence of a partnership, prompting the instant litigation.
Based upon the evidence and testimony introduced, the Court finds that an oral partnership at will existed between the individual parties based upon their conduct and intention regarding the ownership and operation of Murray’s Delicatessen.
WSA § 178.0202 formation of partnership
(3)In determining whether a partnership is formed, the following rules apply: ***
(b)The sharing of gross returns does not by itself establish a partnership, even if the persons sharing them have a joint or common right or interest in property from which the returns are derived.
(c)A person who receives a share of the profits of a business is presumed to be a partner in the business, unless the profits were received in payment of or for any of the following:
1.A debt by installments or otherwise
.2.Services as an independent contractor or wages or other compensation to an employee.***
5.Interest or other charge on a loan, even if the amount of payment varies with the profits of the business, including a direct or indirect present or future ownership of the collateral, or rights to income, proceeds, or increase in value derived from the collateral.
Case : Energy Transfer Partners, L.P. vs. Enterprise
Products Partners, L.P.
** if the companies formed a partnership agreement and if they were provisions for them to pull out of the agreement to go with another company. Yes, because both parties agreed that both board members needed to agree. No partnership because they were just talking
TBOC Totality of the circumstance test
controls partnerships formation to the exclusion of the common law and that the parties intent with respect to creation of a partnership is just one factor to be weighed with others.
Issue
The key issue was whether Texas law allows parties to conclusively agree that no partnership will exist until certain specified conditions, such as board approvals and definitive agreements, are satisfied.
Holding
The Texas Supreme Court held that parties can indeed contractually agree that no partnership is formed until specified conditions precedent are met, and that such conditions were not waived in this case. Thus, no partnership was formed between ETP and Enterprise.
Reference WSA § 178.0105
WSA § 178.0105 Partnership agreement scope and function limitations
W.S.A. §178.0105.4Partnership agreement; scope, function, and limitations
(1)Except as otherwise provided in subs.
(3) and (4), the partnership agreement governs all of the following:
(a)Relations among the partners as partners and between the partners and the partnership.
(b)The business of the partnership and the conduct of that business.
(c)The means and conditions for amending the partnership agreement.***
(2)To the extent the partnership agreement does not provide for a matter described in sub.
(1), this chapter governs the matter.
(3)A partnership agreement may not do any of the following: ***
(q)restrict the rights under this chapter of a person other than a partner.
W.S.A. §178.0203.Partnership property
Property acquired by a partnership is property of the partnership and not of the partners individually.
W.S.A. §178.0204.When property is partnership property
(1)Property is partnership property if acquired in the name of any of the following:
(a)The partnership. ***
(3)Property is presumed to be partnership property if purchased with partnership assets, even if not acquired in the name of the partnership ***
(4)Property acquired in the name of one or more of the partners, without an indication in the instrument transferring title to the property of the person’s capacity as a partner or of the existence of a partnership and without use of partnership assets, is presumed to be separate property, even if used for partnership purposes.
Meinhard v Salmon 1928
*** WHATa partner has a right to do and what is the right thing for a partner to do. this is also a general partnership..
W.S.A. §178.0401.Partner’s rights and duties***
(8)Each partner has equal rights in the management and conduct of the partnership’s business.***
(11)A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. An act outside the ordinary course of business of a partnership, an amendment to the partnership agreement, *** may be undertaken only with the affirmative vote or consent of all the partners.
The central issue revolves around the extent of the fiduciary duty owed by Salmon to Meinhard in negotiating the new lease. Specifically, whether Salmon, by acting independently to secure the new lease for a larger area that included the original premises, breached his fiduciary duty to Meinhard by failing to inform or include him in this opportunity.
Holding
The Court held in favor of Meinhard, affirming that Salmon breached his fiduciary duty by not disclosing or offering Meinhard participation in the new lease opportunity. It was determined that Meinhard was entitled to a share of the new lease proportional to their original partnership agreement.
W.S.A. §178.0202.Formation of partnership
(1)*** the association of 2 or more persons to carry on, as co-owners, a business for profit forms a partnership, whether the persons intend to form a partnership.
Joint and Several Liabilty
Every p
is liable for the whole amount
even if not personally involved
Joint adventures, co partners owe to one another the duty of the finest
loyalty.
W.S.A. §178.0401.Partner’s rights and duties(
1)Each partner is entitled to an equal share of the partnership distributions11 and, except in the case of a limited liability partnership, is chargeable with a share of the partnership losses in proportion to the partner’s share of the distributions
