Chapter 14 Flashcards
Sole Proprietorship
A form of business in which the owner is actually the business; the business is not a separate legal entity.
Entrepreneur
A person who forms and operates a business either by himself or herself or with others.
Sole Proprietor
The owner of the business.
Trade Name
A sole proprietorship can operate under the name of the sole proprietor or a trade name. Ex. the author of this book can operate a sole proprietorship under the name “Henry R. Cheeseman” or under a trade name such as “The Big Cheese”.
d.b.a (doing business as)
Operating under a trade name is commonly designated as d.b.a (doing business as). Ex. Henry R. Cheeseman, doing business as “The Big Cheese”
Fictitious Business Name Statement or Certificate of Trade Name
Most states require every business that operates under a trade name to file a fictitious business name statement (or certificate of trade name) with the appropriate government agency.
Unlimited Personal Liability
Creditors may recover claims against the business from the sole proprietor’s personal assets. Ex. home, automobile, and bank accounts
General Partnership or Ordinary Partnership
An association of two or more persons to carry on as co-owners of a business for profit.
General Partner
A partner of a general partnership who is liable for the debts and obligations of the general partnership.
Uniform Partnership Act (UPA)
A model act that codifies partnership law. Most states have adopted the UPA in whole or in part.
Entity Theory
Considers partnerships as separate legal entities. Ex. partnerships can hold title to personal and real property, transact business in the partnership name, and the like.
Agreement
To form a partnership may be oral, written, or implied from the conduct of the parties.
Partnership Agreement or Articles of Partnership
A written agreement that partners sign.
Right to Participate in Management
Unless otherwise agreed, each partner’s right to participate in the management of a partnership and right to an equal vote on partnership matters.
Right to Share in the Profits
Considered to be the right to share in the earnings from the investment of capital.
Action for an Accounting
A formal judicial proceeding in which the court is authorized to (1) review the partnership and the partner’s transactions and (2) award each partner his or her share or the partnership assets.
Joint and Several Liability
Tort liability of partners together and individually. With this type of liability, a plaintiff can sue one or more partners separately. If successful, the plaintiff can recover the entire amount of the judgement from any or all of the defendant-partners.
Indemnification
A partnership and partners who are made to pay tort liability may seek indemnification from the partner who committed the wrongful act.
-Damages: a sum of money paid in compensation for loss or injury.
Joint Liability
Liability of partners for contracts and debts of the partnership. A plaintiff must name the partnership and all the partners as defendants in a lawsuit.
Antecedent Debts
A new partner who is admitted to a partnership is liable for the existing debts and obligations (antecedent debts) of the partnership only to the extent of his or her capital contribution.
Incoming Partner
The incoming partner is personally liable for debts and obligations incurred by the partnership after becoming a partner.
Partnership for a Term
A partnership with a fixed duration.
Partnership at Will
A partnership with no fixed duration.
Dissolution
The change in the relationship of the partners caused by any partner ceasing to be associated with the carrying on of the business.
Winding Up
The process of liquidating a partnership’s assets and distributing the proceeds to satisfy claims against the partnership.
Wrongful Dissolution
A situation in which a partner withdraws from a partnership without having the right to do so at the time.
Distributed
After partnership assets have been liquidated and reduced to case, the proceeds are distributed to satisfy claims against the partnership.
Tenant in Partnership
A partner is a co-owner with the other partners of the specific partnership property as a tenant in partnership. This is a special legal status that exists only in a partnership.
Right of Survivorship
Upon the death of a partner, the deceased partner’s right in specific partnership property vests in the remaining partner or partners; it does not pass to his or her heirs or next of kin.
Ownership Interest
The value of the deceased partner’s ownership interest in the partnership passes to his or her beneficiaries or heirs upon his or hear death.
Limited Partnerships
A type of partnership that has two types of partners: general partners and limited partners. Also known as a special partnership.
Revised Uniform Limited Partnership Act (RULPA)
A 1976 revision of the ULPA that is a more modern, comprehensive law for the formation, operation, and dissolution of limited partnerships.
Uniform Limited Partnership Act (ULPA)
The ULPA contains a uniform set or provisions for the formation, operation, and dissolution of limited partnerships.
General Partners who invest in Limited Partners
Partners in a limited partnership who invest capital, manage the business, and are personally liable for partnership debts.
Limited Partners
Partners in a limited partnership who invest capital but do not participate in management and are not personally liable for partnership debts beyond their capital contributions.
Certificate of Limited Partnership
A document that two or more persons must execute and sign that makes a limited partnership legal and binding.
Defective Formation
Occurs when a certificate of limited partnership is not properly filed, there are defects in a certificate that is filed, or some other statutory requirement for the creation of a limited partnership is not met.
Limited Partnership Agreement
A document that sets forth the rights and duties of general and limited partners; the terms and conditions regarding the operation, termination, and dissolution of a partnership; and so on. Also called articles of limited partnership.
Personal Liability of General Partners
The unlimited personal liability of general partners of a limited partnership for the debts and obligations of the limited partnership.
Limited Liability of Limited Partners
The limited liability of limited partners of a limited partnership only up to their capital contributions to the limited partnership; limited partners are not personally liable for the debts and obligations of the limited partnership.
Personal Guarantee
If a limited partner or another party personally guarantees a loan made by a creditor to the business, and the business defaults on the loan, the creditor may enforce the personal guarantee and recover payment from the person who personally guaranteed the repayment of the loan.
Control Rule
The new Section 303 eliminates this restriction and permits limited partners to participate in the management of a limited partnership without losing their limited liability shield.
Certificate of Cancellation
Upon the dissolution of and the commencement of the winding up of a limited partnership, a certificate of cancellation must be filed by the limited partnership with the Secretary of State of the state in which the limited partnership is organized.
Limited Liability Limited Partnership (LLLP)
A special type of limited partnership that has both general partners and limited partners, where both the general and limited partners have limited liability and are not personally liable for the debts of the LLLP.
Articles of Limited Liability Limited Partnership
An LLLP may be organized under state law by filing articles of limited liability limited partnership with the secretary of state’s office.
Certificate of limited liability limited partnership
If all filing documents are correct and the proper fee paid, the state will issue a certificate of limited liability limited partnership.
