Choosing a Business Form 235of existence by its stockholders. The death, incapacity, bankruptcy, resigna-
tion, or expulsion of any stockholder is entirely irrelevant to the corporation’s
existence. Such a stockholder ’s stock continues to be held by the stockholder, is
inherited by his heirs, or is auctioned by creditors as the circumstances de-
mand, with no direct effect on the corporation.
Limited Partnerships
As you may have guessed, the hybrid nature of the limited partnership dictates
that the death, incapacity, bankruptcy, resignation, or expulsion of a limited
partner will have no effect on the existence of the limited partnership. The
limited partner ’s partnership interest is passed in the same way as that of a
stockholder ’s. However, the death, incapacity, bankruptcy, resignation, or ex-
pulsion of a general partner does automatically dissolve the partnership in the
same way as it would in the case of a general partnership. This automatic disso-
lution can be extremely inconvenient if the limited partnership is conducting a
far-f lung enterprise with many limited partners. Thus, in most cases the part-
ners agree in advance in their limited partnership agreement that upon such a
dissolution the limited partnership will continue under the management of a
substitute general partner chosen by those general partners who remain. In
such a case, the entity continues until it is voted out of existence by its part-
ners, in accordance with their agreement, or until the arrival of a termination
date specified in its certificate.
Limited Liability Companies
The laws of the several states generally impose dissolution on an LLC upon the
occurrence of a list of events similar to those which result in the dissolution of
a limited partnership. However, these laws usually allow the remaining mem-
bers to vote to continue the LLC’s existence notwithstanding an event of dis-
solution. Under such laws, the LLC may effectively have perpetual life in the
same manner as corporations.
TRANSFERABILITY OF INTEREST
To a large extent, transferability of an owner ’s interest in the business is simi-
lar to the continuity of life issue.
Sole Proprietorships
A sole proprietor has no interest to transfer because he and the business are
one and the same, and thus he must be content to transfer each of the assets of
the business individually—an administrative nightmare at best and possibly