Law Chapter 10
• Less cost at start up
• Flexible (ex: no partner)
• Freedom of decision-making (ex: no partner)
• Easy tax filing
• Pay only personal income tax
• Easy retirement plans (tax-exempt)
• Assumes all risk of losses and liabilities
• Unlimited liability
• Raising capital
• Death planning (business dies with owner)
• Considered a pass-through entity for taxes.
• Individual partners report their share of profits or losses on their individual returns
• Dissociation: The severance of the relationship between a partner and a partnership when the partner ceases to be associated with the carrying on of the business partnership business. May have power to disassociate but not the right.
• Sharing profits
• Sharing decisions
• General partners manage and take risks for management
•Limited partner’s liability is limited to their investment. Seen as a sort of investment vehicle.
• Allows limited liability for the malpractice of other partners.
• Allows some limited liability for debts of the partnership.
• Separate legal entity.
• Owned by shareholders who are only personally liable for their investment.
• Board of directors, elected by shareholders, manages the business.
• Any distributed corporate income gets taxed twice; some small corporations are able to avoid this double taxation by electing to be treated as an S corporation.
• S Corporation: A business that has met certain requirements for special tax privileges. They’re not taxed at the corporate level, similar to a partnership. Instead the shareholders pay personal taxes on their respective profits.
• Business’s name must include “LLC”
• Owners are called members, some states require at least 2 others do not.
• Liability of members is limited to their investment
• Can choose to be taxed as a partnership or corporation.
• Members of an LLC can decide how to operate by forming an operating agreement, an agreement in which members set forth details of how the business will be managed and operated. State statutes typically give the members wide latitude in deciding for themselves the rules that will govern their organization.
• Operating agreement allows for flexibility in management, profit sharing, transfers of membership interests, dissolution upon death or departure of member.
• LLC statues are not yet uniform through out states.
Franchisee: One receiving a license to use another’s trademark, trade name, or copyright to sell goods or services.
Franchisor: One licensing another to use the owner’s trademark, trade name, or copyright.
• Laws both federal and state address bad faith termination of franchise by franchisor, failure to disclose important facts to potential franchisee, deceptive trade practices.
•Franchise contract dictates, payment, location, premises, and the quality control.
• Much of the litigation arises from the termination of franchises.
b. Dissociation/termination issues
c. Liability of Owners
d. Tax considerations
e. Need for capital.
Bylaws: As soon as the corporation is formed an organizational meeting is held to determine bylaws, a set of governing rules adopted by a corporation or other association.
• Board of Directors: Management of corporation
• Corporate Officers: Employees who run the daily business operations of the corporation
• Shareholders: Part owners
• Foreign corporation: In a given state, a corporation that does business in the state without being incorporated therein.
• Alien corporation: A designation in the United States for a corporation formed in another country but doing business in the United States.
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