Chapter 12 - Business Structures

Question 1

What is the order of distributions to partners when a partnership is dissolved?

Answer 1

1. Amounts owed to partners for loans to the partnership
2. Partners’ capital accounts
3. Amounts owed to partners for profits

Question 2

What is a single member LLC referred to as?

Answer 2

A disregarded entity

Question 3

What does “partnership at will” mean?

Answer 3

It is a patnership without a specific duration

Question 4

What are the differences between a partnership, limited partnership, and a corporation?

Answer 4

Question 5

What is the role of the board of directors and what actions may they take?

Answer 5

Can also issue stock or corporate debt

Question 6

What are the three basic partner rights?

Answer 6

1. Profits (interest): Right to proportion of profits. This interest is personal and transferable/assignable.
2. Property: Each partner can use the property for partnership purposes. NOT transferable/assignable.
3. Participation: Right to be involved in management. NOT transferable/assignable.

Question 7

What actions require unanimous consent in a partnership?

Answer 7

AGAST

Admitting a new partner

Guaranteeing the debts of a third party (suretyship)

Admitting or submitting a legal claim in court or to arbitration

Sale or pledge of partnership property

Third parties are notified (aware) of a limit to partner’s actual authority

Question 8

When admitting a new partner and retiring a new partner, how much liability does the partner have?

Answer 8

Question 9

What are some distringuishing characteristics of C Corporations?

Answer 9

• Limited liability: Shareholders not responsible for debts
• Independent life: Death of shareholder doesn’t cause corporation to dissolve
• Ease of transfer: Can transfer shares without other shareholder approval
• Taxation: Income taxed at corporation level and dividends taxed at shareholder level
• Centralized management: Controlled by the board of directors

Question 10

What are the differences between and LLP, an LLP, and an LLLP?

Answer 10

LLPs are mainly for professional services

Question 11

What are some ways a shareholder can “pierce the corporate veil?”

Answer 11

• Being under-capitalized: Not contributing enough capital at the formation to cover corporation needs
• Shareholder fraud
• Direct action: Running the corporation directly without electing a BOD or letting them meet at least once a year
• Commingling assets

Question 12

What are the different types of authority in a partnership?

Answer 12

Question 13

What is a closely held corporation?

Answer 13

A corporation whose stock is not offered to the public and is owned by a limited number of shareholders (usually <50)

Question 14

What are the shareholders’ rights?

Answer 14