1. Business Entities
When starting a new business and deciding what form of business to organize, the following four (4) factors must be considered:
(1) ease and expense of creation,
(2) liability of the owner(s) for obligations of the entity,
(3) tax considerations, and
(4) the need and ability to raise capital.

2. Types of Entities
Sole Proprietorship: A business owned by a single person or family.
Partnership: An agreement by two or more persons to carry on, as co-owners, a business for profit.

3. Types of Entities
Corporation: A legal entity formed in compliance with the statutory requirements of its state of incorporation, owned by shareholders whose liability is limited to their investment in the corporation, and managed by (i) a board of directors elected by the shareholders and (ii) officers employed by the board of directors.

4. Types of Entities
A Limited Liability Company (LLC) is a business structure allowed by state statute. LLCs are popular because, similar to a corporation, owners have limited personal liability for the debts and actions of the LLC. Other features of LLCs are more like a partnership, providing management flexibility and the benefit of pass-through taxation.
Owners of an LLC are called members.

5. SOLE PROPRIETORSHIP: PROS AND CONS
Advantages:
a proprietorship is easy and inexpensive to form;
the proprietor receives all of the profits;
the owner has the maximum degree of control over business decisions; and
the proprietor may establish a tax-exempt retirement account.

6. Disadvantages:
the proprietor has unlimited liability for any losses or liabilities incurred by the entity;
the entity will not survive the proprietor’s death, disability, or retirement; and
the proprietor may only raise capital for the business out of his personal funds and from loans others are willing to make based on his personal liability.

7. PARTNERSHIP
Courts often look to the following to determine whether a partnership exists:
(1) sharing of profits and losses,
(2) joint ownership of the business, and
(3) equal right in the management of the business.

8. Cap Care Group, Inc v McDonald (36.1)

9. MANAGEMENT & VOTING RIGHTS
1) all partners have equal management rights;
(2) each partner has an equal vote, regardless of the relative size of his or her capital contribution; and
(3) partnership decisions require a majority vote of the partnership, unless otherwise agreed, except in the following cases, which require unanimous consent:
(a) altering the essential nature of the partnership’s business or entering a wholly new business;
(b) admitting new partners or altering the capital structure of the partnership;
(c) amending the partnership agreement

10. PARTNERSHIP INTEREST & COMPENSATION
Partnership Interest: An individual partner’s personal asset, consisting of a proportionate share of the profits earned and a return of initially-invested capital upon termination.
Compensation: Generally speaking, partners do not receive a salary for any work they do for the benefit of the partnership; rather, they are paid a proportional share of the partnership’s profits. However, the partnership can agree otherwise.

11. PROPERTY RIGHTS A partner has the following property rights:
(1) an interest in the partnership, entitling the partner to share in the partnership’s profits and to receive a return of capital upon the termination of the partnership, in proportion to the partner’s investment;
(2) a right in specific partnership property; and
(3) a right to participate in partnership management.

12. Partnership Property includes all property acquired by the partnership.
No partner has a transferable or assignable interest in partnership property, nor can a partner sell, assign, or in any way deal with any item of partnership property except for the purposes of the partnership.

13. PARTNERS’ DUTIES Duty of Loyalty: (Fiduciary)A partner must
account to the partnership for “any property, profit, or benefit” she derived in the conduct of partnership business or from use of partnership property, and
 refrain from competing with, or dealing as an adverse party to, the partnership.
Duty of Care: A partner must refrain from “grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.”

14. PARTNERS’ AUTHORITY
Authority of Partners: Each partner is both a principal and an agent of the partnership and of each other partner; therefore, agency concepts of actual and apparent authority and ratification apply to acts of a partner.
A partner may expose the partnership to tort liability.
Any act within the scope of a partner’s authority binds the partnership.
Any act outside the scope of a partner’s authority binds the partnership only if the other partners ratify the act.
The knowledge of one partner regarding partnership affairs is imputed to all other partners.

15. PARTNERS’ LIABILITY
Liability for Partnership Obligations: In some states, partners incur only joint liability for partnership debts and other obligations. In other states, partners’ liability for partnership debts and other obligations is joint and several.

16. Joint Liability: If a third party sues an individual partner for, e. g
Joint Liability: If a third party sues an individual partner for, e.g., a partnership debt, the partner sued has the right to insist that her other partners be joined as defendants (and share the burden of any judgment).
Joint and Several Liability: A third party may sue one or more individual partners, without suing all of the partners, and hold any partners sued fully liable for any judgment.

17. Liability for Partners’ Personal Obligations: As a general rule, a partner is not liable for her partner’s personal debts.
Incoming Partners: Newly-admitted partners are liable for debts and obligations incurred before they joined the partnership only to the extent of their capital contribution.
Moren v Jax

18. Moren v Jax Restaurant (36.2)
The law requires a partnership to indemnify its partners for the result of their negligence
Provided the partner was acting in the ordinary course of business of the partnership

19. PARTNERSHIP TERMINATION
Dissolution: The formal disbanding of a partnership, which can be brought about by
(1) the terms of the partnership agreement,
(2) voluntary or involuntary withdrawal,
(3) the addition of one or more new partners,
(4) death of a partner,
(5) bankruptcy of a partner or of the partnership, or
(6) judicial decree.

20. LIMITED LIABILITY PARTNERSHIPS(LLP)
Limited Liability Partnership (“LLP”): An LLP, which allows its members to enjoy the tax benefits of partnership, is designed for professionals who historically have done business as partners (e.g., accountants, attorneys) but who want to limit their liability for their partners’ (but not the partnership’s or their own) misdeeds.

21. LLP
 protects individual partners “from personal liability for negligent acts of other partners or employees not under their direct control
Flow thru taxation- The credits and deductions of the company are passed through to partners to file on their individual tax returns. Credits and deductions are divided by the percentage of individual interest each partner has in the company.

22. LIMITED PARTNERSHIPS
Limited Partnership (“LP”): A partnership consisting of one or more general partners, who manage the business and are personally liable for the partnerships debts, and one or more limited partners, who contribute only assets and do not participate in the management of the business.

23. LP
One of the biggest advantages for a limited partner in the Limited Partnership is the fact that he or she only faces limited liability. If the business goes bankrupt or is sued, the limited partner is only liable up to his investment in the business and the business's assets
The disadvantage, though, is that the limited partner doesn't have much say in regular business matters or large decisions

24. LP
the biggest advantages for a general partner in the Limited Partnership is that he or she maintains most of the power in the Partnership
The disadvantage for the general partner is that he or she assumes all personal risk.

25. Smith v Fairfax Realty (36.3)
PDC (Fairfax) transferred partnership assets w/o consent of Plaintiff limited partner
$ 6.6 mil for breach of fiduciary duty.-pattern of of decit, failure to disclose and misrepresentation
$5.5 mil was for punitive damages