BUSINESS 1
Sole Partnership
Characteristics
Number of owners
Participation in management
Transferability of interest
Available on all states
Legal title to property
Method of accounting
Limited liability of owners
Life of entity
Formal acts required
Governing documents
Ease of formation
Cost of formation
Tax year
Applicable tax rate
Identity of the taxpayer
Double taxation
Timing of income recognition by
owners
Deductibility of losses
Treatment of capital losses
IRS filing requirement
Multiple classes of ownership
Type of owner permitted
Income Accumulations within the
entity
Descriptions
One person owns the business
No restrictions, mange's all of its affairs
Free to transfer his interest
Yes
Proprietor's name
Cash method permitted except for inventory
None, you can lose your personal assets – disadvantage
Limited
No
None
Simple – advantage
None
Calendar year
Individual income tax rates
Individual proprietor
No, profit & loss flow through the business to the sole
proprietor
Based on owner's tax year
Limited to amount at risk
Net $3,000 annual loss allowed after offset of capital
gains
Proprietor files Schedule C to form 1040
No
No restriction
No restriction
 General Partnership
Characteristics
Number of owners
Formation of a general partnership
Participation in management
Transferability of interest
Available on all states
Legal title to property
Rights in partnership property
Method of accounting
Limited liability of owners
Life of entity
Formal acts required
Existence of uniform act
Governing documents
Ease of formation
Cost of formation
Tax year
Applicable tax rate
Identity of the taxpayer
Double taxation
Timing of income recognition by
owners
Deductibility of losses
Treatment of capital losses
Descriptions
Tow or more owners of a partnership
An agreement (intent – sharing profit) between at least
tow or more to carry on as co-owners a business for
profit ( A partnership agreement that cannot be
completed within 1 year from the date on which it is
entered into must be in writing)
Absent an agreement to the contrary, all partners have
equal rights to manage the partnership business.
Generally required consent of all other partners
Yes
Generally in the partnership name (A partner can use
property she owns in the partnership without it
automatically becoming partnership property)
1. Not assignable or mortgageable by partner
individually
2. Not subject to attachment by individual partner's
creditors or for Alimony
3. Rights vest in surviving partners upon death (Heirs
get the interest)
Cash method permitted except for inventory
Each partner is jointly & severally liable for
partnership obligation (any partner may be held liable
for the entire amount of an obligation even if the other
partners are not named as defendants)
Limited
No
Yes; RUPA
No requirement for a general partnership to file with
the state
Simple to complex
Moderate to expensive
The same tax year as a majority of its partners
Individual, fiduciary, or corporate tax rate depending
on the type of the partner
Partners
No
In year in which partnership's year ends, whether or not
distributed
Deduction by partners limited to basis in partnership
interest
Passed through to partners
IRS filing requirement
Multiple classes of ownership
Type of owner permitted
Retroactive modification to
agreement
Income Accumulations within the
entity
Profit allocation
Loss allocation
Decision required consent of all
partners
partner’s power to bind the
partnership
purposes for treats partnerships
distinct as entities from their
owners
Dissociated partner's liability to
other parties
Incoming partner's liability to other
parties
Implied ( actual) authority
Apparent authority
Files Form 1065 & distributes K-1s shareholders
No restrictions
None
Yes
No restriction
1. Per Agreement
2. Equally between partner, unless there an a agreement
for distribution loss
1. Per Agreement
2. In the same manner for losses
1. Admitting new partners
2. Confessing a judgment
3. Making fundamental change in the partnership
business (sale of partnership goodwill)
4. Change partnership agreement
5. Dissolution of the partnership not required approval
by all partners
When the third party knows that the partner with whom
he deals lacks actual authority, there can be no apparent
authority. With such knowledge, the third party can no
longer reasonably believe that the partner has authority
to represent the partnership
- Property may be held in the name of the partnership
- Suits can be maintained in the name of the partnership
A retiring partner is liable to creditors for existing debts
of the partnership, but not for those incurred after
retirement. Therefore, when partner leaves the
partnership, she is still individually liable on all past
contracts and obligations, unless existing creditors
agree to release her and look to the new incoming
partner, (a novation). So actual authority terminated,
but apparent authority continues for 2 years unless
notice was given. A statement of dissociation must be
filed with the state.
An incoming partner is not personally liable for debts
incurred by the partnership before he became a partner,
but he is personally liable for all debts incurred by the
partnership after he becomes a partner
Is authority that can be reasonably implied from actual
authority and from the conduct of the principal,
example buy and sell goods, receive money, and pay
debts of the partnership
Is authority that can be created by the title, position of
partners, not derived from the express power
 The law treats partnerships as entities distinct from
their owners for some purposes (e.g., property may be
held in the name of the partnership; suits can be
Owners are not always distinct from
maintained in the name of the partnership), but not for
entity
others (e.g., partners are personally liable for
obligations of the partnership).

