Part VI: Business Structure Flashcards
sole proprietor
- a single-owner business
2. assets and liabilities belong solely to the owner
general partnership (GP)
- 2+ persons working as co-owners to earn a profit.
- Partners liable for bus. debts.
- Partners taxed, not the partnership itself.
formation of GP
2+ people need to start working together
If a GP is dissolved…
the liabilities of the partnership still exist and the owners or former partners are still liable.
How are profits divided btwn. partners in a GP?
Absent a specific agreement on how profits will be shared, all profits are divided equally among partners.
going into competition w/partnership
- When a partner performs some act that hurts the partnership.
- Each partner has a fiduciary duty to not enter competition w/partnership.
If a partner acts w/apparent authority and enters a contract on behalf of the partnership..
the partnership will be held to the contract.
joint venture (JV)
similar to a GP, but used for a 1-time bus. venture.
limited partnership (LP)
Involves 1+ GP(s) and 1+ LP(s).
general partner (LP)
full partner that works on day-to-day bus. ops. and is fully liable for the bus. debts.
limited partner (LP)
contributes capital, but doesn’t actively manage the business and has limited liability for bus. debts..
limited liability partnership (LLP)
Provides more protection from liability specifically for professionals.
main idea of LLP
The main idea is to protect partners from the malpractice of other partners.
When do limited partners lose their limited liability status?
When they start participating in mgmt. activities.
corporation
Provides lim. liab. for the owners- limited to the amount you invested.
legal standing of a corporation
The corporation is a legal being separate from its owners.
double taxation
The corp. is taxed on its profits, but the shareholders are taxed again on dividend income.
articles of incorporation
Necessary to form a corp., these include:
- Corp. name
- # of shares authorized to issue
- street address of registered office and name of agent at that address
- name and address of each incorporator
piercing the corporate veil
corp’s shareholders become personally liable.
Causes of piercing the corporate veil:
- Being thinly capitalized which endangers the legitimate interests of creditors and tort creditors.
- Owners commingle their funds w/funds of the corps.
shareholder rights
- To a reasonable inspection of corp. records.
- Preemptive rights when it comes purchasing newly-issued shares, in order to maintain control.
- Board of directors of a corp. has a fiduciary duty, which is the duty of highest loyalty.
Subchapter S Corp.
- limits the effects of double taxation by meeting certain requirements.
- flow-through entity.
- Must have 100 or fewer shareholders to retain the S corp status.
professional corp. (PC)
a special type of corp. aimed at professionals that provides the limited liability and other benefits of the corp. form.
limited liability company (LLC)
- Provides limited liability, but the tax benefits of a flow through entity.
- Owners are known as “members” in an LLC.
operating agreement
- necessary for the formation process for an LLC.
- Should be in writing, and it maps out how things will work and how disputes will be resolved among the members of the LLC.
How do distributions to owners affect owners’ equity?
Decreases it.
Distributions to owners include…
- Cash dividends.
- Property dividends.
- Liquidating dividends.
Distributions to do not owners include…
stock dividends.
