What are the major disadvantages of running a sole-proprietorship?
unlimited liability, difficulty of selling the business, and difficulty in raising capital
joint ownership of a company by several owners
What should a detailed written partnership agreement specify?
relationship of partners to each other; duties, responsibilities, and division of profits; how partnership will be managed; duration of partnership; ways and reasons to dissolve partnership
separate legal entity and is created by state statute; most popular form of business
payment of taxes for both the corporate income tax by the corporation and also the dividends by the stockholders
liability that is limited to the extent of an owner's investment and only to that extent
Limited Partnership (LP)
created by state statute and requires filing of documents to create limited partnership; must have at least one general partner and at least one limited partner
Certificate of Limited Partnership
must be filed to designate a business as a Limited Partnership
an owner who has unlimited liability and is active in managing the business
only an investor; prohibited from taking part in management of a Limited Partnership
closely held corporations
also known as family, close, or privately held corporations; a normal corporation whose shares are normally held by a small number of people that either personally know each other or are family
publicly held corporations
a corporation whose stock is traded on one of the stock exchanges
What is the major disadvantage of using a closely held corporation?
can be held by as few as one shareholder, but the sometimes complicated corporate structure must still be used
a closely held corporation that meets certain requirements to avoid double taxation and allows the shareholders to have limited liability
What requirements must a closely held corporation meet to be an S Corporation?
must be a domestic corporation; shareholders must be estates, trusts, etc.; no more than 100 shareholders that all must agree on S Corporation status; only one class of shareholders; non-resident alien shareholders
Professional Corporation (PC)
used by licensed professionals and offers limited liability; professionals are allowed to avoid liability for malpractice of other professionals in corporation
Limited Liability Company (LLC)
type of corporation that can be taxed like a normal partnership; can have unlimited time period of existence
Articles of Organization
document filed with a designated state official by which a Limited Liability Company is formed
Articles of Formation
the Articles of Organization in the state of Texas
What must the Articles of Formation of an LLC contain?
name of the LLC; duration, which can be perpetual; purpose; address and name of registered agent; statement of managerial information; name and address of each organizer
the people who recognize the LLC and can be future members or professionals hire to organize it
Certificate of Organization
issued once Articles of Organization are filed; birth certificate of LLC
also called Company Agreement; governs internal affairs of LLC and relations among its members, managers, and officers
when members of the LLC participate in management, though they more closely resemble investors
LLC that chooses to have specific managers to serve as agents; members no longer have right/responsibility to govern the LLC
breaking up into parts; termination of LLC
When does the dissolution of an LLC occur?
after expiration of LLC; occurrence of specified events in agreement; members' direct actions; when there are no members; judicial decision
process of completing all unfinished transactions, paying off outstanding debts, distributing assets, and dividing remaining profits after a partnership is over
What are the advantages of an LLC?
limited liability; easy to operate; meeting minutes usually not required; no double taxation; flexibility in management; no limit on membership
Limited Liability Partnership (LLP)
partnership similar to an LLC originally created to avoid earlier tax problems not seen today
Limited Liability Limited Partnership (LLLP)
tries to combine the LP and the LLP; general partner and limited partner both have limited liability
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