CH 13- Principals —owners of a business entity- Sole proprietorship —one-person business entity with minimal filing requirementso Execute the Judgment —if a winning plaintiff has obtained a court order for the defendant to pay the amount of the judgment, the plaintiff may take certain steps to collect the money owed from the defendant. In extreme cases, this may take the form of seizing the defendant’s personal property for sale by the sheriff or garnishing the wages of the defendant - Partnership —multiple-person business entity where the partners conduct an ongoing business relationship in which profits and losses are sharedo Key Point : general partners’ personal assets are at risk for the full amount of the debts and liabilities of the partnership jointly (all partners together) and severally (each and every partner separately) regardless of their percentage of ownership interest in the partnershipo Key Point : limited partners may not participate in daily management of the business, do not have authority to bind the partnership, and remain primarily as investors - Express partnerships —partnerships formed when the parties have agreed to conduct a partnership on certain terms and conditions- Implied partnerships —partnerships formed when the parties have acted like general partners even if the parties did not agree or intend to form a partnership- Joint venture —business relationship between 2 or more parties for a limited-in-time venture- Jointly and severally liable —legal principle that imposes liability on partners both together (jointly) and separately (severally) for debts and liabilities of the partnership- Pass-through entity —business entity that does not pay corporate taxes, such as a partnership. Rather, any profits are taxed at individual rates when distributed to the partners- Fiduciary duties —under the Revised Uniform Partnership Act, general partners have the duties of loyalty, care, and good faith to ensure they are acting in the best interest of the partnership- Certificate of limited partnership —the document filed with the state government authority by the general partner to form a limited partnership, requiring routine information such as the names, addresses, and capital contribution of each partner- Dissociation —term used by the RUPA to describe the act of separation of one partner from the partnershipo Key Point : Impact of a dissociation/withdrawal: the dissociation (under the RUPA in a general partnership) or withdrawal (under the RULPA in a limited partnership) does not result in automatic dissolution so long as the remaining partners wish to continue - Withdrawal —term used by the RULPA to describe the act of separation of one partner from the partnershipo Key Point : Impact of a dissociation/withdrawal: the dissociation (under the RUPA in a general partnership) or withdrawal (under the RULPA in a limited partnership) does not result in automatic dissolution so long as the remaining partners wish to continue - Winding up —period after dissolution where debts of the partnership are paid and remaining assets are liquidated/distributed Concept Summary: Sole Proprietorship vs. PartnershipsSOLE PROPRIETORSHIPS PARTNERSHIPS LP AND GPFORMATION - Low start-up costs and minimal filing- One-person entity- Minimal filing requirements- Partnership agreement may result in some legal fees- GP has 2 or more partners- LP must have at least 1 GP and 1 ore more LPsLIABILITY OF PRINCIPAL(S)- All debts & liabilities of the business are the personal liabilities of the sole proprietor.- All of proprietor’s assets are at risk to satisfy business debts and liabilities GP: each GP is jointly & severally liable for debts & liabilities of the partnership- All personal assets of theGP are at riskLP: personal assets of the LPs are not at risk for debts & liabilities of the entityCAPITAL Proprietor uses personal assets of bank loan secured by personal assets- Partners each contributecapital as needed. The partnership agreement governs how & when additional calls for partners’ contributions are made- Bank loans secured by partnership assetsand/or personal guarantees TAXES - All income taxes of the business are paid at the proprietor’s individual tax rate & reported on the proprietor’s individual income tax return- Miscellaneous state & local taxes to operate business- No taxation at the partnership entity level- All income tax of the business passes through the partnership, is distributed to the partners, and is paid at the individual tax rate of the receiving partner- Partnership files information return to inform IRS of profits or losses- Miscellaneous state & local taxes to operate business MANAGEMENT & CONTROLOne-person entity - Management & control as outlined in partnership agreements or under RUPA/UPA if not agreed upon- LP cannot have day-to-day involvement - Duty of good faith & fiduciary duty owed by partnersDESIGNATION John Doe d/b/a Doe Consulting ServicesDoe Partners, GPDoe Partners, LPConcept Summary: Partner Dissociation/Withdrawal and Dissolution of the Partnership- The RUPA lists a variety of events of dissociation, including voluntary separation, expulsion, incapacity, & death, that are termed rightful dissociations- In a rightful dissociation, the withdrawing partner is no longer liable for postdissociation liabilities of the partnership. In a wrongful dissociation (e.g., one that violates the partnership agreement), the withdrawing partner is liable for any damages the withdrawal caused - The RULPA plays a less significant role in a limited partnership context b/c so many limited partnerships operate under detailed agreements- Under the RULPA, a general partner may withdraw at any time w/o causing dissolution. Limited partners are subject to restrictions on withdrawal- Partnerships may also be dissolved if the partnership has reached its agreed upon term, by court order, or by unanimous consent of the partiesHomework Questions:- Liability—Personal Assets at Risk- Capitalization—Selling Ownership- Taxation—Pass-Through Entity- Management—Day-to-Day Involvement in Business Operations1. Which of the following is an important factor in choosing a business entity?a. Ease of formationb. Management and operationc. Funding of the entity—the proposed name of the venture is notrelevant to choosing the entity2. Edgar and Julie are co-owners of a business entity. Because of this