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Closely-Held Business Symposium:  The Uniform Limited Partnership Act

The analysis of “”entity proliferation”” is complex, primarily because there are serious problems of definition and classification.  It is often difficult to decide whether a modification or change in a specific business form should be viewed as the creation of a genuine “
“new”” business form or whether it is the “same as” or a ““minor variation of”” an older business form, perhaps with just a new wrinkle or two.  If it is only ““somewhat”” different from an existing business form, should it be counted as a new business form at all and thus part of the process of ““entity proliferation””?

A similar problem also arises under modern statutes——those involving both corporations and various types of modern unincorporated business forms.  These modern business forms give considerable discretion to the organizers of a business to select the rights, powers, relationships, and limitations that the new business entity is to have.  They also may have the power to resolve the fundamental question of how the income of the business entity should be taxed under the Internal Revenue Code.  Consider, for example, the alternatives open to a newly-formed, plain-vanilla, closely held corporation:  it may elect to be taxed as an S corporation, under which it is treated essentially as a partnership for tax purposes; or it may elect to be taxed as a C corporation, under which it is treated essentially as a corporation for income tax purposes.  If we assume that there are two essentially identical closely held corporations, one of which has elected to be taxed under subchapter C and the other of which has elected to be taxed under subchapter S, should they be counted as two different business forms for purposes of ““entity proliferation””?  Essentially, the same issue might also arise in a limited liability company or in a limited partnership with a corporate general partner where similar elections exist.  In a single person limited liability company, however, the choice is more limited:  it may elect to be taxed as a corporation; or it may be treated as a “nothing” for tax purposes so that its income is reported on the member’s personal income tax return.  There is no other intermediate choice.  Each of these variations involving corporations or limited liability companies (LLCs) may be viewed as creating “’different”” business forms; if that is accepted and extended over the entire economy and across all fifty states with their numerous variations, then we truly have “”entity proliferation”” on a massive scale, and the number of ““different”” entities, while not infinite, would certainly be very large. . . .