- The partner notifies the partnership that he or she

wants to withdraw
When partner is dissociated from - The partner become a debtor in bankruptcy
the partnership - The partner dies - 90 days have passed since a partner
has died
- The partner is expelled from the partnership
When partner is dissolution from Wrongful withdrawal of a partner in conversation of
the partnership the agreement between the partners
Each partner owes a fiduciary duty to the general
Fiduciary duty
partnership

Identify the joint venture?

A joint venture is an association of persons with the intent of engaging in a single

business venture (special transaction) for profit – Other than this it's a GP.
Joint venture will be treated as a partnership in most important legal respects

What the difference between dissociation & dissolution?

• Dissociation: is a change in partner relationship but the business can continue

• Dissolution: is terminated the partnership

Unless otherwise provided for, the assignment of a partnership interest will result in the

Unless otherwise stipulated in the partnership agreement, an individual partner's interest

in the partnership is freely assignable without the consent of the other partners. However,
upon the assignment, the assignee merely obtains the right to receive the assigning
partner's share of the profits and return of capital contribution.
 Limited Liability Partnership
Characteristics
Number of owners
Participation in management
Transferability of interest
Available on all states
Legal title to property
Legal entity separate from its owner Yes
Method of accounting
Limited liability of owners
Life of entity
Formal acts required
Governing documents
Ease of formation
Cost of formation
Tax year
Applicable tax rate
Identity of the taxpayer
Double taxation
Timing of income recognition by
owners
Deductibility of losses
Treatment of capital losses
IRS filing requirement
Multiple classes of ownership
Type of owner permitted
Retroactive modification to
agreement
Income Accumulations within the
entity
Descriptions
Minimum of tow; no upper limit
No restrictions
Transfer generally required consent of all other partners
Yes
Partnership name
Generally follows rules for limited partnerships
1. Partner's are still liable for their own negligence
2. Negligence of subordinates under their control
3. Breach of contract damages
Limited – Death, bankruptcy, incapacity, withdrawing
of partner
Yes; generally must be filed by secretary of state
Partnership agreement
More complex
Moderate to expensive
The same tax year as a majority of its partners
Individual, fiduciary, or corporate tax rate depending
on the type of the partner
Partners
No
In year in which partnership's year ends, whether or not
distributed
Deduction by partners limited to basis in partnership
interest
Passed through to partners
Files Form 1065 & distributes K-1s shareholders
No restrictions
No limitation, except that for professional partnerships
each partner may have to be certified or licensed in the
profession
Yes
No restriction
 Limited Partnership
Characteristics
Number of owners
Participation in management
Transferability of interest
Admission of a new general partner
Admission of a new limited partner
Available on all states
Legal title to property
Legal entity separate from its owner Yes
Method of accounting
Limited liability of owners
A limited partner can lose his
limited liability by doing any one of
the following
Life of entity
Formal acts required
Information must include in the
certificate
Existence of uniform act
Governing documents
Ease of formation
Cost of formation
Tax year
Applicable tax rate
Identity of the taxpayer
Double taxation
Timing of income recognition by
owners
Deductibility of losses
Descriptions
Tow or more; no upper limit
- One or more general partners
- One or more limited partners
Generally restricted to general partners only
Transfer generally required consent of all other partners
Requires approval of all of the existing general partners
Requires the approval of not only all the general
partners, but also the majority of the limited partners
Yes
Partnership name
Cash method permitted except for inventory
- General partners personal liability for all partnership
debts
- Limited partners have limited liability to his
investment unless they significantly participate in the
business
1. Serving as general partner
2. Allowing name to be used in the partnership name
3. Participating in control
Limited – Death, bankruptcy, incapacity, withdrawing
of partner
Yes; generally certificate must be filed by secretary of
state
- Names of all general partners
- Names of limited partners not required
- Must amend certificate of partnership to show any
additions or deletions of general partners
Yes; RULPA
Partnership agreement
Simple to complex
Moderate to expensive
Follows partnership or corporate rules, depending on
how it is taxed
Individual, fiduciary, or corporate tax rate depending
on the type of the partner
Partners
No
In year in which partnership's year ends, whether or not
distributed
Deduction by partners limited to basis in partnership

