Legal Environment of Business

Dr. John Dehrer-Wendt

Business Organizations Brief Overview Chart

                                 

Entity Sole Proprietorship Partnership Corporation Limited Partnership Limited Liability Partnership Limited Liability Company
Method of Creation Created by One person Created by Agreement of the parties Charter issued by the state - Created by statutory authorization  

Statutory Authorization

 

 Statutory Authorization Statutory Authorization
Minnesota Statute None Chapter 323/323A Chapter 302A Chapter 322A Chapter 323/323A Chapter 322B
Governing Rules None Articles of Partnership Bylaws Articles of Partnership Articles of Partnership Operating Agreement
Directors/
Exec.
Committee		 None By Partners By Shareholders By Partners By Partners By Members
Required Officers None None President, one or more vice presidents, Secretary, Treasurer General Partner None Chief Manager and Financial Manager
Officers Elected By Sole Proprietor Managers per Articles By Board of Directors Managers per Articles Managers per Articles Managers per Articles
Personal Liability Unlimited Liability Unlimited Liability Limited Liability of shareholders – shareholders are not liable for the debts of the corporation -- risk only up to the amount of their investment General Partners have unlimited liability; Limited Partners risk only to the amount of their investment Percentage of Capital, unless the Articles state otherwise Limited Liability of the Shareholders -- risk only up to the amount of their investment
Duration Termination by death of sole proprietor Termination by agreement of the partners, by death of one or more of the partners, by withdrawal of a partner, by bankruptcy, etc. Can have perpetual existence Until  dissolution Until dissolution Until dissolution
Participation by owners in management Total control -- Sole Proprietor has full and complete authority to manage and control the business All partners -- Each general partner has a direct and equal voice in mgmt unless expressly agreed otherwise in the partnership agreement (Limited partner has no rights in management in a limited partnership.) All shareholders or delegated to the Board of Directors -- Shareholders elect directors who set policy and appoint officers. There has to be at least one general partner All Partners or delegated to the Board of Governors -- All members or delegated to the Board of Governors -- Managed by or under the direction of a Board of Governors, comprised of one or more natural persons. Must have one or more natural persons as chief manager and treasurer
Transferability of interest Ownership transferred by transferring the assets of the business Determined by agreement or by statute. Unless permitted, no person may become a partner w/o consent of all others. If interest is transferred, transferee is not a partner, but is entitled to receive profits. Although partnership interest can be assigned, assignees does not have full rights of a partner Transferred by sale of stock Financial rights (i.e. the rights to share in profits, losses and distributions) may be assigned or transferred.

Shares of stock can be transferred

 Generally not transferable, but business may carry on if permitted by the Articles Not transferable, but Articles may allow for business to carry on after transfer Governance rights (i.e. to vote and manage) must be authorized under articles of incorporation or operating agreement.

Full membership (financial & governance) only if all members give written consent
Organizational Fees, Annual License, and Annual Reports Need necessary licenses and tax I.D. numbers, and register name More Complex to organize than S.P., but with few formalities than Corps. Written agreement is recommended but not required All Required All Required All Required All Required

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