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Law and business 34

person who forms and operates a business, alone or with others
Sole proprietorship
1. owner is the business
2. east to form and does not cost a lot
3. owner has right to make all management decisions
4. owns all of business, receives all profit and carries tax liability on personal income tax
5. can easily be transferred or terminated at any time
Disadvantages to a sole proprietorship
1. access to capital which is generally limited to person funds and loans
2. owner is personally liable for all contracts and torts
Creation of a sole proprietorship
No formalities, no government approvals but may need to purchase business license
trade names are designated as ____ to conduct business and usually require the filing of a fictitious name certificate with the state
True or False
Sole proprietor has no personal liability?
the owner has unlimited personal liability
Taxation of a sole proprietorship
taxed on owner’s income tax for both state and local taxes
General Partnership
1. recognized since ancient times
2. voluntary association of two or more persons for the purpose of carrying on a business for profit
Uniform Partnership Act
Codifies partnership law, basing the rules on the entity theory of partnership, and has been adopted in whole or in part by 48 states
Formation of a general partnership
business must be a voluntary association of at least two persons that are carrying on a business as co-owners for profit. the formation requires little or no formality. the courts will consider receipt of a share of the business profits and losses as prima facie evidence of a partnership, as opposed to right management
Name of the General partnership
can operate under the name of any one or more of the partners or under a fictitious name, if a proper filing has been made with the appropriate governmental body
general partnership agreement
the agreement may be oral, written, or implied by the conduct of the partners. the statute of frauds will require a written partnership agreement if the partnership is to exist for over a year or deal with real estate
taxation of general partnerships
incomes and losses flow through to the partners’ personal income tax returns
Right to participate in management
absent to an agreement to the contrary, all partners have equal rights to participate in management
right to share in profits
unless there is an agreement stating otherwise, all partners have right to an equal share in the profits and losses. If the agreement explains the share of profits, but is silent as to the losses, the losses are shared in the same percentage. If the agreement details the share of losses but not profits the profits are shared evenly
Right to compensation
unless stated otherwise no partner is entitled to remuneration because they are supposed to devote their full time and energy to the partnership. however, they can be reimbursed for business expenses incurred in the service of partnership
Right to return of loans
a partner who makes a loan to the partnership becomes a creditor of the partnership. the partner is entitled to repayment of the loan, but this right is subordinated to the claims of creditors who are not partners
right to return of capital
upon termination of a general partnership, the partners are entitled to have their capital contribution returned to them
right to information
each partner has the right to information about the partnership, including financial records and taxes
duty of loyalty
partners have fiduciary duty to each other:
duty not to self-deal, usurp partnership opportunities, not to compete with the partnership, not to make secret profits, to to breach the confidentiality of the partnership. and not to misuse partnership property
if partnership is breached they will be forced to disgorge profits made and are liable for damages
duty of care
partners must use the reasonable skill and care that would be expected for someone in their position, but are not liable for honest business errors
Duty to inform
partners must inform co-partners of any information that they have, since the knowledge is imputed on the others
duty of obedience
partners must adhere to rules of partnership, or they will be liable for any damages caused by the breach
Right to an accounting
partners cannot sue partnership but can bring an action for an accounting, wherein he court will review the partnership to determine and award each partner their share
Tort liability of general partners
partnership is liable for any acts caused by a partner, employee, or agent within the ordinary course of business. Each partner is jointly and severally liable for torts and breaches of trust. A third party may sue one or more of the partners and recover a judgment against them. A release of one partner does not release the others. The partner sue or recovered against may seek indemnification from the other partners
Contract liability of general partners
partners are jointly liable for contracts. a party must name all partners in a lawsuit in order to collect against any of the partners or the partnership. Releasing a single partner releases all. If a partner is made to pay more than their share, they may seek indemnification from the other partners
Liability of incoming partners
A new partner is only liable for the antecedent debts to the amount of their capital contribution, but will be personally liable for all debts incurred after they become a partner
Liability of outgoing partners
If a general partnership is dissolved, each general partner is personally liable for debts and obligations of the partnership that exist at the time of dissolution
Dissolution of a general partnership
