Chapter 14: Business Organizations – Flashcards

Any change in the ownership of an organization that changes the legal existence of the organization

No formal documentation - business licenses only. Total control by proprietor, so long as they desire. Personal obligation for all debts & liabilities.

2 or more persons, a common interest in business, sharing profits & losses. Automatic based on business conduct; modified by agreement. Dissolved whenever one partner withdraws. Each partner has equal voice, only modified by agreement. Personal obligation for all debts & liabilities; joint and several liability. All business income subject to personal taxation, divided equally.

Partnerships

Artificial, intangible entity created under the authority of a states law. Incorporators apply for state charter with articles of incorporation. Managed by officers appointed by directors, who are elected by shareholders. Corporate income taxed, limited personal liability.

When the veil of protection has been pierced, the shareholders are treated like partners who have unlimited liability for their organizations debt.

Within the state.

All other states.

Foreign Country.

Has all the attributes of a partnership except that one or more of the partners are designated as limited partners. Dissolved when general partner withdraws. General partners have total control and unlimited liability.

Has all legal characteristics of corporation except the shareholders are responsible for accounting on their individual income tax returns for their respective shares. Cannot have more than 100 shareholders. Loss is shared and immediately deductible on the returns of the shareholder.

Owners have more flexibility than with S. Corps while not having to struggle with the complexities of the limited partnership. Used by professionals (i.e. doctors and lawyers) file articles of organization with state official for creation, equal management, members are agents, but liable only for investment. Personal taxation.

Easily formed, costs aren't significant, not a tax-paying entity, each partner has equal voice, can operate in more than one state without obtaining a license to do business, less regulation.

Only a limited number of people can be partners, dissolved anytime a partner ceases to be a partner, each partner has unlimited liability, taxed on their share of partnerships profits.

Best practical means of bringing together large number of investors, ownership may be divided into unequal shares, perpetual existence, shareholder liabilities are limited to their investments, shareholders may get benefits.

High Costs, license fees and franchise taxes, must be qualified all states, more government regulation, may be subject to double taxation.

Dr. Alli and spouse, property owners, sued housing of urban development (HUD) for failure to pay housing assistance for residents of 3 apartment complexes. Dr. Alli and his wife claimed that the corporate structure shielded them from decisions made in the name of the corporation. The court concluded that they did not act as though the corporation was independent from their personal assets. The court also found that the corporate form had been used to commit a wrong by failing to adhere to obligations to keep BSAs properties in a decent and safe condition for tenants.