BUSINESS STRUCTURE

Question 1

Sole Proprietorship

Answer 1

single owner - assets and liabilities belong to owner

does not require formal filing

Question 2

General Partnership

Answer 2

2+ people

partners are personally liable for debts and profits flow through to K-1s

does not require formal filing

Question 3

Joint Venture

Answer 3

Acts like a general partnership but a one time business venture

Question 4

Limited Partnership

Answer 4

at least ONE GP and ONE LP

GP = working on day to day business & being liable
LP = contributes capital but does not actively manage business

Question 5

Limited Liability Partnership (LLP)

Answer 5

more protection from liability, specifically for professionals (i.e. Bonadio & Co., LLP)

protects partners from malpractice if one does not obey the laws/rules

responsible if malpractice for those they supervise

Question 6

Limited Liability Limited Partnership (LLLP)

Answer 6

GP & LP liable for torts they personally commit

Question 7

Corporation

Answer 7

Limited liability for owners

Taxed directly on the Corp return, but dividends are then taxed at partner level

Question 8

Subchapter S Corp

Answer 8

limits the effect of double taxation - flow through to K-1s

taxed individually and must have 100 or fewer shareholders

Question 9

Limited Liability Company

Answer 9

gets limited liability like a corp (manager-managed), but pass-through taxes like a partnership (member-managed)

Question 10

Name the entity types that require filing with the Secretary of State or some comparable state office:

Answer 10

• Corporation - Articles of Incorporation (Name, # of shares, registered office, registered agent, addresses)
• LLCs - Operating Agreement
• LP, LLP, LLLP - Parntership Agreement

Question 11

What are the general operations of a Corporation?

Answer 11

1. shareholders elect directors
2. directors select officers
3. officers run day to day activities

Question 12

Reasons the courts will pierce the corporate veil

Answer 12

1. Commingling of funds/other assets with those of a shareholder - reaching into shareholders pocket to pay corporation’s obligations
2. Diversion of corp’s funds or assets to personal use of shareholder
3. failure to maintain necessary corporate formalities
4. failure to adequately capitalize the corporation

*just because a business is failing/has losses does not mean that it is thinly/undercapitalized - court does not need to pierce

Question 13

What can the BOD do for a corporation without shareholder approval?

Answer 13

Purchasing substantially all of the assets of another corporation

Question 14

What is not considered in calculating equity and what is?

Answer 14

Is: liquidating dividends, cash, property
NOT: stock dividends