In this course, we have been studying various business entities. After laying a foundation in agency law, we studied General Partnerships and Corporations. For each entity type, we have been answering five primary questions:
• How is this business entity formed? Is any official paperwork necessary? Is any paperwork describing the business relationship, and regulating the conduct of the owners, advisable?
o For example, we discussed the legal test for forming a general partnership and noted no government filing was necessary to create the partnership, while also exploring why having a written partnership agreement in writing was advisable.
• What personal liability do the owners of the business entity face if the business cannot pay its debts as they come due? Are there steps the business owners can take to lessen the risk of becoming personally liable, or missteps that can lead to liability where there would not be any?
o For example, we noted that corporations provide limited liability to their owners, and we developed an understanding of the ways shareholders can find themselves personally liable if plaintiffs are able to "pierce the corporate veil." We also discussed ways to conduct business that lessen the risk of the veil being pierced.
• How is the business governed and managed?
o Who is in charge? Is there a formal board of directors? What is required by statute and where is there flexibility in governance structures?
• What fiduciary obligations do the owners have towards each other?
o For example, we discussed the fiduciary duty of loyalty partners owe to each other, and contrasted that with the fact that shareholders generally do not have fiduciary duties to the corporation or the other shareholders.
• How is this business entity taxed?
o Does the entity itself pay taxes on its income before profits are distributed to owners? Are owners responsible for the taxes themselves?
One entity type we have not covered in class is the Limited Partnership (LP). Describe limited partnerships in a short memorandum (not to exceed three pages using 12 point font, bullet points are acceptable), being sure to address all five of the questions above.
In addition, (a) if there is a government filing required to form a limited partnership in Illinois, find the applicable form, and (b) if a document regulating the conduct among the owners of a limited partnership is generally considered advisable, find a sample of such a document online.
You do not need to address limited liability partnerships (LLPs) - a different type of entity you may uncover in your research.