4.1 - Corporate Formation

Question 1

Business entities are generally classified as:

Answer 1

Corporation
Limited liability company
Limited partnership
Partnership
Sole proprietorship

Question 2

How many owners do the following have:

1. Corporation
2. Limited liability company
3. Limited partnership
4. Partnership
5. Sole proprietorship

Answer 2

1. 1 or more
2. 1 or more
3. 2 or more
4. 2 or more
5. 1 owner

Question 3

Formed through flinging of articles of incorporation with the state. Recognized as a legal entity separate from its owners (shareholders).

Answer 3

Corporation

Question 4

Formed through filing of articles of organization with a state and recognized as a legal entity separate from its owners (members). Can be taxed as a corporation, partnership, or sole proprietorship.

Answer 4

Limited liability company (LLC)

Question 5

Organized by a written agreement and must file a certificate of limited partnership to be recognized by the state.

Answer 5

Limited partnership

Question 6

Formed by a written agreement known as a partnership agreement between two or more partners or may be formed by oral agreement. There is no requirement to formally organize under state law as compared with a corporation.

Answer 6

Partnership

Question 7

Not treated as a legal entity separate from its owner. The owner is not required to formally organize the business in the state. Individual owners of this are ultimately responsible for the liabilities of the business.

Answer 7

Sole proprietorship

Question 8

For a Corporation, determine the response for the following:
1. Limited liability
2. Entity taxation
3. Owner taxation
4. Suitable for initial public offerings
5. Eligible for qualified business income deduction

Answer 8

1. Yes
2. On earnings
3. On dividends
4. Yes
5. No

Question 9

For a limited liability companies, determine the response for the following:
1. Limited liability
2. Entity taxation
3. Owner taxation
4. Suitable for initial public offerings
5. Eligible for qualified business income deduction

Answer 9

1. Yes
2. Dependent on classification
3. Dependent on classification
4. No
5. Yes

Question 10

For a partnership, determine the response for the following:
1. Limited liability
2. Entity taxation
3. Owner taxation
4. Suitable for initial public offerings
5. Eligible for qualified business income deduction

Answer 10

1. Only for limited partners
2. None
3. On earnings
4. No
5. Yes

Question 11

For a S Corporation, determine the response for the following:
1. Limited liability
2. Entity taxation
3. Owner taxation
4. Suitable for initial public offerings
5. Eligible for qualified business income deduction

Answer 11

1. Yes
2. Not generally
3. On earnings, not generally on distributions
4. No
5. Yes

Question 12

For a Sole Proprietor, determine the response for the following:
1. Limited liability
2. Entity taxation
3. Owner taxation
4. Suitable for initial public offerings
5. Eligible for qualified business income deduction

Answer 12

1. No
2. None
3. On earnings
4. No
5. Yes

Question 13

The only type of entity whose earnings are subject to double taxation (taxed once at the corporate level and again at the shareholder level when dividends are distributed)

Answer 13

C corporations

Question 14

There is no gain or loss recognized by C Corporations issuing stock in exchange for property in the following transactions:

Answer 14

Formation - issuance of common stock
Reacquisition - purchase of treasury stock
Resale - sale of treasury stock

Question 15

The general rule is that the basis of the property received by a C Corporation from the transformer/shareholder is:

Answer 15

The greater of:
NBV
OR
Debt assumed by the corporation

Question 16

The shareholder contributing property in exchange for c corporation common sock has no gain or loss if the following two conditions of IRC Section 1251 are met:

Answer 16

The shareholder owns at least 80% of the voting and non voting stock
And
There is no receipt of boot

Question 17

The following items represent boot (taxable) and will trigger gain recognition by the transferor/shareholder:

Answer 17

Cash withdrawn
Receipt of debt securities (bonds)

Question 18

The amount of liabilities assumed by the corporation that exceeds the adjusted basis of the total assets transferred to the corporation is:

Answer 18

Not boot but does generate a gain

Question 19

The shareholders basis in common stock received from the corporation is the total of:

Answer 19

Cash
Property adjusted basis (reduced by cash and the FMV of boot received and any debt on the property)
FMV of services