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miller-hollowell-7e_29.pdf_applied_business_law.pdf
CHAPTER 29 SOLE PROPRIETORSHIPS,
PARTNERSHIPS, & LIMITED LIABILITY COMPANIES 1
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Learning Outcomes
LO1
LO2
•Describe doing business as a sole proprietorship.
•Identify the features of a general partnership.
•Outline the elements of a limited partnership.
•List the advantages of limited liability companies.
LO3
LO4
2
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Sole Proprietorships LO1
The simplest form of business in which the owner is the business.
A sole proprietor reports business income on his or her personal income tax return and is legally responsible for all debts of the business.
3
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Sole Proprietorships LO1
Advantages: – Proprietor receives all profits. – Less costly to startup. – Taxed once.
4
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Sole Proprietorships LO1
Disadvantages: – Proprietor bears all liability. – Limited opportunity for raising
capital. – Business is dissolved upon death.
5
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Definition. – Association of two or more
persons to carry on, as co-owners, a business for profit.
6
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Elements: – Sharing of profits and losses. – Joint ownership of the business. – Equal rights in the management of
the business.
7
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Characteristics: – Independent entity. – Aggregate of the individual
partners. – Pass-through income and loss.
8
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Formation. – Partnership By Agreement: can be
oral, but some agreements must be written under Statute of Frauds. • Partnership agreement is called
articles of partnership.
LO2
9
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Formation. – Partnership by Estoppel. • Occurs when a party who is not a
partner represents himself as such to third persons, who rely on the representations.
LO2
10
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Formation. – Partnership by Estoppel. • Or, when a partner represents that
a nonpartner is a partner. The nonpartner is regarded as an agent whose acts are binding on the partnership.
LO2
11
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Formation. – Partnership by Estoppel. • Third person relies on
representation that the nonpartner was part of the partnership.
LO2
12
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Formation. – Partnership by Estoppel. • Partners (and the nonpartner) are
liable to third party and estopped (prevented or barred) from denying that the nonpartner is a partner.
LO2
13
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Rights Among Partners. – Management in the Partnership. – Compensation. – Inspection of the Books.
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© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Rights Among Partners. – Partner’s Interest: personal asset
consisting of proportional share of profits and return of capital. Partner’s personal creditors can sue for that interest.
15
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Rights Among Partners. – Partnership Property. • A partner may use or possess
partnership property only on behalf of the partnership.
16
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Rights Among Partners. – Partnership Property. • A partner is not a co-owner of
partnership property and has no interest in the property that can be transferred. Partnership property is owned by the partnership as an entity and not by the individual partners.
17
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Duties and Powers of Partners. – Fiduciary Duties: partners are
fiduciaries of each other, based on extraordinary trust and loyalty. • Good Faith, Duty of Care to partners
and partnership. • May pursue personal rights as long as
fiduciary duties are not violated. 18
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Duties and Powers of Partners. – Agency Powers: partners are
general agents of the partnership. – Joint and Several Liability: third
party may sue one or more of the partners separately or all of them together, at his option.
19
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Duties and Powers of Partners. – Joint and Several Liability. • If third party is successful, he may
collect judgment only against assets of those partners sued. • Partner who commits tort resulting in
judgment against partnership is required to repay damages to the firm.
20
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Partner’s Dissociation. – Severance of the relationship
between a partner and a partnership when the partner ceases to be associated with the carrying on of the partnership business.
21
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Partner’s Dissociation. – Events that Cause Dissociation. • Notice. • Bankruptcy. • Assignment of partnership interest. • Incapacity. • Death.
22
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Partner’s Dissociation. – Effects of Dissociation. • Right to have interest purchased by
the partnership. • Right to participate in the
management and conduct of the partnership business ends, along with the duty of loyalty.
23
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Partner’s Dissociation. – Effects of Dissociation. • Dissociated partner (and firm) may be
liable to third party for obligations. • Partnership should notify creditors,
and file a statement of dissociation in the appropriate state office.
24
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Partnership Termination. – Acts of Partners. – Operation of Law. – Judicial Decree.
25
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Par tnerships
Winding Up. – Once a partnership is dissolved
(terminated), it continues to exist legally until the process of winding up all business affairs (collecting and distributing the firm’s assets) is complete.
26
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Limited Par tnerships LO3
Elements. – Consists of one or more general
partners and one or more limited partners.
27
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license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Limited Par tnerships LO3
Liability. – General partner manages the LP
and is fully personally liable for debts and obligations of the LP.
– A limited partner does not engage in management and is only liable up to the amount contributed.
28
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Limited Liabilit y Par tnership
A form of partnership that allows professionals to enjoy the tax benefits of a partnership while limiting their personal liability for the malpractice of other partners.
29
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Limited Liabilit y Par tnership
Family LLP. – Majority of the partners are
persons related to each other, essentially as spouses, parents, grandparents, siblings, cousins, nephews, or nieces.
– Fiduciary can be family member.
30
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Limited Liabilit y Par tnership
Limited Liability Limited Partnership. – A type of limited partnership. – The difference between an LP and
an LLLP is that the liability of all the general and limited partners is the same.
31
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Limited Liabilit y
Companies LO4
An LLC is a hybrid form of business enterprise that offers the limited liability of the corporation but the tax advantages of a partnership.
32
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Limited Liabilit y
Companies LO4
Advantages of an LLC: – Profits pass through and taxes are
paid individually. – Liability is limited to a member’s
investment. – Managers need not be
members.
33
© 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a
license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Limited Liabilit y
Companies LO4
Advantages of an LLC: – Corporations, partnerships, and
foreign investors can be members. – No limit on members. – Flexibility of a simple operating
agreement.
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