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Lecture 3

BUSA 2106 Lecture 3: Business Organization

Business Administration--Busa
Course Code
BUSA 2106
Ryan Christopher Grelecki 

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Business Organization
Business Form Options
Sole Proprietorship
Limited Partnership
Limited Liability Partnership
How They Differ (depends on state)
Applicable Laws
Liability Exposure for Owners
Tax Implications
Sole Proprietorship
IRS says, “[a] sole proprietor is someone who owns an unincorporated business by
himself or herself.”
Most simple form and not a legal entity
Cannot raise capital by selling interest in business
Business and owner are one and the same
Formalities: None; no documents executed/filed; no separate accounts (business and
personal comingled); no separate tax returns
Laws: Type of business may require license, but no applicable code
Unlimited liability
Owner personally liable for ALL debts
Owner liable for all taxes; self-employment taxes, etc.
Taxes reported on personal income tax statements
IRS says, “[a] partnership is the relationship existing between two or more persons who
join to carry on a trade or business.”
Legal entity that can own property, enter into contracts, sue and be sued
Each partner (individual or legal entity) contributes money, property, labor, or skill
Laws: State partnership code automatically applies
Formalities: No formal paperwork required; exists when it looks like one exists; can
have partnership agreement to avoid code defaults
Liability: Joint and several liability for partnership itself; shared fiduciary duties, so liable
for others’ actions; share in profits AND losses
Taxes: File annual informational return, but tax on profits/losses “passes through” to the
partners; partners report their portions of the partnership's profit/loss on personal tax
Limited Liability Partnership
Like a general partnership, but providing partners limited protection against personal
liability for certain partnership liabilities
Often used in professional services industries, i.e., law, accountancy, architecture
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