Business Structures Flashcards
T/F
A partnership must be a business operated for profit
TRUE
T/F
The parties in a partnership may be co-owners of a business or co-owners of property
FALSE
They must be co-owners of a business, not co-owners of property
What are two key factors of co-ownership in a partnership?
The parties share in profits and management responsibilities
T/F
A partnership agreement must be in writing
FALSE
The agreement may be oral. If the partnership is impossible to perform in one year then it is required to be in writing
General Partners have what kind of liability?
Unlimited Personal Liability
General partners are ___ and _____ liable for all partnership debts and contract obligations.
Jointly Severally (Individually)
What is a tort?
A Civil Wrong (i.e., negligence)
What types of notice must a partner give to old customers and new customers in the event of a partner leaving the partnership
Old Customers - Actual Notice
New Customers - Published Notice (place an ad)
T/F
A limited partnership can exist even if it only has limited partners
FALSE
A limited partnership must have one or more general partners and one or more limited partners
T/F
All partners must agree to admit a general partner, but not a limited partner
FALSE
All partners must agree to admit either a general or a limited partner.
T/F
Limited and General partners may be secured or unsecured creditors of the partnership
TRUE
Limited Partners have what kind of liability?
Limited liability - no liability beyond their capital contribution
T/F
Limited partners have no right to daily management or control of the partnership
TRUE
T/F
If limited partners participate in daily management, they are personally liable to any party reasonably believing they were a general partner.
TRUE
What may a limited partner vote on without incurring liability? (5)
1) dissolution of the limited partnership
2) fundamental changes in the limited partnership
3) admission or removal of a general or limited partner
4) amending the certificate of limited partnership
5) may act as an agent without losing limited liability
What decisions require unanimous consent of all partners, unless otherwise agreed? (5)
1) To admit new general partners or new limited partners
2) To transfer partnership property to others
3) To change a written partnership agreement
4) To admit liability in a law suit or submit a claim to an arbitrator
5) Fundamental changes in partnership business to include selling the goodwill
If a division of profits is specified, but no losses, how are losses divided?
The same as profits
In a limited partnership, if it doesn’t state how to divide up profits and losses, how are they divided?
By capital contribution
In a general partnership, if it doesn’t state how to divide up profits and losses, how are they divided?
Equally
T/F
A partner is entitled to repayment before creditors are paid
FALSE
They are only entitled to repayment after all other creditors are paid
T/F
A partner has no right to use partnership property for any other purpose without consent of other partners
TRUE
T/F
Partner can transfer or assign his individual interest in partnership property to others.
FALSE
A partner cannot do this
T/F
Partnership property may not be attached by an individual partner’s creditors.
TRUE
T/F
Any general or limited partner may assign or sell their partnership interest, thus dissolving the partnership and rendering themselves no longer liable for partnership debts
FALSE
Any general or limited partner may assign or sell their partnership interest. HOWEVER, this does not dissolve the partnership and the assignor remains liable for partnership debts. The assignee is not a partner, they only have rights to receive the assignor’s share of profits, and the assignee is not liable for the assignor’s share of losses.
T/F
Under the Revised Uniform Partnership Act, partners that own majority of partnership may choose to continue general partnership within 90 days of partner’s withdrawal, death or bankruptcy.
TRUE
What is the order of distribution in a general partnership upon dissolution?
1) Creditors (Partnership Creditors may only go after a partner personally after all partnership assets are exhausted. Personal Creditors have first claim on personal assets.)
2) Repay loans made by partners to the partnership
3) Pay capital contributions
4) Distribute Profits
What is an LLC?
Limited Liability Company
Cross between a partnership & a corporation
What are the advantages of an LLC? (4)
1) Liability Advantage - no personal liability beyond investment
2) Participate in Management
3) Federal Tax Advantage (pass-through, no double taxation)
4) No piercing of the Corporate Veil
What are the two main methods of managing an LLC?
Member Managed
Manager Managed
T/F
A dissolution is the winding up of a partnership
FALSE
A dissolution changes the legal relationship of the partnership, but it doesn’t necessarily mean the winding up of a partnership
T/F
Like a corporation, an LLC has perpetual existence
FALSE
Unlike a corporation, an LLC does not have perpetual existence
What is an LLP?
