Business Entities


A basic question facing anyone starting a business is which of several forms of business organization available will be most appropriate for that particular business endeavor.  In selecting a form, owners consider many factors, including the cost of forming and operating the entity, the difficulty of raising the capital necessary to launch the business, who manages the business, the tax implications of the form selected, how easy it is to transfer ownership, and, of course, the liability of owners.  Thus, entity selection can reduce the owner’s risk of liability to third parties.  This module examines these factors and introduces you to the traditional forms (sole proprietorship, general and limited partnership and corporation), as well as the limited liability company and the limited liability partnership.  

Partners owe fiduciary duties of loyalty and due care to other partners, while officers, directors and controlling shareholders owe these same duties to each other and to the corporation.  The business judgment rule protects directors from liability for decisions that are later challenged as unwise or mistaken, so long as the directors acted in the honest and good faith belief that their actions were in the best interest of the company.