A L IMITATIONS ON L IABILITY Limiting personal liability for business debts and

A l imitations on l iability limiting personal

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avoided, at least among businesses that operate in limited geographic areas. A. L IMITATIONS   ON  L IABILITY Limiting personal liability for business debts and obligations is discussed as a key consideration in starting up a business.  Corporations, limited partnerships, limited liability companies (LLCs), and limited liability partnerships (LLPs) offer this advantage.  Insurance is still needed for business liability. A DDITIONAL  B ACKGROUND
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64           INSTRUCTOR’S MANUAL TO ACCOMPANY  BUSINESS LAW , ELEVENTH EDITION Limited Partnership Associations (LPAs) In the last decades of the nineteenth century, a partnership entity known as the  limited partnership association (LPA)  was created.  The first LPA statute was enacted in Pennsylvania in 1873, and before the end of the century, Michigan, New Jersey, Ohio, and Virginia had also passed similar statutes. Unlike a general partnership, all of the members of an LPA had limited liability, without regard to their participation in management.  Interests in an LPA could not be freely transferred to nonmembers.  Like corporations, LPAs were allowed continuity of life and other corporate characteristics, such as officers, bylaws, capital stock, and dividends.    So why aren’t businesses rushing to form LPAs instead of LLCs or LLPs?   At the time of the LPA, courts refused to recognize, in a state other than the state in which the LPA was formed, the limited liability of the LPA’s members unless the foreign state also had an LPA statute.  Because so few states had passed the   statutes,   this   became   a   serious   impediment   to   LPA   business.     Meanwhile,   other   states   were simplifying their corporate formation statutes.  Virginia soon repealed its LPA in favor or the Uniform Limited Partnership Act.  Pennsylvania and New Jersey repealed their statutes.  In 1949, the U.S. tax court ruled that an LPA was taxable as a corporation [ Giant Auto Parts, Ltd. v. Commissioner , 13 T.C. 307 (1949)].  That was the end for the form—except that the drafters of the LLC statute in Wyoming in 1977 borrowed from the old LPA statutes, changing them, however, to avoid the result in the 1949 tax court case. B. T AX  C ONSIDERATIONS Taxes are a critical factor.  Federal taxation of sole proprietorships, partnerships, and corporations is noted.   It is also explained that S corporations and limited liability companies are taxed like partnerships (no “double” tax).  Disadvantages of S corporation status are mentioned.
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