632598256894

purpose of requiring qualification. Similar issues arise over the obligation to pay income tax, collect
sales tax, or accept personal jurisdiction in the courts of a state. Generally these cases turn on the
individualized facts of the particular situation, but courts generally look for offices or warehouses,
company employees, widespread advertising, or negotiation and execution of contracts within the
state.
Perhaps more interesting may be the penalty for failure to qualify. Most states will impose liability
for back fees, taxes, interest, and penalties. More important, many states will bar a nonqualified
foreign entity from access to its courts and, thus, from the ability to enforce obligations against its
residents. In most of these cases, the entity can regain access to the courts merely by paying the state
the back fees and penalties it owes, but in a few states access will then be granted only to enforce
obligations incurred after qualification was achieved, leaving all prior obligations unenforceable.
Recognition of Sole Proprietorships as Legal Entities
By now it probably goes without saying that the law does not recognize a sole proprietorship as a legal
entity separate from its owner. If Phil, our computer entrepreneur, were to choose this form, he would
own all the company‟s assets; he would be the plaintiff in any suits it brought, and he would be the
defendant in any suits brought against it. There would be no difference between Phil, the individual,
and Phil, the business.
Recognition of Partnerships as Legal Entities
A general partnership raises more difficult issues. Although most states allow partnerships to bring
suit, be sued, and own property in the partnership‟s name, this does not mean that the partnership
exists, for most purposes, separately from its partners. As will be seen, especially in the areas of
liability and taxation, partnerships are very much collections of individuals, not separate entities.
Ownership of partnership property is a particularly problematic area. All partners own an interest in
the partnership, which entitles them to distributions of profit, much like stock in a corporation. This
interest is the separate property of each partner, and is attachable by the individual creditors of a
partner in the form of a “charging order.” In many states, the assets of the partnership are owned in the
name of the partnership and are treated, in terms of title, similarly to assets owned by a corporation.
However, in other states, the partners themselves jointly own the assets of the partnership. This
form of ownership (similar to joint ownership of a family home by two spouses) is called tenancy in
partnership. In those states, each partner may use partnership assets only for the benefit of the
partnership‟s business, and such assets are exempt from attachment by the creditors of an individual
partner, although not from the creditors of the partnership. Tenancy in partnership also implies that, in
most cases of dissolution of a partnership, the ownership of partnership assets devolves to the
remaining partners, to the exclusion of the partner who leaves in violation of the partnership
agreement or dies. The former partner is left only with the right to a dissolution distribution in respect
of his or her partnership interest.