REG entity-law coverage for legal characteristics, formation, governance, authority, and compliance.
This chapter explains the legal structure of the entities that appear throughout REG tax and business-law questions. Understanding how entities differ in formation, governance, authority, and continuity makes later tax consequences easier to analyze.
Business-structure questions often turn on legal consequences before tax treatment. Liability, authority, continuity, transferability, fiduciary duties, and governing documents determine what the parties can do and who bears the risk.
| Structure issue | What to decide first | Common REG trap |
|---|---|---|
| Entity characteristics | Liability exposure, continuity, ownership transfer, and management form. | Choosing an entity based only on tax treatment. |
| Formation and termination | Which legal steps create, alter, or end the entity. | Assuming operations alone create every legal form. |
| Authority and duties | Who can bind the entity and what duties owners or managers owe. | Confusing ownership rights with management authority. |
| Governing documents | Which agreement, statute, or internal rule controls the dispute. | Ignoring operating agreements, bylaws, or partnership agreements. |
| Step | What to identify | Legal consequence |
|---|---|---|
| Determine entity form | Sole proprietorship, partnership, corporation, LLC, or hybrid structure. | Form controls liability, governance, and continuity. |
| Confirm formation status | Filing, agreement, conduct, ownership, and statutory requirements. | Rights and duties depend on whether the entity legally exists. |
| Identify authority | Owner, partner, manager, officer, agent, or board authority. | Authority determines who can bind the entity. |
| Review duties and liability | Fiduciary duties, personal liability, limited liability, and creditor exposure. | Legal exposure often controls the answer before tax treatment. |
| Apply governing documents | Operating agreement, partnership agreement, bylaws, or statute. | Internal documents can change default rules. |
| Checkpoint | What to compare | Common legal consequence |
|---|---|---|
| Formation | Filing, agreement, conduct, ownership, and statutory compliance. | Some forms require formal filing while others can arise from conduct. |
| Liability shield | Owner personal exposure, entity obligations, and exceptions. | Limited liability does not protect every actor from their own misconduct. |
| Management authority | Agent, partner, member, manager, officer, director, or board control. | Ownership does not always equal authority to bind the business. |
| Transferability and continuity | Whether ownership interests can transfer and whether the entity survives owner changes. | Exit or transfer facts can change rights without ending the business. |
| Governing rule source | Default statute, agreement, bylaws, operating agreement, or fiduciary standard. | Internal documents may override default rules when permitted. |