chapter 20

Question 1

Forms of business Ownership.

Answer 1

A.(77%) Individual Proprietorship
B.(6%) Partnership
C.(17% Corporation
D. Total of 800,000 firms–10% do 80% of volume

Question 2

1. Easiest and least expensive to establish
2. Maximum degree of freedom from governmental regulation.
3. Needs only:
   a. Insurance
   b. Tax registration
   c. License
4. Proprietor
   owns and operates the business.
5. All transactions in his name.
6. Organizationally simple.

Answer 2

Individual Proprietorship

Question 3

When dealing with an individual partnership, the ____ is responsible and personally liable for all
debts, obligations, responsibilities.
a. This includes all personal assets whether related to the business or not.
b. Has no continuity in event of death or incapacity.
c. Will / may provide for transition to new owner.
d. Owner must pay income tax on proceeds of
business.

Answer 3

Owner

Question 4

An issue with Individual partnership is that ________

–can’t take advantage of fringe-benefit plans available to employees (e.g., retirement benefits).

Answer 4

self-employed

Question 5

Partners are co-owners. Partners usually share in management. Profits and losses shared in proportion to the amount of ownership specified in agreement.

Answer 5

General Partnership

Question 6

What are the advantages of a general partnership?

Answer 6

1. Concentration of assets (increased bonding capacity)
2. Pooling of equipment and facilities
3. Consolidation of talents

Question 7

Partners usually share in managementProfits and losses shared in proportion to the amount of ownership specified in agreement.

Answer 7

General partnership

Question 8

why is general partnership not considered a legal entity.

Answer 8

1. Pays no tax (but must file a form)2.Partners are not employees
   a. No withholdings for Income Tax, FICAb. No payments for Unemployment

Question 9

In some cases partnership can act like a legal entity:

Answer 9

1. Own property–some restrictions on real estate
2. Have employees
3. Sue and be sued

Question 10

Partners usually receive draws or salaries that are considered ____________ of the partnership.

Answer 10

operating expenses

Question 11

are restricted from selling, assigning or mortgaging his interest without ___________.

Answer 11

consent of other partners

Question 12

Exception: a partner’s share of profits can be assigned to _________.

Answer 12

another party

Question 13

In General Partnership each partner is an _____ of the other partners.

Answer 13

agent

Question 14

Each can bind the others in normal business with or without others’ consent –including contracts. Notice to one partner is notice to all. Partners are individually liable for all the debts of the partnership. An injured partner can claim against the others. Careful judgment should be exercised in selecting partners. If a partner withdraws from the partnership, he is responsible for all obligations up to time of withdrawal.Must publish notice of withdrawal and send to creditors and other involved parties to protect self against future claims.

Answer 14

General partnership

Question 15

Partnership automatically dissolve upon the _________.

Answer 15

death of one partner

Question 16

Partnership agreements may provide for continuation for a time for ____________.

Answer 16

reorganization

Question 17

Dissolution is not _________.

Answer 17

termination

Question 18

Has no effect on outstanding debts and obligations to others.

Answer 18

dissolution

Question 19

Partners are still liable up to actual _____.

Answer 19

dissolution

Question 20

In settlement of debt, outside creditors have_________.

Answer 20

first priority

Question 21

In settlement of debts, return loans and advances made by _________.

Answer 21

partners

Question 22

In settlement of debts, return initially invested _______ to partners

Answer 22

capital

Question 23

In settlement of debts, remainder treated as ______ and distributed.

Answer 23

profit

Question 24

Dissolution may be precipitated by

Answer 24

1. Bankruptcy
2. Expiry of the stated duration of partnership agreement
3. Withdrawal of a partner
4. Insanity or incapacitation of a partnerCourt of equity decree
5. Mutual consentDeath of a partner

Question 25

1. A partner who invests cash but does not share in the operation or control of the business. 2. Partner-Owner shares in profit or loss3. Liable only to the extent of capital contributed 4. Must not exercise any involvement in partnership management or control, even by indirect pressure 5. Otherwise might lose limited status and become general partnership 6. At least one partner must be general partner 7. Certificate must be filed with a public office and published as required by state law

Answer 25

Limited Partner

Question 26

Partnership not dissolved due to death of ___________.

