Limited Partnerships

It’s a partnership with 2 kinds of partners. The general partners are just like the partners of a partnership. They have full responsibility for the business; they are agents of each other; they are liable for the actions of each other and the actions of the partnership (they usually get themselves covered with insurance). The limited partners are investors who wanted to invest in the partnership but also want to be protected in the same time. They need to file a certificate ( who the limited partners are, who are the general ones, so everybody knows who is liable for the debts of the partnership. If this certificate is not filed, the limited partners are liable for the debts of the partnership). The advantage of being a limited partner is that you have a limited liability. He is not responsible for the debts of the partnership or for the debts of the partners. He can only be sued for the value of his contribution to the limited partnership. That’s the only money he can loose.

Limited control over the business of the partnership. Plays no part in the management or the business of that partnership. However, if he does get involved in the business, he is deemed to become a general partner. He becomes a de facto general partner and therefore equally liable as the general partners.

A limited partner has a right to share the profits, right to ask for an accounting and the right to assign his partner’s interests without their consent.

Raising capital? Easy since you buy and sell these limited partnership shares like you sell stock. Some of them are traded at stock exchanges.

Tax? You are treated just as if you were a direct owner of the of the business so that you get to have your profits directly.

Management is handled by the general partners.

Alienability is fairly easy although it is more difficult for a general partner to get rid of his interest.

Corporations

Corporations are business organizations which have a legal personality which is distinct from the owners. The corporation gets this personality form the State, not from the federal government. As a general rule, corporations receive birth certificate from the state. At the initial stage, the owners who are called the corporators (the parents of the organization) petition the state to create a corporation. They do so by filing “Articles of the Corporation” ($100 fee) with the state government. (name of the corporation, how long it’s going to exist, capital figures, value of the stock, who the register agent is to receive service, you may also include a statement of purpose which can be very broad).The states government will review those articles and if they meet certain minimum standards, they will give the corporation a birth certificate which is called a certificate of corporation.

The by-laws ( = les statuts de la société) are a more detailed argument. It’s basically a contract between the stockholders, the directors, and the office. The by-laws also specify the number of directors and what their responsibilities are. They specify when there will be annual meetings, when there will be special meetings, and the procedure for calling those meetings. These by-laws also state how often the directors are elected and what the responsibilities of the offices, the director, the secretary, and the vice president are. They will state when there will be stockholder meetings and who can sign checks for the corporation. They may also have special provisions for dissolution.

Various parties involved. The shareholders or stockholders and the directors who managed the corporations.

There is always a minimum capital (ex: District of Columbia $1.000) required to create a corporation.

Thus, it’s easy to set up a corporation. There are standards “Articles of Corporation” which you can get from publishing houses, for any state (as a lawyer, you can buy the kit for 40 bucks and then sell your services for $800!! It’ s a good trick, since most of the time, people don’t know it’s that easy and ask for lawyer’s help).

The stockholders can control the business. They get involved in the management of the corporation. They can vote, they can become directors. They have a limited liability. They’re not liable for the debts of the corporation since it has its own, individual, separate possibility. The only thing they can lose is their investment.

It’s easy to get capital for the corporation because you can finance your corporation by selling shares or pieces. Under the laws, if you sell more stock than the corporation, you have to offer stocks first to the existing owners so as not to lose the control over the corporation that the existing owners have. If they refuse, you can sell it to the general public.

Now, the major problem is the double taxation system. In the US, there is the individual income tax, and the corporate income tax. The average corporate income tax is about 35%. And the individual income tax is about 30% now.

Let’s say we have a corporation, 10 stockholders and $1 million of profits. If this was a limited partnership, each stockholder will get $100.000 and pay £30.000 in taxes. But if it’s a corporation, first the corporate tax is applied to the profits which would be $350.000. The net profit is t$650.000 and the stockholders all get $65.000 each. Then, with the individual tax, the stockholder will be left with $45.000. This looks like a bad deal but there are ways to avoid it. One is to avoid making profit. For example, if the shareholders are employees of the corporation or directors, you just pay them high salaries so that you do not have any profits. You can also invest a lot of money outside of the corporation.