Business Entity: Financial Structure

Question 1

Business Entity
Financial Structure
Partnerships

Answer 1

Partnerships
Capital Accounts
- each partner has an account that is equal to money + property contributed, net liabilities
- partners are to be reimbursed for payments made and indemnified for liabilities incurred
- reimbursed for advances made beyond agreed capital contributions
- absent agreement to contrary, partners share equally in profits and share of losses follow profits
- receive interest on advances made to partnership
- No right to receive, and not required to accept distributions in-kind

Question 2

Business Entity
Financial Structure
Corporations

Answer 2

Corporations
Equity Securities
- Common Stock: Bear most risk and have most gain. Have right to vote on directors. Share in profits when paid as dividends. And share in surplus of assets over liabilities upon dissolution.
- Preferred Stock: Superior rights to CS for dividends or asset over liability upon dissolution. Right to receive dividends accumulates and get 2 years worth next year. No right to payment of dividends
- Treasury Stock: Once issued, and now repurchased. ($ may be less than par)
Debt Securities
- Notes: short term and unsecured
- Debentures: long term and unsecured
- Bonds: debt instruments secured by corporate property
Dividends
- Stock Dividend: issued when no cash
- Stock Split: greater increase in outstanding shares

Question 3

Business Entity
Financial Structure
LLC’s

Answer 3

LLC’s

• contributions may be made with cash, property, etc.
• obligations to contribute not excused by death, disability, or inability to perform. Creditors can force contribution
• reasonable compensation for services or ordinary course of business is okay
• improper distribution: member of manager who made is liable to creditors
• if LLC commits to make distribution and does not, creditors become general, unsecured creditors of the LLC