In a recently published article, Unconscious Classism: Entity Equality for Sole Proprietors,11 U. Pa. J. Const. L. 215 (2009), Mitchell F. Crusto (Loyola) argues that sole proprietorships are discriminated against in that they are not afforded entity treatment. To remedy this, he proposes a Uniform Sole Proprietorship Act (USPA) modelled on the UPA and the RUPA. Id. at 268 app B.
Crusto’s USPA largely follows the structure of the UPA. For example, he would not follow RUPA sections 203 and 502 and make the sole proprietorship the owner of property. Rather, under Section 16(a),
“A sole proprietor is the sole owner of specific sole proprietorship property holding as an “owner in sole proprietorship.”
USPA § 16(a).
USPA section 16 differs from UPA section 25 in two major respects. First, there is no requirement that the sole proprietor can use firm property only for firm purposes. Second, the sole proprietor’s rights in specific property of the sole proprietorship are assignable, USPA § 16(b), but can be attached or executed against only for claims against the sole proprietorship, USPA § 16(c).
I assume the rationale is that the sole proprietor’s consent may be presumed. Yet, in USPA Section 5 tracks UPA Section 9 in limiting the apparent authority of a sole proprietor to acts “apparently carrying on in the usual way the business of the sole proprietorship”. USAP § 5(1) & 5(2). Oddly, though, the USPA would give the sole proprietor authority to take the extraordinary acts listed in UPA Section 9(3). USPA § 5(3).
More importantly, strict asset segregation is the hallmark of the modern view of an “entity.” Without that there is little chance of limited liability for firm obligations. Although Crusto at times argues for that, id.at 262, USPA Section 9 makes the sole proprietor fully liable for firm obligations. In Crusto’s view, granting general entity status is “an essential first step toward a limited liability sole proprietorship statute (“LLSP”). Id. at 263. But not without strict asset segregation.
“Check the Box” as Diagnostic
Tuesday, September 22nd, 2009Heather M. Field (UC-Hastings) argues in Checking in on “Check-the-Box,” 42 Loy. L.A. L. Rev. 451 (2009) that
It’s not just the “multi-regime system.” Partnership taxation is built on an extreme aggregate view of partnerships that was not true in 1954 (or before) and still isn’t true. Even under the UPA’s tenancy-in-partnership, partners have no meaning individual rights in, or access to, partnership property. Partnership property is dedicated to partnership purposes; all an individual partner has is the right to distributions (if, as and when approved by the partners). RUPA-based partnership statutes now vest title to partnership property in the entity, and not the partners.
It’s hard to ensure economic substance in partnership allocations when the partnership tax regime itself has no economic substance. Well, apart from the tax regime itself.
Now, if I were the Tax Czar, I’d like to see
That level would the field, both as between entities, and as between debt and equity.
Hat-tip to Paul Caron (Tax Prof blog).
Gary Rosin
Tags: Check-the Box
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