Business Entity: Intro Flashcards
Business Entity
Introduction
- limited liability was invented for corporate formation so that investors could take more risks with their money
- corporations suffer detriment of “double taxation”
- partnerships have single “pass through” taxation
- LLC gets both limited liability and single taxation
Business Entity
Introduction
Definitions
Sole Proprietorship
Sole Proprietorship - single-owner business - no formal legal action - owner personally liable Advantage - total control - simple - single taxation Disadvantage - general liability
Business Entity
Introduction
Definitions
General Partnership
General Partnership - association of 2+ persons as co-owners for profit - no formal legal action - all owners personally liable - "pass through" profit and owners are taxed Advantage - pass through taxation - simplicity Disadvantage - general liability
Business Entity
Introduction
Definitions
Joint Venture
Joint Venture - agreed to work together just for one instance - governed by general partnership law Advantage - pass through taxation - simplicity Disadvantage - general liability
Business Entity
Introduction
Definitions
Limited Partnership
Limited Liability Partnership
- at least one general partner and one limited partner
- limited partners give up some management rights in exchange for limited liability (cannot manage or GP)
- certain legal steps must be taken
Advantage
- pass through taxation
- limited liability
Disadvantage
- formality: legal documents must be filed with state
- authority: limited partner forfeits right to manage
- general liability
Business Entity
Introduction
Definitions
Limited Liability Partnership
Limited Liability Partnership
- created to protect professionals from undue malpractice liability from errors of their partners
- LLP partners liable for own malpractice and malpractice of those they supervise
- many states require malpractice insurance
Advantage
- pass through taxation
- limited liability
- authority: limited partner forfeits right to manage
Disadvantage
- formality: legal documents must be filed with state
- malpractice insurance requirement
Business Entity
Introduction
Definitions
Limited Liability Limited Partnership
Limited Liability Limited Partnership
- gives all partners limited liability
- places burden of protection on third parties
- includes an online statement of election in its certificate of limited partnership
- general and limited partners are liable for own torts
Advantage
- pass through taxation
- limited liability
Disadvantage
- only 25 states authorize this type
- formality: legal documents must be filed with state
Business Entity
Introduction
Definitions
Corporation
Corporation - artificial legal entity - owners have limited liability - purpose is to encourage people to invest in other's business ideas - "double taxation" Advantage - limited liability - legal person - perpetual duration Disadvantage - double taxation - formality: legal documents must be filed with state
Business Entity
Introduction
Definitions
S Corporation
S Corporation - eliminates double taxation - no more than 100 shareholders - unanimous agreement to use S Corp status Advantage - limited liability - single taxation Disadvantage - formality: legal documents must be filed with state - taxed on income not yet received - Subchapter S Requirements - domestic - all shareholders must consent - no more than 100 shareholders - shareholders must be individuals, estates, exempt organizations, or trusts - only one class of stock
Business Entity
Introduction
Definitions
Professional Corporation
Professional Corporation
- special statutory accommodations
- limited liability
- double taxation
- extra benefits for employees
Business Entity
Introduction
Definitions
Limited Liability Company
Limited Liability Company - limited liability - single taxation Advantage - pass through taxation - limited liability Disadvantage - formality: legal documents must be filed with state
