Choosing a Business Form 229This allows creditors and those other wise injured by the operation of the busi-
ness to determine who is legally responsible.
FORMATION OF PARTNERSHIPS
Similarly, a general partnership requires no special act for its formation other
than a d /b/a certificate if a name other than that of the partners will be used.
If two or more people act in a way which fits the definition set forth in the
Uniform Act, they will find themselves involved in a partnership. However, it is
strongly recommended that prospective partners consciously enter an agree-
ment (preferably in writing) setting forth their understandings on the many
issues which will arise in such an arrangement. Principal among these are the
investments each will make in the business, the allocation and distribution of
profits (and losses), the method of decision making (i.e., majority or unanimous
vote), any obligations to perform services for the business, the relative com-
pensation of the partners, and so on. Regardless of the agreements that may
exist among the partners, however, the partnership will be bound by the ac-
tions and agreements of each partner—as long as these actions are reasonably
related to the partnership business, and even if they were not properly autho-
rized by the other partners pursuant to the agreement. After all, third parties
have no idea what the partners’ internal agreement says and are in no way
bound by it.
CORPORATIONS
In order to form a corporation, in contrast, one must pay the appropriate fee
and must complete and file with the state a corporate charter (other wise
known as a Certificate of Incorporation, Articles of Incorporation, or similar
name in the various states). The fee is payable both at the outset and annually
thereafter (often approximately $200). A promoter may form a corporation
under the laws of whichever state she wishes; she is not required to form the
corporation under the laws of the state in which she intends to conduct most
of her business. This partially explains the popularity of the Delaware corpo-
ration. Delaware spent most of the last century competing with other states
for corporation filing fees by repeatedly amending its corporate law to make it
increasingly favorable to management. By now, the Delaware corporation has
taken on an aura of sophistication, so that many promoters form their com-
panies in Delaware just to appear to know what they are doing! In addition, it
is often less expensive under Delaware law to authorize large numbers of
shares for future issuance than it would be in other states. Nevertheless, the
statutory advantages of Delaware apply mostly to corporations with many
stockholders (such as those which are publicly traded) and will rarely be sig-
nificant to a small business such as those described at the beginning of this