Chapter 13: Choice of Business Entity, Sole Proprietorships, and Partnerships

Vocabulary flashcards covering the key terms, entities, model acts, fiduciary duties, and regulatory concepts from Chapter 13.

Sole proprietorship

A one-person entity in which the debts and liabilities of the business are also personal debts and liabilities of the principal.

"Doing business as" (DBA) certificate

A filing made with a local or state office by an individual planning to conduct a sole proprietorship business under a trade name rather than their individual name.

Execute the judgment

Steps taken by a winning plaintiff to collect court-ordered money from a defendant, which in extreme cases may involve seizing personal property for sale by the sheriff or garnishing wages.

General partnership

A business entity formed by two or more principals who agree to share profits and losses in an ongoing business venture, where business debts and liabilities are personal liabilities of the general partners.

Partnerships at will

Partnerships where the partners have not agreed to remain partners until the expiration of a definite term or specific event.

Joint venture

A limited-in-time business relationship where parties seek to accomplish a specific activity rather than an ongoing business entity, governed by the same legal principles as a general partnership.

Revised Uniform Partnership Act (RUPA)

A model statute that governs general partnerships in the absence of an express partnership agreement.

Pass-through entity

A business entity that pays no corporate-level tax; instead, profits and losses pass through to the owners to report on their individual personal tax returns.

Capital contribution

The initial equity investment made by each partner into a partnership, representing the value contributed to their individual capital account.

Buy-sell agreement

A provision in a partnership agreement allowing remaining partners to purchase the partnership interest of a withdrawing partner to ensure business continuity.

Fiduciary duties of general partners

A set of legal duties—specifically loyalty, care, and good faith—owed by general partners to ensure they act in the best interest of the partnership.

Duty of loyalty (RUPA)

A fiduciary standard prohibiting a general partner from competing with the partnership or using partnership property for personal gain at the entity's expense.

Duty of care (RUPA)

A fiduciary standard requiring general partners to handle partnership affairs with the same diligence as they would apply to their own personal business affairs.

Duty of good faith (RUPA)

A fiduciary standard requiring partners to exercise appropriate discretion when dealing with other partners and third parties regarding partnership operations.

Limited partnership

A statutory entity that recognizes one or more managing general partners with personal liability and one or more limited partners who contribute capital and have limited liability.

Revised Uniform Limited Partnership Act (RULPA)

A model statute that governs limited partnerships in the absence of a specific written partnership agreement.

Certificate of limited partnership

A formal document filed by a general partner with a state government authority (usually the secretary of state) to legally create a limited partnership.

Family limited partnership

A limited partnership used in estate planning to enable wealthy members of one generation to transfer assets to heirs at a lower valuation to reduce estate taxes.

Dissociation

The term used under the Revised Uniform Partnership Act (RUPA) to describe a partner's act of separation from a general partnership.

Rightful dissociation

A partner's separation from a general partnership that does not breach the partnership agreement, freeing the partner from post-dissociation partnership liabilities and fiduciary duties.

Wrongful dissociation

A partner's separation that violates the partnership agreement or occurs before an agreed-upon term, making the dissociating partner liable for damages caused.

Windup

The process following partnership dissolution needed to settle affairs, discharge liabilities, close business operations, marshal assets, and distribute net proceeds.

Withdrawal (RULPA)

The term used under the Revised Uniform Limited Partnership Act (RULPA) for a partner leaving a limited partnership.

Franchise

A continuing commercial relationship created by contract where a franchisor grants a franchisee the right to operate a business using the franchisor's trade name, products, or trademarks.

Federal Trade Commission (FTC)

The federal regulatory body overseeing franchisors, ensuring mandatory pre-investment financial disclosure to prospective franchisees.

Limited liability partnership (LLP)

A hybrid entity formed by two or more principals who share profits and losses, offering partners heightened liability protection from partnership debts.

Limited liability company (LLC)

A business entity formed by two or more principals providing limited liability protection for principals and potentially favorable pass-through tax treatment.

Corporation

An entity in which one or more principals invest money in exchange for ownership stock, where principals generally bear no personal liability for business debts.