Business Organizations, Trinity/Summer 2014, Professor Molitor
1. Sole Proprietorship
a. Good: Business not taxpayer
i. Bad: But owner is!
b. Owner is liable for debts/obligations.
c. No filing necessary.
2. Partnership
a. Good: flow-through taxes
b. Bad: partners liable for debts/obligations.
c. Jointly & Severally Liable for debts/obligations.
i. Collects from AB first, then one or both partners.
1. If just one partner, that partner responsible for all—can get contribution later from other partner.
2. If partner commits tort, plaintiff can seek out that plaintiff first before partnership.
d. Partnership not taxpayer.
i. Profits/losses shared between partners.
ii. AB makes $200K, each partner reports $100K.
e. RUPA: two or more owners carrying on for profit (intent irrelevant)
i. Making money is irrelevant (just have to be trying).
ii. A & B create AB as separate entity.
iii. No filing necessary.
iv. Gross returns are not indicative of a partnership, but those who receive profits are likely a partner.
1. Revenue sharing doesn’t equal partnership.
2. Profit sharing= partnership.
v. Partnership Agreement trumps RUPA
1. But can’t violate 103(b).
a. May not restrict access to books.
b. May not eliminate duty of loyalty
i. But may restrict things that violate duty.
c. May not reduce duty of care.
d. May not eliminate good faith
e. May not prohibit a partner to dissociate by free will (may require it be in writing)
f. Can’t waive joint/several liability (restricting 3rd Parties)
2. Don’t need PA.
3. Unanimous vote for new partners.
4. Can be oral– 101(7)
5. All members must agree to PA and agree to amend unless PA says otherwise.
6. Default rule: each partner gets 1 vote (may be modified via PA) (401(f))
vi. Rebuttal of partnership: if receiving funds, can say they’re for—
1. Antecedent debt.
2. Services as independent contractor/employee
3. Rent
4. Retirement
5. Interest on loan.
a. Receiving any of the above does NOT make you a partner.
vii. Ordinary course of business: majority.
1. If partner does something not authorized but it looks legit to a TP, partnership is bound by rogue partner’s actions.
viii. Outside of course of business: unanimous.
f. Partnership Case law Factors
i. Expression of Intent
ii. Control
iii. Sharing of Profits
iv. Contribution
v. Sharing of Losses/Liability for 3rd Party Claims
g. Fiduciary Duties Owed to Partners
i. Duty of Loyalty: Conflict of Interest
1. § 4.04 (refrain)
a. Don’t steal.
b. Don’t wind up business for someone else’s gain.
c. Don’t compete against partnership.
ii. Duty of Care:
1. Refrain from grossly negligent/reckless conduct,
2. Intentional misconduct, or
3. Knowing violation of law.
a. BJR can save you.
h. Partnership Liability:
i. §3.05: respondeat superior for partners.
days of wrongful disassociation or death, at least half vote to dissolve.
l. “Mere Dissociation” §700s
i. Lingering effects for 2 years. § 703
1. Unless statement of dissociation, then 90 days of being bound. § 7.04
2. Otherwise, partnership bound.
ii. Dissociated Partner’s Liability to Other Persons
1. Third party must show:
a. Reasonably believed that dissociated partner was then a partner
b. Did not have notice of partner’s dissociation and
c. Is not deemed to have had notice of dissociation under 704©.
3. C Corporations:
a. Taxpayer at corporate tax rate.
b. Shareholders report dividends as well.
i. “Double layer” of tax.
1. Loop: pay higher/reasonable salaries to deduct as business expense.
4. S Corporation: (Flow-through) SUPER-good!
a. Avoids “double layer” of tax.
i. Corporation not taxed on income.
ii. Shareholders are taxed instead.
b. Limited by:
i. Max of 100 shareholders (husband/wife as 1)
ii. Only US citizens.
iii. Only individuals/estates/certain trusts/certain non-profits.
iv. Only one kind of stock.
v. Incorporated in US.
