Facilities Check List
Practical, step-by-step guides for the busy FM
July 1999
Business Entity Legalese
Remember the good old days when a business was simply a Co. or Inc.? If you’ve hired professionals lately, you’ve probably noticed a proliferation of new initials after the firm name — LLC, LLP, Inc., Corp., etc. Glazing over? Do you care? You do if you’re writing a contract and you’re trying to make sure the proper legal guarantees and insurance clauses are in place. Here’s a quick review of some of the most common types of business entities and what makes them different.
- Joe Dokes: Individual ownership; this form of business has no legal liability protection; the easiest type of business to form. If Joe dies, the business collapses and his survivors must pay his debts out of his estate.
- Joe and Jane Dokes: Concurrent ownership; same as individual ownership, except that both Joe and Jane must spell out whether they are tenants in common or joint tenants, to determine if in the event of the death of one of them, the business goes to the surviving business partner or to an heir.
- Joe Dokes, Inc. or Joe Dokes Corp.: A corporation, considered at law an “artificial person” that can obtain loans, buy and sell like a natural person, but can also raise money by selling stock. It must have a board of directors and formal charter and bylaws, and it must be registered with a state government. The good news is that stockholders are not liable for corporate obligations; the bad news is that the corporation is taxed just like an individual, and individuals working for that corporation are also taxed on what they earn.
- Joe and Jane Dokes Partnership: In a general partnership, each partner has economic rights and participates in business decisions, according to his or her percentage of ownership; each general partner is liable for the actions of the others. To raise money, each partner generally must pledge personal assets; each partner is taxed for his or her share of profits or bears a proportional share of losses.
- Joe and Jane Dokes and Associates: This type of term sometimes connotes a limited partnership. Joe and Jane are the general partners, as described above; the limited partners (the “Associates”) have no say in management decisions. They can invest money in the venture but their losses, if any, are limited to how much they invested. In contrast, general partners’ liability is not limited to how much they invested.
- Joe Dokes, LLC: In a limited liability company, members are not liable for the LLC’s obligations; in most states, LLCs are taxed like partnerships. They do not issue stock, but must file articles of organization with the state.
- Joe Dokes, LLP: In a limited liability partnership in most states, a partner is not liable for negligence, malpractice, or misconduct committed by persons not under his or her control or supervision. Partners report income from the business on their own tax returns. A registration certificate must be filed with the state.
- Joe Dokes, LLLP: This is a limited liability limited partnership. As the name implies, limited partners are not liable for the LLLP’s obligations; the liability of general partners is similar to an LLP.
- The Joe Dokes REIT: A real estate investment trust may operate under state laws as either a corporation or a trust. As with a corporation, shareholders are not liable for the obligations of a REIT. REIT income is not taxed if it is distributed to shareholders; shareholders must pay tax on REIT dividends.
This installment of FM Check List is adapted from BOMI Institute’s Law for Property Managers course, “ www.bomi-edu.org/11052.html), a required course in BOMI Institute’s Real Property Administrator (RPA) program.