Answer 26

limited partner

Question 27

Limited partner is not a creditor but an ______.

Answer 27

owner

Question 28

Shares in profits and return of capital at dissolution.

Answer 28

The limited partnership

Question 29

Limited partnership used principally for obtaining _____.

Answer 29

capital

Question 30

1. Preferable to borrowing from a lending institution because a lender may apply pressure, therefore control. 2. Lower priority than lender on dissolution –no pressure, no control.

Answer 30

The limited partnership

Question 31

An agreement between a partner and an outside party to share in profits and losses.

Answer 31

Sub-Partnership

Question 32

is not a member of the firm and brings no new money to the firm

Answer 32

A sub-partner

Question 33

performs no active function and has no voice in management

Answer 33

A sub-partner

Question 34

is not personally liable to creditors

Answer 34

A sub-partner

Question 35

A legal entity under a special name. Regulated by law [state(s) where it is incorporated].

Answer 35

The corporation

Question 36

A corporation can be.....

Answer 36

1. Public 2. Private 3. Profit 4. Non-profit5. Quasi-public (essentially public but under private ownership or control) 6. Foreign 7. Domestic

Question 37

A _______ can 1. Do business as per its charter 2. Own real and personal property 3. Enter into contracts 4. Sue and be sued in its own name 5. Otherwise act as an individual

Answer 37

corporation

Question 38

Advantages of a corporation are......

Answer 38

Advantages 1. Perpetual life 2. Limited liability to owners (stockholders)3. Ability to easily aggregate large capital via the large number of stockholders 4. Employees can be owners 5. Owners pay taxes only on receipts and corporation pays corporate tax on profit

Question 39

1. A corporation is considered foreign any place outside the state of incorporation2. To practice business in a foreign state, the corporation must be licensed (certified) in that foreign state 3. Otherwise Construction contracts are unenforceable (no lien rights) 4. No access to foreign state courts 5. Pays taxes wherever business is done

Answer 39

foreign corporation

Question 40

The rights of the ______ are: 1. To subscribe to new issues first 2. To reasonable inspection of the books 3. To sue the corporation 4. To share in declared dividends, which are paid only from earned surplus 5. To share in assets of corporation if it is dissolved 6. To enact bylaws of the corporation 7. Tot elect directors, who in turn elect officers 8. Cannot act as an agent of the corporation, only designated officers can9. Not liable for failure or debt

Answer 40

stock holder

Question 41

are not agents of the corporation. Are fiduciaries, who must serve in the corporation’s interests with prudence and reasonable care

Answer 41

Directors

Question 42

They appoint four necessary officer positions: 1. President 2. Vice-President 3. Secretary 4. Treasurer

Answer 42

Directors

Question 43

______ positions may be more for larger corporations and may be doubled-up. May not be directors

Answer 43

officers

Question 44

Are agents of the corporation. They are also fiduciaries and may be held personally liable for losses due to neglect or misconduct

Answer 44

Officers

Question 45

1. Created by the IRS for tax purposes.2. Can be taxed as a partnership ifDomestic corporation. 3. Less than 35 stockholders who are individuals or estates. 4. Has only one class of stock (Common). 5. Personal liability is still limited. 6. Shareholders taxed on share of earnings whether or not declared as dividends. 7. No corporate tax is paid. 8. Once made, the status must continue until unanimous vote of the stockholders to terminate.

Answer 45

The Subchapter (S) Corporation

Question 46

A special purpose partnership. Members of the ___ can be proprietors. The ___ is a separate legal entity –a special purpose partnership used to Pool resources, Obtain special skills, Spread risks, Pool management

Answer 46

Joint Venture

Question 47

Each member of the JV participate in conduct of business according to abilities and __________.

Answer 47

JV agreement

Question 48

Legal requirements for the existence of the joint venture are complicated. They have to cover at least:

Answer 48

1. A contract 2. A common purpose 3. A community of interest and equal right to control