Three principal forms of business organization 1.Sole Proprietorships 2.Partnerships 3.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.

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

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