Key Terms
Sole proprietorship
Unincorporated business owned by one person or married couple; unlimited liability; flow-through taxation; easiest to fo
Flow-through tax entity
Business pays no separate income tax; profits pass to owners who pay personal income tax.
Partnership
An unincorporated association of two or more co-owners operating a business for profit. Each owner is called a general p
General partnership
All partners participate fully in running the business and share equally in profits and losses, regardless of how much e
Articles of partnership
Written partnership agreement; optional but advisable; sets management, profit-sharing, and buy/sell terms.
Buy/sell agreement
Provision in partnership articles or LLC operating agreement; sets how a departing member's share is valued and paid out
Limited partnership
Partnership with at least one general partner (unlimited liability, manages) and one limited partner (capped liability,
Franchise
Contract granting one party the right to operate under another party's trademark and business model in a specific area.
IMPORTANT DISTINCTION
Franchises are NOT a separate business entity. They are a contract between businesses.
Common industries
Fast food, hotels, tax preparation services.
Joint venture
A temporary combination of two or more parties for a single project; ends automatically when the project ends.
Corporation
A legal entity separate and distinct from its owners. Can have limited or perpetual existence.
MAINTENANCE (ongoing annual requirements)
Annual license fees, franchise fees and taxes, minute books, corporate seals, stock certificates, stock registries, out-
Shareholders
Owners of a corporation; hold shares; can be individuals, partnerships, or other corporations.
Classes of shareholders
Different classes may receive preferential treatment in dividends or voting.