law 1 chap 13 & 14 condensed; Choice of Business Entity, Sole Proprietorships, and Partnerships

Five factors in choosing an entity

Formation, liability, capitalization, taxation, management

Pass-through entity

Profits and losses pass to owners and are taxed individually

Sole proprietorship

One owner; easiest to form; unlimited personal liability; pass-through taxes

DBA (Doing business as)

needed when the business name differs from the owner's legal name

General partnership (GP)

Two or more co-owners of a for-profit business; no filing required

Express vs. implied partnership

Express = created by agreement; implied = parties act like partners without intending to

Partnership at will / joint venture | At will

no end date; joint venture = limited-time project

RUPA

Default rules for general partnerships when the agreement is silent

RUPA defaults

Equal profits, losses, and management; partners can bind the partnership; no salary

Joint and several liability

Each general partner can be liable for the entire unpaid debt

Fiduciary duties of partners

Loyalty, care, and good faith

Buy-sell agreement

How a departing partner's interest can be purchased

Limited partnership (LP)

At least one general partner and one limited partner; certificate filed with the state

General vs. limited partner

General: manages, unlimited liability. Limited: invests, liability limited to investment

Limited partners and management

Can advise but not manage day-to-day; managing can jeopardize limited liability

RULPA

Default rules for limited partnerships

Dissociation vs. withdrawal

Dissociation = partner leaves a GP; withdrawal = partner leaves an LP

Dissolution, winding up, termination

Dissolution begins the end; winding up settles affairs; termination is the official end

Rightful dissociation

Liable for prior debts only; fiduciary duties end

Wrongful dissociation

Violates the agreement; may owe damages

Does a partner leaving end a GP?

No; remaining partners can continue by buying out the partner

Limited partner withdrawal

Only if the agreement allows; otherwise six months' written noticeOnly if the agreement allows; otherwise six months' written notice

Franchise

A way of doing business, not an entity; franchisor grants brand rights to a franchisee

FTC and franchises

Requires franchisors to disclose key information before the franchisee invests

LLC

Limited personal liability plus flexible taxation

LLP

Partnership that protects partners from business debts and other partners' misconduct

LLC formation

File articles of organization; owners are members

Operating agreement

Sets the LLC's internal rules; state defaults apply if none

LLC liability

Members generally not personally liable for LLC debts

Exceptions to LLC liability protection

Personal guarantee, fraud or fundamental unfairness, improper distribution while insolvent, own wrongful conduct

LLC taxes

Usually pass-through; can elect corporate taxation

Member-managed vs. manager-managed

Member-managed: all members can bind the LLC. Manager-managed: designated managers run daily operations

LLC fiduciary duties

Care, loyalty, and good faith; limiting them requires clear language

Expulsion

Involuntary removal; court may order for wrongful conduct or material breach

LLC dissociation vs. dissolution

Dissociation = member leaves; dissolution = LLC begins ending

LLP formation

Start as a GP; file a statement of qualification

LLP liability

Protected from partnership debts and others' misconduct, but not your own negligence

Losing LLP status

Expired registration can expose partners to personal liability

LLP taxes

Pass-through

Capital call

Request for partners to contribute more money

LLC vs. LLP owners:

LLC = members; LLP = partners

LLC vs. LLP formation and agreement

LLC = articles of organization and operating agreement; LLP = statement of qualification and partnership agreement

LLC vs. LLP: taxes

LLC = pass-through or corporate election; LLP = pass-through