a partnership for a term is for a fixed term or until particular event occurs, while a partnership at will is for an unspecified period. with the former the partnership automatically dissolves at the time proscribed or upon the occurrence of the event. A partnership at will can be dissolved at any time
Winding up of the partnership
unless it is agreed that the partnership will continue the ______ follows the dissolution
Wrongful dissolution
although a partner has the power to withdraw at any time, he many not have the right, and will be held liable for any damages the ________ caused
Notice of dissolution
_______ must be given to certain parties, or the partners will be deemed to have apprent authority to continue to bind the partnership. Third parties who dealt with the partnership must be given actual or constructive notice. third parties who had neither dealt or had knowledge of the partnership are owed no notice
Distribution of assets
partnership assets should be liquidated, and payment made first to creditors and then creditor partners. If assets remains, the capital contribution of each partner should be returned and any remaining moneis should be distributed as profits
Continuation of a general partnership after dissolution
remaining partners may enter into a continuation agreement disolving the old partnership and creating a new one
Action for an accounting
a formal judicial proceeding in which the court is authorized to:
1. review partnership and partnerships’ actions
2. award each partner his or her share of the partnership assets
actual notice
third parties who actually dealt with the partnership must be given actual notice of dissolution or have acquired knowledge of the dissolution from another source
antecedent debt
a new partner who is admitted to a general partnership is liable for the existing debts and obligations of the partnership only to the extent of his or her capital contribution
apparent authority
if proper notice is not given to a required third party after the dissolution of a partnership, and a partner enters into a contract with the third party, liability may be imposed on the previous partners on the grounds of apparent authority
Breach of confidentiality
general partners owe a duty to keep partnership information confidential. Failure to do so is ______
Competing with the partnership
a general partner may not compete with the partnership without the permission of the other partners
constructive notice
publishing a notice of dissolution in a newspaper of general circulation serving the area where the business of the partnership was regularly conducted
continuation agreement
agreement that expressly sets for the events that allow for continuation of the partnership, the amount to be paid outgoing partners and other details
contract liability
a general partner who is made to pay more than his or her proportionate share of _____ may seek indemnification from the partnership and from those partners who have not paid their share of the loss
a designation for a business that is operating under a trade name “doing business as.”
the change in the relationship of the partners caused by any partner ceasing to be associate in the carrying on of the business
fictitious business name statement
a document that is filed with the state that designates a trade name of a business, the name and address of the applicant, and the address of the business
fiduciary relationship
general partnerships have a ____ relationship
flow-through taxation
general partnerships do not pay federal income taxes. instead, the income and losses of the partnership flow onto and have to be reported on the individiual partners’ personal income tax returns
Form 1040 U.S. individual income tax return
reports income or loss from the sole proprietorship on his or her personal income tax form for federal income tax purposes
general partner
persons liable for the debts and obligations of a general partnership
imputed knowledge
if a partner fails his duty to inform partners with knowledge then other partners are ______ of all notices concerning any matters relating to the partnership affairs
joint and several liability
plaintiff can sue one or more partners separately
joint liability
partners have _____ for contracts and debts of the partnership. this means plaintiff must name the partnership and all of the partners as defendants in a lawsuit
misuse of partnership property
if a general partner uses partnership property for personal use
breach of duty of care
partnerships at will
a partnership with no fixed duration
partnership for a term
partnership with a fixed duration
right of survivorship
a rule which provides that upon death of a general partner, the deceased partner’s right in specific partnership property vests in the remaining partner or partners; the value of the deceased general partner’s interest in the partnership passes to his or her beneficiaries or heirs
right to participate in management
a situation in which, unless otherwise agreed, each partner has the right to participate in the management and an equal vote on matters
schedule C
the income or loss from the sole proprietorship is reported on ______ which must be attached to the taxpayer’s form 104o
tenant in partnership
a general partner is a co-owner with the other partners of the specific partnership property as a ______
unlimited personal liability of a general partner
a general partner’s personal liability for debts and obligations of the general partnership
unlimited personal liability of a sole propreitor
the personal liability of a sole proprietor for all debts and obligations of a sole proprietorship
winding up
process of liquidating the partnerships’ assets and distributing the proceeds to satisfy claims against the partnership
wrongful dissolution
when a partner withdraws from a partnership without having the right to do so at the time

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