BUSSINES LAW

Question 1

Business Law Overview

Answer 1

Definition: Business law governs commercial dealings between people and entities.

Two Main Areas:
Regulation of Commercial Entities: Laws of companies, partnerships, agency, and bankruptcy.

Regulation of Commercial Transactions: Laws of contracts and related fields.

Question 2

NEGOTIABLE INSTRUMENTS

Answer 2

Definition: A written promise or order to pay a specific amount of money.

Types:
Draft: Orders payment (e.g., checks).
Note: Promises payment (e.g., promissory notes, certificates of deposit).

Question 3

Promissory Note

Answer 3

Definition: A written promise to pay a certain amount of money to a named party.

Requirements: Must be in writing and signed by the person making the promise.

Question 4

Debt and Loans

Answer 4

Debt: A liability owed by one person (debtor) to another (creditor).
Secured Debt: Guaranteed by collateral (e.g., a mortgage).
Unsecured Debt: No collateral pledged.
Loan: A form of debt where one party lends money to another, usually with agreed terms on repayment.

Question 5

Security Interest and Collateral

Answer 5

Security Interest: Lender’s right to take possession of specific collateral if the borrower defaults.
LIEN: GRAVAMEN

Collateral: An asset pledged to guarantee repayment (e.g., a house for a mortgage).

Question 6

Business Entities

Answer 6

Sole Proprietorship: Owned by one person, who assumes all profits and liabilities.

Partnership: Owned by two or more people, sharing profits and liabilities.

Corporation: A separate legal entity, offering limited liability to its shareholders.

Limited Liability Company (LLC): Combines characteristics of partnerships and corporations, providing flexibility and limited liability.

Question 7

Corporations

Answer 7

C Corporation: Taxed separately from its owners; subject to double taxation (corporation and shareholder levels).

S Corporation: Passes income directly to shareholders, avoiding corporate tax, but limited to 100 shareholders.

Question 8

TAXES

Answer 8

1. Sole Proprietorship
   Taxes: Business income is reported on the owner’s personal tax return. No corporate tax, no double taxation.
2. Partnership
   Taxes: Pass-through taxation; profits/losses are reported on each partner’s personal tax return.
3. C Corporation
   Taxes: Subject to double taxation: the corporation pays corporate taxes on profits, and shareholders pay taxes on dividends received.
4. S Corporation
   Taxes: Pass-through taxation; income passes to shareholders’ personal tax returns, avoiding corporate tax.
5. LLC (Limited Liability Company)
   Taxes: Flexibility: can choose pass-through taxation (like a partnership) or be taxed as a corporation. Most LLCs use pass-through taxation to avoid double taxation.

Tax Summary:
Sole Proprietorship & Partnership: Pass-through taxes, no double taxation.

C Corporation: Double taxation (corporate + individual on dividends).

S Corporation & LLC: Pass-through taxation, no corporate tax.