Chapter 26-1

Three principal forms of business organization 1.Sole Proprietorships2.Partnerships3.Corporations

sole proprietorship You are the sole leader who controls what the

business does All liability is on the owner The most used form of business (80%) No significant legal requirements Often times, does not have many employees

Partnerships A partnership in an association of two or

more people to carry on, as co-owners, for a business for a profit.

The most common partnership is a general partnership Under the Uniform Partnership ACT (UPA) .

The general partners share all profits equally. They equally share any losses that are

suffered. The UPA also allows the partners to agree to

different shares of either or both of the profits and losses.

Corporations A corporation generally has about 40 or more

people. The liability for a corporation is limited to

amount of investment. The duration can be perpetual. The ability to attract professional managers

is excellent. Unlike a partnership, the corporate for also

features free transferbility.

Chapter 26 Section 2 Notes

Creation of a Partnership “Strong fences good neighbors make”

Terms and conditions partners agree on

Best in explicit written form Signed by both persons

Allows for review of potential problems Avoid future costly controversies

Types of Partnerships Classification by Purpose

Trading or non-trading Extent of Liability

General or Limited General Partners

All partners hold managerial control Each partner has full personal liability Silent, secret, dormant, nominal

Types Continued Limited Partners

One partner is general with unlimited liability Uniform Limited Partnership Act governs partnership Created by proper execution, recording, and

publication Must not participate in managerial control

Status of Minors Retains rights and privileges of a minor Plead minority, not pay if sued Minor may withdraw & dissolve partnership

Not be held liable Some states minors fully liable

Powers of a Partnership Under UPA, partnership treated as entity Has power to:

take and transfer property Regard as a principal Make contracts in firm’s name Use assets for loans

Status of a Partnership Each partner pays income taxes

IRS can cross-check tax returns Sue and be sued in all names Debts not paid chargeable to every partner Handicapped when attracting large sums Dissolved by death, withdrawal, bankruptcy

Termination of a Partner Termination of a partnership generally occurs in

three distinct phase Dissolution Winding-up period legal termination of the partnership’s existance

By Action of one or more of the partners

Withdrawal of a partner for any reason dissolves the partnership

Partnership at will may leave at any time No liability to associates

By Court Decree Usually done privately if partners alive People can petitions court in the following

situations Partner becomes insane incapacitated guilty of serious misconduct

Section 3Operating Partnerships

Partners Rights

Right to participate in management

Right to profit

Rights in partnership property

Right to extra compensation

Partners Authority

Authority to make binding contracts for the firm

Authority to receive money owed to and settle claims

Authority to borrow money in the firms name

Authority to sell

Authority to buy

Authority to draw and cash checks and drafts

Authority to hire and fire

Authority to receive notice of matters affecting the biz

Partners Duties

Duty to comply with biz agreement and decision

Duty to use reasonable care

Duty to act with integrity and good faith

Duty to not conduct competing business

Duty to keep accurate records