Chapter 12

Question 1

Forms of Business Entities

Answer 1

Sole Proprietorship
Partnership
Limited Partnership
Limited Liability Company
S Corp
C Corp

Question 2

Sole Proprietorship

Answer 2

Persons doing business for themselves.

• Single Owner of company
• Taxed at individual rates
• No liability protection
• owner must come up with capital to run the business

Question 3

General Partnership

Answer 3

Association of 2 or more persons (partners)

To carry on as co-owners of a business for a profit

Question 4

Person of General Partnership

Answer 4

Individual , another partnership corporation or some other business entity

Question 5

Legal Governance of a General Partnership

Answer 5

Governed by state law adoption of uniform partnership act (UPA) or revised uniform partnership act (RUPA)

Question 6

Formation of General Partnership

Answer 6

If parties agree that the legal relationship between them is the operation of a business for profit. A partnership is legally created even if there is nothing in writing and they don’t actually call their business a partnership .

Question 7

Duty of Partners

Answer 7

Partners owe a fiduciary duty to act in good faith for the benefit of partnership.

Question 8

Zhou v Bickley

Answer 8

There was no partnership , and Bickley will have to pay the loan back. Even if there was no agreement to go into partnership the courts will try to see if each case fits in the definition of a partnership.

Question 9

Control of a General Partnership

Answer 9

Each partner has equal control over the partnership unless otherwise specified in a partnership agreements.

• Share equally in profits
• Receive repayment of initial capital contributions
• Share equally in management
• Equal access to the partnership books and records

Question 10

Termination of a General Partnership

Answer 10

Dissolution- When any single partner ceases to be associated to the partnership
Partnership Agreement- Can offer alternatives no dissolution unless majority of remaining partners vote to dissolve within 90 days
Winding Up- Period between and termination when partnership liquidates its asses.
Bankruptcy- Of a partner dissolves the partnership. (Unless the agreement says otherwise)

Question 11

Limited Partnership

Answer 11

A partnership that has both limited and general partners

Question 12

Limited Partner

Answer 12

Investor only, they do not take part in management or control and they are not liable for debts or torts of the LP beyond their capital contribution

Question 13

General Partner

Answer 13

Manages the partnership and personally liable for the firm debts.

Question 14

Legal Governance

Answer 14

Governed by state law adoption of Uniform Partnership Act (UPA) or Revised Uniform Partnership Act (RUPA).
Termination: Same rules as a partnership (Note : Bankruptcy of an LP will not dissolve the LP but the bankruptcy of a GP will)

Question 15

Subchapter C Corporation

Answer 15

Corporation is its own separate taxable entity under state law . Double taxation at both corporate and shareholder levels.

• Publically traded company
• Liability protection for all shareholders

Question 16

Subchapter S Corporation

Answer 16

Separate legal entity from its shareholders, but not a separate taxable entity (Income/debts flow through to the shareholders)

Question 17

Franchise

Answer 17

Method of doing business- not a business form. Generally set up as an S corporation or LLC
-Arrangement where owner of a trademark , or trade name licenses others to use such trademark, trade name or copyright.
Ex) McDonalds, Five Guys

Question 18

Vicarious Liability

Answer 18

Generally, corporate franchisor is not liable to the 3rd person dealing with or affected by the franchise holder unless show to exercise actual control over the owner.

Question 19

Termination of a franchise

Answer 19

Is determined by the franchise agreement

Question 20

Dunkin Donuts vs Sandip, Inc.

Answer 20

They wanted to try to find a 3rd party buyer and then Dunkin Donuts denies the sale to the potential sales

Question 21

Formation of Corporations

Answer 21

File articles of incorporation with the secretary of state

Question 22

Legal Status of Corporations

Answer 22

Separate legal entity that can sue and be sued

Question 23

Termination of Corporations

Answer 23

Dissolution- voluntary of involuntary to dissolve the corp

Winding up- board of directors liquidate assets, pay creditors , with remainder to shareholders.

Question 24

How is an LLC treated by the government ?

Answer 24

Treated like a corp for liability purposes but like a partnership for tax purposes

Question 25

Formation of an LLC

Answer 25

File articles of organization , must have llc in name

any number of members allowed and can be people or other orgs

Question 26

Capital contributions and Liability of LLC

Answer 26

Members not personally liable for the debts and Cash/Property/Services are brought on by members

Question 27

Management of LLC

Answer 27

Vested in the members documented in the operating agreement

Question 28

Termination of an LLC

Answer 28

Death, Bankruptcy, withdrawal of member terminates the membership of the specific person but not the LLC itself if the others wise to continue.

Question 29

Profit sharing of an LLC

Answer 29

Profits and losses shared among the members per arrangement in the operating agreement.