Chapter 14a

Question 1

Primary Legal Consideration

Answer 1

Liability of Owner

Question 2

Liability Types (2)

Answer 2

Unlimited and Limited Liability

Question 3

Companies in Unlimited Liability (2)

Answer 3

Sole proprietorship, general partnership

Question 4

Companies in limited liability (3)

Answer 4

limited liability company, limited partnership, corporation

Question 5

Second Primary Legal Consideration

Answer 5

Tax

Question 6

Two Types of Taxation

Answer 6

Pass Through Taxation
Corporate Taxation

Question 7

Pass through taxation

Answer 7

on individual tax returns, profit and loss is recorded at personal income tax rates

Question 8

What companies are included in pass through taxation (4)

Answer 8

Sole Proprietorship, General Partnership, Limited Liability Company, Limited Partnership

Question 9

Corporation Taxation

Answer 9

Taxed at the corporate level, includes corporations

Question 10

Sole Proprietorship
Structure:
Tax Entity:
Simple or Complex form?
Liability Type:

Answer 10

• One sole owner
• pass through taxation
• simple, created by default, inexpensive
• Unlimited and full exposure to liability

Question 11

Limited Liability Company
Structure:
Tax Entity:
For tax purposes, can elect……
type of liability

Answer 11

• Members, board members, owned by many people
• pass through taxation
• can elect to be treated as sole proprietorship, partnership or corporation
• limited, members liable to their ownership

Question 12

General Partnership
Structure:
Tax Entity:
Liability Type:
Is liability limited to what you put in?:

Answer 12

• two or more partners share profit and losses
• pass through taxation
• unlimited liability for both partners and company obligations
• No not limited to what you put in!

Question 13

Limited Partnership
structure
type of liability
tax entity
general partner role
limited partner role

Answer 13

• one or more general partner and one or more limited partner
• general partners unlimited and limited partners limited liability
• pass through to all partners
• managing partnership
• passive and silent investors

Question 14

Corporation
structure
owner of corporation
is ownership transferable?
Equity interest via….?
Type of liability?
3 types of corporations

Answer 14

• legal entity separate from owners
• shareholders and stockholders
• yes it is transferable
• distribution of shares and stocks
• corporation liable for actions, shareholders limited to shares
• B, S , C - Corp

Question 15

Benefit Corporation

Answer 15

balancing pure profit and social benefit

Question 16

C corporation - 2 main features

Answer 16

unlimited number of shareholders and double taxation

Question 17

S corporation - 2 main features

Answer 17

no more than 100 shareholders, stockholders elect special treatment for income tax purposes

Question 18

How to void legal mistakes during start up? (2) with reason

Answer 18

• hire right legal counsel: don’t let family and friends substitute guidance from lawyers
• Choose right business structure: for tax and liability purposes, investors, formal agreements

Question 19

Founders Agreement

when does this occur?

Answer 19

clear agreement between founders on several key issues that business might face,

before legal contract and formal written agreement

Question 20

Vesting and example

Answer 20

imposing equity forfeitures on cofounders over time-period on a partial measure basis should they not stay with the company, etc stock options