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Business Entity Forms

Business Formations

In addition to corporations, several other forms of business associations are available.  They include sole proprietorship, general partnership, limited partnership, joint venture, limited liability partnership, and limited liability company. Depending on your particular needs, typically, careful selection from among the below business associations  forms a basis for a superior environment in which to operate your business.

For a fixed fee PLO provides a knowledgeable selection of the proper entity. Upon your deciding the name, the entity and associated details, we complete the filing, the publication and track the process to completion, which takes a minimum of a few weeks. Specific formation requirements vary with state in which formation is desired.

December is the busiest month for forming businesses, because the tax advantages relate to the entire year. Be sure to plan ahead minimizing surprises or losing an entire year of tax advantages.

  • Sole proprietorship (SP) – is a form of business organization wherein one person owns and manages all business assets. It does not exist as an entity apart from, or continue beyond, the life of its owner.
    • Formation. No formalities are required to form a SP.
    • Management. SP owner is the sole manager of the SP and may employ agents to execute the business.
    • Transferability of ownership and dissolution. SP owner is free to transfer ownership at will. SP dissolves upon death of owner.
    • Taxation. SP is not a taxable entity. All profits and losses of SP flow directly to the SP owner and are taxed as personal income.
    • Liability of sole owner. Sole owner is personally liable for all debts and obligations of the SP.
    • Capacity to sue and to be sued. Only the sole proprietor may sue, not the SP. Claimants must sue the sole proprietor directly not the SP.
  • General partnership (GP) – is a voluntary association of two or more persons, co-owners of an on-going business, for profit. In jurisdictions following the Uniform Partnership Act (UPA), a GP is treated as an aggregation of individuals.  Jurisdictions following the Revised Uniform Partnership Act (RUPA) treat the GP as a legal person.
    • Formation requirements. GP may be formed by oral or written agreement, or conduct of the parties – without formalities with the state.
    • Management. Every partner has a right to manage the partnership, unless the partnership agreement otherwise restricts.
      • Voting. Ordinary matters require a majority vote of the partners.  Extraordinary matters require consent of all partners.
      • Partner authority. Split. Under UPA, each partner is an agent of the GP with apparent authority to carrying out the ordinary course of business of the GP; but if, a third person has knowledge that a partner has no authority, the GP is not bound by acts of that partner.  Under RUPA, a partner has apparent authority to bind the GP in either the: 1) ordinary course of business or 2) kinds of business of the GP, unless a third party knows the partner lacks such authority.
      • Partner duties. Partners owe: duty of due careduty of loyalty (non-compete) including a duty not to personally benefit – even if the partnership is not harmed, duty of obedience; and a duty of indemnity (contribution).
      • Profit and loss sharing. If a partnership agreement is silent, losses are always shared the same manner as profits, and profits are shared equally. Partnership agreement may express non-equal profit sharing among general partners.
    • Transferability of ownership and dissolution. Absent express agreement or consent of all general partners, a general partner may not transfer his partnership interest (bare legal title) in such a way as to make the transferee a member of the partnership. But, a general partner may freely transfer his profit interest (equity interest).
      • Three types of partnership property: partnership assets (traditionally held as tenancy of partnership); each partner’s ownership interest of the partnership (freely alienable); and each partner’s right to manage and control the partnership (one-vote per person default; right to vote is not freely alienable, requires consent of all partners).
      • Dissolving a GP. Under UPA, GP dissolves when any partner terminates his or her status as a partner, which is generally followed by liquidation and termination of the partnership.
    • Taxation. Traditionally, a GP is a taxable entity. Instead, each partner-share of GP income and losses, whether distributed or not, is taxed to that partner as personal income.
    • Capacity to sue and be sued. Split. Under UPA, a GP cannot be sued in its own name because the partners are treated as an aggregation of persons. A party must sue the partners jointly or individually unless the obligation is joint, wherein all partners must be joined in an action.  Under RUPA, GP may sue and be sued in its own name and the partners are jointly and severally liable.
      • Liability of owners. Under UPA, each partner is personally liable for: 1) all debts and obligations of the GP, 2) all breaches of trust of the GP, and 3) all wrongful acts or omissions of the GP.  Under RUPA, partners have same liabilities, but GP assets must be exhausted before assets of individual partners can be reached.
      • REMEDY for breach of partnership is always an accounting, wherein GP asking a court to adjudicate ALL related partnership interests – not any single interest.
  • Limited Partnership (LP) – is a partnership with two classes of partners: 1) at least one general partner having unlimited liability, complete control, and management authority; and 2) at least one limited partner having limited personal liability and absolutely no day-to-day control of the LP.
    • Formation requirements. LP formation generally requires a certified certificate, similar to articles of incorporation, must be filed in the state where the LP principal-place of business is located.
    • Management. Unless otherwise provided in the LP agreement, every general partner has a right to participate in managing the LP.  Ordinary matters require a majority vote of general partners.  Extraordinary matters require consent of all general partners.
    • Transferability of ownership and dissolution. Absent express agreement or consent of all general partners, a general partner may not transfer his partnership interest (bare legal title) in such a way as to make the transferee a member of the partnership. But, a general partner may freely transfer his profit interest (equity interest), unless consent of all partners.
