Key Terms
DEFINITION
A legacy business form used by professionals before LLCs and LLPs existed. Some states still require doctors, lawyers, a
Flow-through tax entity
Business does not file a separate tax return and does not pay business income tax. Owner pays personal income tax on all
Formation
File articles of organization with the Secretary of State. Requirements are minimal — typically just the LLC name and co
Taxation
PCs are a separate taxable entity. They are NOT flow-through.
Liability
Every partner is jointly and severally liable for partnership debts. One innocent partner can be held liable for another
Dissolution
Ends as easily as it forms. When the profit-sharing agreement ends, the partnership ends.
Limited partner
Can only lose the amount of their investment. Cannot participate in day-to-day management.
General partner in an LP
Still has unlimited personal liability.
IMPORTANT
Franchises are NOT a separate business entity. They are a contract between businesses.
How it works
Taxes are collected only when a dividend is declared, not on corporate net income. Formed and operated exactly like a re
Common in
Fast food, hotels, tax preparation services.
International use
US companies use franchising to operate in countries that restrict foreign business ownership. Local owners run the busi
Separate entities
Businesses in a joint venture remain separate. They do not share financial or confidential information unless specifical
Delaware exception
Many companies choose Delaware regardless of where they operate. Reasons:
To form a corporation
File articles of incorporation with the Secretary of State.