Corporate and Business Organizations
Entity Choice and Governance
Candidates must compare sole proprietorships, general partnerships, limited partnerships, LLPs, LLCs, and corporations on formation, liability, taxation, and management. General partners are jointly and severally liable; limited partners are passive investors with limited liability; LLP partners shield themselves from malpractice-type claims; LLC members are shielded absent veil piercing. Corporations form by filing articles of incorporation, adopt bylaws, and are governed by a board with officers. Directors owe duties of care and loyalty, protected by the business judgment rule. Shareholders have inspection, voting, and derivative-suit rights.
Traps
Questions blur member-managed and manager-managed LLCs, or ask who is liable for a partnership debt. Default rules apply unless the operating agreement or partnership agreement says otherwise. Piercing the veil requires fraud, commingling, or undercapitalization - not mere control. Distinguish duty of care (process) from loyalty (self-dealing). Ultra vires acts are beyond corporate power.
Worked Example
Two accountants form an LLP. A client sues for malpractice. The innocent partner's personal assets are protected because the LLP structure limits cross-liability. Rule of thumb: name the entity, then ask (1) who manages, (2) who is liable, and (3) how it is taxed.