Chapter 9 Flashcards
What were the 3 historical forms of business?
Sole Proprietorship
Partnership
Corporation
ADVANTAGE and DISADVANTAGE of Coporations
Advantage
-limited liability
Disadvantage
-double taxation
Describe an LP
Limited Partnership
-good to raise capital with a partner but not have that partner take on liability
Has a General Partner
- unlimited liability
- liable for debt
Limited Partner
- limited liability
- ONLY liable for his/her investment
- CANNOT manage partnership (break rule = unlimited liablilty)
How do you create and LP?
- created by Statutory Law
- have to get Certificate of Limited Partnership
- filed with correct state official
Describe a Closely Held Coporation
- Corporation run like partnership or sole proprietorship
- has to follow all Corporate requirements to be able to run like partnership/sole proprietorship
- NOT publicly traded
- has Double Taxation
- only a few shareholders (they know each other)
S Coporations
- is a Closely Held Corporation
- AVOIDS double taxation to shareholders if follow all Corporate Requirements
- 100 or less shareholders
- profits go directly to shareholders
PC or Professional Corporations
- Corporations for professionals
- doctors, lawyers, dentists, accountants
- limited liability
- NO LIMITED Liability in event of Malpractice
When and where did LLCs begin?
Limited Liability Companies
Began in Germany, Europe 1800s
Which state became the first to adopt LLCs?
Texas
-Limited Liability Company Act
What was a problem with the Limited Liability Company Act? What did it result in?
- if member died/left company, then LLC “dissolved”
- states had to create new tax legislation
Results in: Revised Unifrom Limited Liability Company Act of 2006 (RULLCA)
- one member leaving organization didn’t “dissolve” company now
- as long as others stayed
How do you create an LLC? What do you have to include?
- file Articles of Organization
- file with proper state official (In Texas, Secretary of State)
Must include in Articles of Organizaton:
- Name
- Name/Address of registered agent
- Name/Address of organizers of LLC (present and future/planned hirree professionals too)
- “manager run?/member run?” (name/address of managers)
- Duration of LLC (can be forever)
What are advantages of Limited Liability Companies?
- limited liability for shareholders
- no Double Taxation (taxed like partnership/sole proprietorship)
Once you create an LLC by filing a Articles of Organization with the correct state official, what do they give you?
Certificate of Organization
-birth certificate for your corporation
How are Limited Liability Companies run internally once created
Everything detailed in Operation Agreement
- tells relationship between members/mangers
- how ownership(stock) will be transferred
- division of income for mangers/members, etc.
- member managed or manager managed?
- In manager managed
- manager can appoint officers
- but officers can’t be members
How do you dissolve an LLC?
- file Articles of Dissolution
- receive Certificate of Dissolution (terminating company)
Are LLC’s costly to start up?
No
- less paperwork than normal
- less registration fees than normal
Disadvantages to LLCs?
Uncertain with Law
- relatively new area
- state statues vary
Some business can’t become LLCs
- Insurance companies
- Joint Stock associations
- Some foreign entities
- FDIC State banks
What state first used LLPs?
Limited Liability Partnerships
- first used in Texas
- first used by Accountants
- were the “LLCs” before LLCs were a thing
Explain LLPs
Limited Liability Partnerships
- like a partnership but LIMITED Liability
- Partner can still be liable if:
- participated in wrongful act
- knew of wrongful act
Disadvantage of LLPs?
- Partners have to have insurance/fund set aside (don’t have to w/LP)
- partner has to pay annual fee (don’t have to w/LP)
- have to file annual report statues of LLP
Difference between LP and LLP
LP
- general partner and limited partner
- limited partner can’t manage
LLP
- both partners can manage
- partners have to pay fee, have insurance, file annual report
LLLP?
Limited Liability Limited Partnership
- not really used
- combination of LP and LLP
- General Partner has limited liability like in LP
