Forms of Businesses and Partner Formation

how to form a partnership

Forms of Businesses and Partner Formation

Types of Business

Sole proprietorship

–          One owner

–          Can go after personal assets

–          Easy to form and cheap

–          Default system

–          Cannot be sued as a business, just person



–          2 or more owners

–          Profits are equally shared

–          Personally liable

–          1040

–          Losses deductible

–          Default set up with multiple owners



–          No personal liabilities for business obligations

–          Partners individually liable for wrongful actions

–          Form filed with SoS to form


Limited Partnership

–          General partners and limited partners

–          General partners are liable

–          Limited have no direct liability

–          Taxed as partnership or corp

–          Ends if no general partner remains

–          Cannot be a default

–          No unlimited liability

–          Losses are deductible

–          Can contribute capital and avoid liability

Limited Liability Limited Partnership

–          Filed with SoS

–          All partners have generally no liability

–          General partners have unlimited liability for any tort



–          Owned by shareholders

–          Ran by board

–          Limited liability by shareholders

–          Company is legal entity and liable

–          Taxes on profits

–          Dividends

–          No corporate losses deducted by shareholders

–          S corp

–          –           no more than 100 shareholders

–          –           pass through taxes


Professional Corporation

–          Filed with SoS

–          Liable for malpractice

–          Licensed caeers




-taxed like corporation or partnership

Lack of free transferability

–          No limits on owners

Pg 897 breaks down all entities


 How to Form a Partnership

Partnership Creation

No formalities needed

Articles of a partnership

Oral agreement allowed

Trade name must be filed by SoS

Written statement required for partnership lasting more than one year

No agreement leads to default under RUPA



2 or more persons to carry on as co-owners


Carrying on a business


Sharing of profits and sharing of management

Profits are not proof of partnership when:

  1. Payment of debt
  2. Interest on loan
  3. Wages to an employee or contractor
  4. Rent
  5. Annuity
  6. Sale of goodwill or property

–          Sharing of management can overcome these exceptions

Must intend to make a profit

Must intend to be partners


Joint ventures vs partnerships

Venture is a single project


Southex exhibitions v rhode island builders –pg 901


Mining Partnership is a special class

  1. Joint ownership in mineral interest
  2. Joint operation of property
  3. Sharing of profits/losses


Creation of LLP’s

Must follow statute to create


May require insurance


Purported Partners

When someone thinks people are partners but they may not be, who is liable

Must have been misled someone is a partner to sue

Or only sue person directly liable

Must rely on misrepresentation

May appear to be one by being at the office a lot

May have same phone number

Share secretary

Palmer v Claydon pg 904


Partnership Capital

–          Partner’s contribution

–          Equity of the business

–          Loans are liabilities




  1. Transferred to the partnership
  2. Transferred to any partner acting as a partner by a transfer document that names the partnership
  3. Transfers to any partner by a transfer document that indicates the partner’s status or the recognition of the existence of the partnership


Partner’s Partnership Interest

  1. Partner’s transferable interest
  2. Management and other rights

Partner’s Transferable Interest – partners share of profits and its right to receive these

–          Transfer can be done to someone else receives these

–          Charging order- rights given to other based on court ruling for payment

  • Redeeming one means it is all paid off to remove the order


Effect of Agreement

Can restrict number of transfers in partnership agreement


how to form a partnership


Both comments and pings are currently closed.

Comments are closed.