"Trade or Business": The Relevance of a Deceptively Simple Income Tax Phrase to the Labor Code, Federal Statutes, and Private Equity Activity, 11 Fla. A&M U. L. Rev. 159 (2015)

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Corporate law is premised upon two fundamental principles: the pooling of moneys for investment purposes and the privilege of limited liability. The pooling of money enables promoters and investors to efficiently amass and organize substantial sums for investment purposes. The privilege of limited liability assures investors that personal liability for the underlying invested activity is limited to the moneys invested. Limited liability is a sacrosanct principle and a quintessential investment assumption within the investment community. Private equity firms have successfully exploited these two policies. However, a decision by the First Circuit Court of Appeal casts a shadow of doubt on the scope of the privilege of limited liability. In Sun Capital Partners III, LP v. New England Teamsters & Trucking Industry Pension Fund (“Sun Capital Partners”), the First Circuit found a private equity fund liable for the 4.5 million dollar withdrawal pension liability of one of its portfolio companies. Part I of this paper analyzes the relevant facts of Sun Capital Partners. Part II examines the business practices of the private equity industry and presents arguments by proponents and critics of private equity investment with a view toward informing the debate regarding when an activity constitutes a “trade or business.” Part III examines the historical significance of the phrase “trade or business,” its application within the labor statute, its habitual deployment by Congress throughout various federal statutes, and its presumed meaning by courts. Finally, Part IV states a proposal and conclusion.

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