Limited Liability Partnership
Cross between a general partnership and a limited partnership
T/F
Joint Ventures can last indefinitely
FALSE
Joint Ventures are usually for a single project
T/F
Like a partnership, death of a joint venturor dissolves the joint venture
FALSE
Unlike a partnership, death of a joint venturor does not dissolve the joint venture
How are Subchapter S Corporations taxed?
They file Form 1120S & generally do not pay any taxes. Like a partnership, it is a flow-through entity. Therefore it is not subject to double taxation
How are Subchapter C Corporations taxed?
They file Form 1120 & pay taxes on their taxable income. This causes double taxation.
T/F
A C Corporation may face a higher tax burden than an S Corporation
TRUE
T/F
Whether you are a C Corp or an S Corp, stockholders still have limited liability
TRUE
What are three ways that a corporation can be financed?
1) Debt Securities (Bonds)
2) Equity Securities (Stock)
3) Retained Earnings
What is the difference between a merger and a consolidation?
Merger - A & B combine & one of them survives (takeover)
Consolidation - A & B combine & X emerges
What are a stockholder’s two management rights?
1) Elect board of directors
2) Vote on fundamental changes to the corporation
What is a derivative suit/class action suit?
A suit brought by large group of stockholders in the name of the corporation. The stockholders must show a harm to the corporation
T/F
A silent partner in a general partnership helps manage the partnership without letting those outside the partnership know this
FALSE
A silent partner does not help manage the partnership
T/F
A silent partner in a general partnership retains unlimited liability for the debts of the partnership
TRUE
A silent partner does not help manage the partnership but still has unlimited liability
T/F
under the revised uniform partnership act partners have joint and several liability for not only torts but also breaches of contract
TRUE
This is a change from previous law and differs from the normal rules of agency law
What does it mean to make a partnership a surety
This means that the partnership is a guarantor
T/F
to make a partnership a surety you must have the consent of all partners
TRUE
T/F
Under the revised uniform partnership act a partner who acquires property in the partnership name will result in the property to be deemed partnership property
TRUE
T/F
Under the revised uniform partnership act A partner who acquires title to property in his or her own name using partnership funds will result in property being deemed as partnership property
TRUE
T/F
under the revised uniform partnership act property owned previously by a partner is used in the partnership business and therefore will be deemed to be partnership property
FALSE
A partner may use property in the partnership business without it becoming partnership property
To create a limited partnership a certificate of limited partnership must be filed with the Secretary of State. What must be included in the certificate under the revised uniform limited partnership act
Names of all the General partners. Note that the names of all the limited partners is not required
T/F
a limited partner may act as an agent of the limited partnership without losing limited liability
TRUE
T/F
a Limited partner may vote to remove a general partner without losing their limited liability protection
TRUE
T/F
each joint venturer is personally liable for the debts of a joint venture
TRUE
T/F
each joint venturer has the right to participate in the management of the joint venture
TRUE
T/F
The joint venturers owe each other fiduciary duties
TRUE
T/F
Death of a joint venturer dissolves the joint venture
FALSE
T/F
In an LLC the members/owners interests are not freely transferable
TRUE
T/F
A LLC provides for a limited liability for some of its members/owners
FALSE
A LLC provides for a limited liability for ALL of its members/owners
T/F
A LLC allows its voting members, but not all members, to choose the managers of the company
FALSE
All members may choose the managers of the company
T/F
Both subchapter C and subchapter S corporations have limited liability for their shareholders and are similar in their corporate management structure
TRUE
What is watered stock
This refers to when the stock is acquired by exchanging cash or property worth less than the par or stated value of the stock. This does not have to do with market value
T/F
corporations need shareholder approval to grants loans to directors
TRUE
Who elects a corporations officers
Officers are appointed by the directors of a corporation. Directors are elected by shareholders
T/F
Majority shareholders of the corporation can owe a fiduciary duty to the minority shareholders
TRUE
T/F
An important power of the Board of Directors is to amend the articles of incorporation
FALSE
The articles of incorporation may be amended by the shareholders vote not by the Board of Directors
