1Unit 18Forms of Business OrganizationTed FeitshansAgricultural & Resource EconomicsN.C. State UniversityNovember 2003Basic Forms• Sole proprietorship• General partnership•C corporation• Limited partnership• Limited liability partnership (LLP)•S corporation• Limited liability company (LLC)Sole proprietorship• One owner• Owner and entity not distinct• Operate as one wishes within the law2General partnership• Two or more owners• Partnership agreement– Express or implied– Written or oral• Presumption of equal rights of management• Presumption of equal allocation of profits & losses• Presumption of agencyGeneral partnership• Distinct legal entity (except for taxes)• Personal liability• Quasi-fiduciary obligation to partners• Terminates upon death or withdrawal of one partner• Decedent’s estate or withdrawing partner entitled to distributionC corporation• Distinct legal entity (legal person)• Created and operated under state laws• Shareholders have limited liability• Perpetual existence• Multiple classes of stock• Separate taxable entity• Shareholder rights limited3C corporation• Governance–By directors– Operated by officers– Directors elected by shareholders– Fiduciary obligations of officers and directors•Close corporations– Minority rights– Oppression• FormalitiesLimited partnership• One or more general partners• One or more limited partners• Managed by general partner• Liability of partners– General - unlimited– Limited - investment• TaxationLimited liability partnership• Jointly and severally liable for the acts and obligations of the partnership• Not liable for professional malpractice of another partner if no supervision or direction, and no involvement in activity4S corporation• Created under state law; same as C corporation• Limitations of IRC– Number & nature of shareholders– Partnership tax treatmentLimited liability company (LLC)• Hybrid between a partnership & a corporation• One or more owners• Limited liability• Taxes - check the box rule (recent change)• No perpetual existenceLLC estate planning benefits• Orderly transfer of business• Control• Tax issues– Disproportionate transfers of equity & income interests– Alienation discount– Minority interest
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