Sole proprietorships, partnerships, corporations, and LLCs, including formation and owner liability differences.
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- What is a sole proprietorship?
- A business owned and operated by one person who is personally responsible for all debts and liabilities
- How is a sole proprietorship formed?
- Generally requires only obtaining necessary business licenses and registering a business name if required by state law
- What is the personal liability exposure for a sole proprietor?
- Unlimited personal liability for all business debts and obligations
- How are sole proprietorship income and taxes handled?
- Business income is reported on the owner's personal tax return; no separate business tax entity
- What happens to a sole proprietorship if the owner dies?
- The sole proprietorship terminates
- Can a sole proprietor hire employees?
- Yes, but the owner remains personally liable for all business obligations
- What is a general partnership?
- A business formed by two or more people who agree to operate a business together and share profits
- In a general partnership, what is each partner's liability?
- Each general partner has unlimited personal liability for all partnership debts and obligations
- Can one partner bind the entire partnership to a contract?
- Yes, each general partner has the authority to bind the partnership to contracts in the ordinary course of business
- Are general partners personally liable for torts committed by other partners?
- Yes, each partner can be held personally liable for torts committed by other partners in the course of business
- How is partnership income taxed?
- Partnerships are pass-through entities; income is taxed at the individual partner level, not at the partnership level
- What is a limited partnership?
- A partnership with at least one general partner (with unlimited liability) and one or more limited partners (with liability limited to their investment)
- What is the liability of a limited partner?
- A limited partner's liability is limited to the amount of capital they invested in the partnership
- Can a limited partner participate in management?
- Generally no; a limited partner who participates in management may lose their liability protection
- How is a general partnership typically formed?
- By a written or oral agreement between two or more people to conduct a business together