    • Taxation. Traditionally, a LP is not treated as a taxable entity. Instead, each partner-share of the LP income and losses, whether distributed or not, is taxed to that partner as personal income.
    • Liability of owners. General partners have unlimited personal liability for the debts and obligations of the LP.
    • Capacity to sue and be sued. Under ULPA, a LP cannot be sued in its own name because the partners are treated as an aggregation of persons. Thus, a party must sue the partners jointly or individually unless the obligation is joint; wherein all partners must be joined in the action.  Under RULPA, the LP may sue and be sued in its own name and the partners are jointly and severally liable.
  • Joint Venture (JV) – is a form of partnership, formed for limited investment or operation.  Joint ventures are generally governed by partnership law.
  • Limited Liability Partnership (LLP) – is a limited partnership that, under most statutes, shields general partners from unlimited personal liability, except for the liability that a partner personally causes – and for co-partner negligent supervision.
    • Formation requirements. LP formation must comply with applicable state requirements. Generally a certified certificate, similar to articles of incorporation, must be filed in the state where the LP principal-place of business is located.
    • Management. Unless otherwise provided in the LP agreement, every general partner has a right to participate in managing the LP.  Ordinary matters require a majority vote of general partners.  Extraordinary matters require consent of all general partners.
    • Taxation. Traditionally, a LLP is not treated as a taxable entity. Instead, each partner-share of the LLP income and losses, whether distributed or not, is taxed to that partner as personal income.
    • Transferability of ownership. Absent express agreement or consent of all general partners, a general partner may not transfer his partnership interest (bare legal title) in such a way as to make the transferee a member of the partnership. But, a general partner may freely transfer his profit interest (equity interest).
    • Liability of owners. Under most LLP statutes a general partner of an LLP is personally liable for only those LLP obligations arising from her own activities. Under some LLP statutes, a general partner is also liable for activities closely related to her participation in the LLP, for LLP contractual obligations, or both. Limited partners in an LLP have the same liability as in a LP.
    • Capacity to sue and be sued. An LLP may sue and be sued in its own name and the partners are jointly and severally liable.
  • Limited Liability Company (LLC) – is a non-incorporated, flexible, highly-functional entity created under state statute, which combines elements of corporate and partnership law.  LLC owners are members, having limited liability, but can participate actively in management of the LLC. Most states allow a single-member LLC.
    • Formation requirements. LLC is formed by filing articles of organization with the state. Generally, LLC articles must include: 1) name of LLC; 2) address of LLC principal place of business; and 3) name and address of LLC agent for service. Many states also require LLC articles to: 1) state a business purpose; 2) name initial managers; and 3) state duration or date LLC is expected to dissolve.  LLC should also file an operating agreement, a primary governing document, with the State.
      • Operating agreement – provides operating details such as governance, capitalization, distributions, etc.  LLC management may be by members or by managers, who may or may not be members.
    • Management. A LLC is member-managed unless agreed otherwise. Apparent authority of members in a member-managed LLC is generally comparable to that of a partner in an LP. Each member has authority to bind the LLC for acts in conducting the normal course of business of the LLC.  In a manager-managed LLC, managers have apparent authority to bind the LLC, but non-manager members do not.  LLC members generally have the right to inspect the LLC’s books and records.
      • Fiduciary responsibilities. Fiduciary duties in an LLC are largely unspecified by statute, but presumably include duties of care and loyalty. Most LLC statutes allow members to bring derivative actions on behalf of the LLC, based on a member’s breach of fiduciary duty.  Some statutes allow the operating agreement to waive all fiduciary duties.
      • Voting. Unless agreed differently, voting is per capita, pro rata by financial interests, depending on the enabling statute.  Under most statues, ordinary matters require a majority vote of the partners and extraordinary matters require consent of all members.
    • Transferability of ownership. Member interests include financial rights and governance rights. Generally, member financial rights are freely transferable. Transferring governance rights is limited by: applicable statute, articles of organization and operating agreement; and generally require approval a majority of members or all members. If expressly allowed in the operating agreement, member consent can be waived.
      • Consequence of Assignment. A member who assigns her financial rights cannot normally assign her governance rights.
      • Distributions. Absent a contrary agreement, most LLC statutes require distributions by pro rata, according to each member’s contribution. Some statutes provide for per capita distributions.
      • Continuity. Statutes vary greatly as to dissolution. A typical statute allows disassociation upon the death, bankruptcy, or expulsion of a member.
    • Taxation. Traditionally, a LLC is not treated as a taxable entity. Instead, each partner-share of the LLC income and losses, whether distributed or not, is taxed to that partner as personal income.
    • Liability of owners. All LLC statutes provide that members and managers are not personally liable for LLC debts, obligations, and other liabilities.  Courts are developing a form of piercing the veil for LLC.
    • Capacity to sue and be sued. LLC may sue and be sued in its own name.
This article is intended to generally inform the reader – but not as specific recommendation for any client. Always consult an attorney for help in making the right decision for you.
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