Bài giảng Business Law (13th edition) - Chapter 37: Introduction to forms of business and formation of partnerships

PartnershipsIntroduction to Forms of Business and Formation of PartnershipsOperation of PartnershipsDissolution & Winding UpLimited Liability Companies & Limited Partnerships9McGraw-Hill/Irwin Business Law, 13/e© 2007 The McGraw-Hill Companies, Inc. All rights reserved.INTRODUCTION TO FORMS OF BUSINESS AND FORMATION OF PARTNERSHIPSPAETRHC37“It sounds boring, but anything is easy to start – starting a novel, starting a business – it’s keeping the thing going that is difficult.” Prue Leith, author and executive, quoted in The Adventure Capitalists (Grout and Curry, 1998)Learning ObjectivesChoosing a form of businessCreation of partnershipPurported partnersPartnership capital and propertyPartnership interests37 - *Choosing a form of business is important since business owner’s liability and control vary among the many forms of businessOverview37 - *Sole proprietorshipPartnershipCorporationLimited Liability CompanyA sole proprietorship has only one owner and is an extension of its ownerIt is not a legal entity and cannot sue or be sued, so creditors/claimants sue the ownerAdvantages: no formalities, taxes flow to owner, owner takes all profit and controlDisadvantage: owner bears all risk of lossSole Proprietorship37 - *A corporation is owned by shareholders who do not necessarily manage the businessCorporation is a legal and tax-paying entityAdvantages: limited liability for shareholders for corporate obligations, perpetual existenceDisadvantages: more formality and more complex structure, double-taxationCorporation37 - *A limited liability company (LLC) combines the nontax advantages of corporations with favorable tax treatment of partnershipsAn LLC is owned by members, who may manage themselves or retain a manager to run the businessMembers have limited liability for the obligations of the LLCLimited Liability Company37 - *A partnership has two or more owners or partners in several formsGeneral, limited, limited liability, professionalA legal entity, but not a federal tax-paying entity; all income or loss reported on each partner’s federal income tax returnAdvantages: easy to create, flexibleDisadvantages: partners bear all risk of lossPartnership37 - *Revised Uniform Partnership Act (RUPA) guides partnership creation and operationMost state laws follow RUPAFormation of a limited liability partnership requires filing form with secretary of state, paying annual fee, using proper designationRegistered Limited Liability Partnership (RLLP)Limited Liability Partnership (LLP)Partnership Creation37 - *Partnership may exist by law even if parties entered it inadvertently, without considering whether they had created a partnershipIf third person deals with two or more people who seem to be partners and is harmed, third person may sue both apparent partners for damages or, under doctrine of purported partners, sue only apparent partner that caused the deceptionUnintended Partnership37 - *When general or limited liability partnership formed, partners contribute cash or property – partnership capital – to partnership entityTangible and intangible property acquired by partnership belongs to partnership entity, not individual partnersPartner-owner has ownership interest in partnership: (a) interest in share of profit, loss, distributions; (b) management interestPartners and Ownership37 - *Generally, partnership law applies to joint ventures, but a court may distinguish the two if business purpose limited to single project instead of transaction seriesSee Southex Exhibitions v. Rhode Island Builders Assoc.Partnership or Joint Venture?37 - *Test Your KnowledgeTrue=A, False = BThe Revised Uniform Partnership Act (RUPA) is a model partnership statute.Partnership is an “association of two or more persons to carry on as co-owners a business for profit.”Partnership capital belongs to the individual partners allocated in equal shares.37 - *Test Your KnowledgeMultiple ChoiceThe partnership interest includes a partner’s: (a) Management and other rights participation(b) Share of profits and losses and right to receive partnership distributions(c) Ownership interest in partnership capital(d) both A and B (e) none of the above37 - *Thought QuestionsDo you want to start a business? If you wanted to start a business (snowboards, for example), would you choose partnership as the form of business?37 - *