Treatment of capital losses
IRS filing requirement
Multiple classes of ownership
Type of owner permitted
Retroactive modification to
agreement
Income Accumulations within the
entity
Termination of a limited
partnership
Profit allocation
Loss allocation
Properties for liquidation
interest
Passed through to partners
Files Form 1065 & distributes K-1s shareholders
No restrictions
No limitation
Yes
No restriction
1. Written consent of all general partners
2. Withdrawal or death of a general partner
3. Judicial decree
4. The occurrence of the time or event stated in the
partnership agreement
In proportion to the value of each partner's
contributions
In proportion to the value of each partner's
contributions
1. Creditors (including partners)
2. Partners for unpaid distribution
3. Partners for capital
4. Partners for remaining assets (undistributed profit) in
proportions for sharing distributions
 Limited Liability Company
Characteristics
Number of owners
Participation in management
Transferability of interest
Available on all states
Legal title to property
Legal entity separate from its owner Yes
Method of accounting
Limited liability of owners
Life of entity
Formal acts required
Governing documents
Contents of operating agreement
Contents of articles
Ease of formation
Cost of formation
Tax year
Applicable tax rate
Identity of the taxpayer
Double taxation
Timing of income recognition by
owners
Deductibility of losses
Treatment of capital losses
Descriptions
No upper limit; some state permit single-member LLC's
(One or more persons)
All members may be participate in managing the company
Transfer generally required consent of other partners
Yes
LLC or member name
Generally follows rules for limited partnership unless taxed
as a corporation
All members unless otherwise provided for by statutes
Limited – Death, bankruptcy, incapacity, withdrawing of
partner
Yes; generally must be filed by secretary of state
Operating agreement (articles of organization)
- Management arrangement - Voting right
- Member meetings - Profit sharing
- Voting right - Dissolution
- May be oral - Not legally required
1. Statement that the entity is an LLC
2. The name of the LLC
3. The street address of the LLC's registered office & name
of its registered agent
4.The name of the persons who will be managing the
company
Simple to complex
Moderate to expensive
Follows partnership or corporate rules, depending on how it
is taxed
Follows partnership or corporate rules, depending on how it
is taxed
Follows partnership or corporate rules, depending on how it
is taxed:
- Members may be tax as corporation or partner
- Single-member may be tax as sole partnership
Follows partnership or corporate rules, depending on how it
is taxed
Follows partnership or corporate rules, depending on how it
is taxed
Follows partnership or corporate rules, depending on how it
is taxed
Follows partnership or corporate rules, depending on how it
is taxed

