togetnertraditonany nave nau two opunestor'organz
rutesappucanietocorporatont. Many existing partnerships switched to the limited
two corporations typically require more administrative effort to start, but they provide an advantage that protects partners from lawsuits. For example, prior partnerships do not have limited liability protection. As this chapter explains, the doctrine of limited liability means that business claimants, such as creditors of the firm or plaintiffs suing the firm, generally do not have a legal right to attach to the personal assets of the owners of the firm. Although the owners of small corporations may face adverse tax rules compared to partnerships (critics note that the owners of small corporations are double taxed because corporate income is taxed at the corporate level and then again at the personal level), limited liability is an especially attractive feature of the corporate business form. The accounting profession is getting murdered by the litigation that has overtaken us in the last few years. Many professional service firms, including law firms, accounting firms, medical practices, architectural firms, and engineering firms, traditionally have been formed as partnerships. Unlike the owners of corporations, partners are unable to protect their personal assets from business claimants. Instead, if the assets of the partnership are insufficient to meet its claimants' needs, a claimant can attach to the personal assets of the partner. Moreover, if a claimant is filing a sizable lawsuit, a partner's responsibility for damages extends to the claims against his or her fellow partners. Thus, if the courts find that a surgeon was negligent in causing severe harm to a patient during a surgical procedure, the injured patient can attach to not only the assets of the partnership but also the personal assets of the partner. Based on "Partnership Shift Set for Big Accounting Firms," THE NEW YORK TIMES, July 28, 1994, and "An Empirical Study of the Number of New LLC Corporations and LLPs Formed Between 2004-2007 and How LLCs Were Taxed for Tax Years 2004-2006," FORDHAM JOURNAL OF CORPORATE FINANCE LAW, 15:2, 2010, 459.
Principles of Insurance Chapter 3 Exercise 1
Name of student:
Registration Number
Question 1: Partnership form of business is riskier than corporations for owners. Explain.
Question 2: What is double taxation? How companies differ from partnership firms in terms of taxation?
Question 3: Why did the United States introduce LLP and LLC?
Question 4: How did Ernst and Young manage its risk of unlimited liability?
