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Lecture 3

BUSA 2106 Lecture 3: Business Organization


Department
Business Administration--Busa
Course Code
BUSA 2106
Professor
Ryan Christopher Grelecki 
Lecture
3

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Business Organization
Business Form Options
Sole Proprietorship
Partnership
Limited Partnership
Limited Liability Partnership
Corporation
How They Differ (depends on state)
Formalities
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
Liability
Unlimited liability
Owner personally liable for ALL debts
Taxes
Owner liable for all taxes; self-employment taxes, etc.
Taxes reported on personal income tax statements
Partnership
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
returns
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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