LEGL 2700 Chapter Notes - Chapter 14: Sole Proprietorship, Equal Voice, Limited Liability

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1. Factors to consider when selecting an organizational form (pg. 429):
a. Creation how difficult it will be to form the business; legal steps necessary; how long
it will take and what paperwork is necessary (cost is not a huge factor)
b. Continuity stability or duration of the organization; what happens when ownership
changes (Dissolution: change in ownership that requires change in legal identity of the
c. Managerial Control how involved do the owners want to be
d. Liability when is owner personally liable for debts and obligations of the business
when insurance doesn’t cover, can they go after owners personal items?
e. Taxation how are the profits taxed
2. Primary Organizational Forms
a. Sole Proprietorship (one owner)
1) Creation: no formal documentation required; do not have to file anything with
the state; easiest and least expensive to create
2) Managerial Control: owner is in total control of business operations (sole
 Liability: owner is personally liable for any debts not a huge issue if you don’t
take out loans and do not expect any court cases)
 Taxation: all income generated by the proprietorship is subject to the owner’s
personal taxes (recorded on individual tax return)
5) Continuity: none; if the owner does not want the business, it is shut down or
must get a new owner with all new contracts; ownership cannot be transferred
b. Partnerships (two or more; could be individual, other business or another partnership)
1) Creation: does not need permission from the state (just need an agreement);
formed when the owners conduct their affairs in such a way as to have a common
interest and shared profits and losses (imply you are a partnership; if you show
the characteristics and haven’t formed anything else, you are a partnership
2) Managerial Control: each partner has equal voice in management unless they
agree otherwise
3) Continuity: dissolved with any change in partnership (withdraws, dies)
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