Chapter 18

MGMT 311 - Hailey

CONTEXT SLIDE

For every single Business Entity you need to know
1. Method of Creation
2. Liability

3. Management

4. Taxation

Sole Proprietorship

Simplest form of business where owner is the business

1. Created at will by owner

2. Unlimited Liability

3. Completely at owner’s discretion

4. Owner pays personal taxes on business income

Partnership

Agreement by 2 or more parties to carry on, as co-owners, a business for profit

1. Created by agreement of the parties

2. Unlimited liability

3. Each partner has a direct and equal voice in management unless expressly agreed otherwise in the partnership agreement

4. Each partner pays pro rata (proportional) share of income taxes on net profits, whether or not they are distributed

Corporation

Legal Entity formed in compliance with statutory requirements. Entity is distinct from its shareholders

1. Authorized by the state under the state’s corporation law

2. Limited liability of shareholders - shareholders are not liable for the debts of the corporation

3. Shareholders elect directors who set policy and appoint officers

4. Double-taxation

Limited Partnership

A Partnership consisting of one or more general partners and one or more limited partners

1. Created by agreement to carry on a business for profit. At least one party must be a general partner and the other(s) limited partner(s). Certificate of limited partnership is filed.

2. Unlimited liability of all general partners. Limited partners are liable only to the extent of capital contributions.

3. General Partners have equal voice or by agreement. Limited partners may not retain limited liability if they actively participate in management.

4. Generally taxed as a partnership

Limited Liability Company (LLC)

A hybrid form of business enterprise that offers the limited liability of the corporation but the tax advantages of a partnership.

1. Created by an agreement of the member-owners of the company. Articles of organization are filed. Charter must be issued by the state.

2. Member-owners’ liability is limited to the amount of capital contributions or investments

3. Member-owners can fully participate in maangement or can designate a group of persons to manage on behalf of the members.

Limited Liability Partnership (LLP)

Partnership that allows professionals to enjoy the tax benefits of a partnership while limiting their personal liability for the malpractice of other partners

1. Created by agreement of the partners. A statement of qualification for the limited liability partnership is filed

2. Varies, but under the Uniform Partnership Act, liability of a partner for acts committed by other partners is limited

3. Each partner has a direct and equal voice in management unless expressly agreed otherwise in the partnership agreement

4. Each partner pays pro rata (proportional) share of income taxes on net profits, whether or not they are distributed