IRS filing requirement
Multiple classes of ownership
Type of owner permitted
Retroactive modification to
agreement
Income Accumulations within the
entity
Voting strength
Termination of a limited
partnership
Profit allocation
Loss allocation
Follows partnership or corporate rules, depending on how it
is taxed
No restrictions
No limitation
Follows partnership or corporate rules, depending on how it
is taxed
Follows partnership or corporate rules, depending on how it
is taxed
Each member's capital contribution
1. The consent of all members
2. Death, retirement, resignation, bankruptcy, of a member
3. Judicial decree or administrative order
4. When only one member remains in some state
In the basis of members' contributions
In the basis of members' contributions
 C Corporation
Characteristics
Number of owners
Available on all industry
Participation in management
Transferability of interest
Available on all states
Legal title to property
Method of accounting
Limited liability of owners
Life of entity
Formal acts required
Governing documents
Contents of articles
Contents of bylaws
Ultra vires
Ease of formation
Cost of formation
Tax year
Applicable tax rate
Identity of the taxpayer
Double taxation
Timing of income recognition by
owners
Deductibility of losses
Treatment of capital losses
IRS filing requirement
Multiple classes of ownership
Descriptions
No limitations
Not available for professional service
No restriction
Generally freely transferable
Yes
Corporate name
Cash method may be permitted except for inventory
All shareholders
Existence may be perpetual
Yes
Articles & bylaws
1. Name & address of the corporation's registered
2. Name of the corporation
3. Name & address of each of the incorporators
4. Provision for the issuance voting stock
5. The number of shares authorized to be issued.
(limiting the number of shares that may be issue)
1. Rules for running the corporation
2. Rules may not conflict with the articles
3. Amendment usually by bored of directors or
shareholders
# Bylaws are not part of the articles of incorporation &
are not required to be filed with the state
If a corporation was formed to accomplish the single
purpose of operating a restaurant, any action to achieve
some other purpose
Simple
Minimal
Any
Rate scale from 15% to 35%
Corporation
Yes
When distributed
Deducted at corporate level
Must be used to offset capital gains
Files Form 1120
No restrictions
Type of owner permitted
Retroactive modification to agreement
Income Accumulations within the
entity
Disregard of corporate entity/
Piercing the corporate veil/
Challenged limited liability
Consideration or value is(are)
sufficient to purchase this stock
Treasury stock
Example about fundamental corporate
change
Promoters responsibility
Proxy
Fiduciary duty
No limitation
No
Reasonable needs of the business
1. Commingling personal funds with corporate funds
2. Inadequate capitalization
3.Committing fraud on existing creditors
Valid consideration or value for shares consists of cash,
property, or services performed
Treasury stock may be resold without regard to par
value. Thus, treasury stock can be resold at a price less
than par value.
- Dissolution
- Amending articles
- Mergers, consolidation, share exchange
- Sales of all or substantially all of the corporation's
assets outside the regular course
- Promoters enter contracts with parties who are
interested in becoming shareholders "stock subscriptions"
- Promoters are personally liable on the contracts they
make before the corporation is formed
- Written authorization to vote another person's shares
-- Valid for 11 months
- generally are revocable
A majority shareholder may owe a fiduciary duty to
follow shareholder

What are the general procedure regarding decision that might fundamentally change the nature of
corporation?

• Board must approve a resolution, but there is no requirement of unanimity

• Notice must given to all shareholder & summary of the merger plan
• A majority approval of all outstanding shares
• Filing of articles

If a corporation is faced with the prospect of being taken over and the board of directors wants to
resist the takeover attempt, it may do so in a number of ways describe it?
- Suing the person or company attempting the takeover for misrepresentation or omission and
obtain an injunction against the takeover
- Making a "self-tender" (an offer to acquire stock from its own stockholders and thus retain
control in order to prevent a takeover);
 S Corporation
Characteristics
Number of owners
Participation in management
Transferability of interest
Available on all states
Legal title to property
Method of accounting
Limited liability of owners
Life of entity
Formal acts required
Governing documents
Ease of formation
Cost of formation
Tax year
Applicable tax rate
Identity of the taxpayer
Double taxation
Timing of income recognition by
owners
Deductibility of losses
Treatment of capital losses
IRS filing requirement
Multiple classes of ownership
Type of owner permitted
Retroactive modification to
agreement
Income Accumulations within the
entity
Descriptions
Limited to 75 – restriction
No restriction
Generally freely transferable, except for limitations as
to number & type of shareholders
Yes, but state taxation varies
Corporate name
Cash method permitted except for inventory
All shareholders
Existence may be perpetual
Yes
Articles & bylaws plus "S" election
Simple
Minimal
Calendar year unless $444 election
Individual shareholder tax rates; highest corporate rates
on built-in gains or excess passive income
Shareholder, except for built-in gains or passive income
Generally no
In year in which S corporation's year ends whether or
not distributed
Deduction by shareholders limited to basis in stock plus
loans to company
Passed through to shareholders
Files Form 1120S and distributes K–1s to shareholders
Only one class of stock allowed, but differences in
voting rights permitted – restriction
Basically limited to individual citizen & resident aliens;
some corporate & trust ownership permitted
No
No restrictions