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CPA: REG > Chapter 8 Section 3: Business Structures > Flashcards

Chapter 8 Section 3: Business Structures Flashcards

1
Q

What goes into the formation of a general partnership?

A

Nothing. It can be formed by verbal or written agreement, or mere conduct

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2
Q

What liability does a general partnership have?

A

Unlimited personal liability for all partnership obligations

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3
Q

Who can manage a general partnership?

A

Owners manage directly or can appoint a managing partner

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4
Q

Is there transferability in a general partnership?

A

Not without unanimous consent

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5
Q

How does taxation work in a general partnership?

A

Flow through taxation

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6
Q

How is a limited partnership formed?

A

File certificate of limited partnership with state

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7
Q

What liability happens with a limited partnership?

A

General partner: unlimited personal liability

Limited partner: only investment is at risk

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8
Q

What does management look like under a limited partnership?

A

General partner: exclusive manager(s)

Limited: ordinarily does not manage

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9
Q

Is there transferability in a limited partnership?

A

Not without unanimous consent

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10
Q

How does taxation work for a limited partnership?

A

Flow through (but limited partners have passive loss restrictions)

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11
Q

How is a corporation form?

A

File articles of incorporation or corporate charter with the state

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12
Q

What liability comes with a corporation?

A

Shareholders are generally not personally liable beyond their investment

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13
Q

Who manages a corporation?

A

The Board of Directors, who appoints officers to run day-to-day operations

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14
Q

Is there transferability with a corporation?

A

Yes, unless they agree otherwise

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15
Q

How does taxation work with a corporation?

A

Income taxed at corpoate level and then again to shareholders when dividends are distributed

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16
Q

How are S Corps formed?

A

File Articles of Incorporation or Corporate Charter with the state, plus S Election

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17
Q

What does the liability look like in an S Corp?

A

Usually nothing beyond your investment

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18
Q

Who manages an S Corp?

A

The Board of Directors, who appoints the officers to run day to day operations

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19
Q

Is there transferability in an S Corp?

A

Yes, unless they agree otherwise. They can’t transfer to a foreign or entity shareholder.

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20
Q

What does taxation look like for an S Corp?

A

Flow through, but shareholders that aren’t managing have passive loss restrictions

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21
Q

How is an LLC formed?

A

File Articles of Organization with the state

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22
Q

What liability is there with an LLC?

A

Generally not liable beyond the investment

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23
Q

Who manages an LLC?

A

Members can manage directly or appoint a manager

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24
Q

Is there transferability in an LLC?

A

Unless stated otherwise, you can’t transfer without unanimous consent

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25
Q

What does taxation look like for an LLC?

A

Flow through, but non-managing partners have passive loss restrictions

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26
Q

How is an LLP formed?

A

File Statement of Qualification with state

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27
Q

What liability is there in an LLP?

A

Generally not liable for partnership obligations, unless caused by their own negligence

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28
Q

Who manages an LLP?

A

Partners manage directly or can appoint a managing partner

29
Q

Is there transferability in an LLP?

A

Not without unanimous consent

30
Q

What does taxation look like in an LLP?

A

Flow through, but non-managing partners have passive loss restrictions

31
Q

What are the advantages of a sole proprietorship?

A

Flow through taxation and transferability

32
Q

What are the disadvantages of a sole proprietorship?

A

Personal liability and life ends with death of owner

33
Q

How do you form a sole proprietorship?

A

You don’t need to do anything.

34
Q

What is the difference between a general partnership and a joint venture?

A

A joint venture is formed for a single transaction or project or related series of transactions or projects

35
Q

What actions require approval by a unanimous vote under a general partnership?

A

Admitting new partners
Confessing a judgment/admitting liability
Making a fundamental change in the partnership business
Changing the partnership agreement
Assigning partnership property to others

36
Q

What are management rights and voting power split in a general partnership?

A

Equally unless they agree otherwise

37
Q

Is unanimous approval required for dissolution?

A

No, just one

38
Q

What is a charging order?

A

Creditors attaching a partner’s interest

39
Q

Upon a partner’s death, what are heirs entitled to?

A

The deceased partner’s share of profits (not voting rights)

40
Q

In a general partnership, how are losses allocated?

A

The same way profits are - usually equally

41
Q

In a general partnership, are partners entitled to remuneration for services rendered?

42
Q

Define dissociation

A

A change in the relationship of partners caused by any partner ceasing to be associated in the carrying on of the business. It doesn’t necessarily end the business..

43
Q

What are the dissociated partner’s liabilities to the other partners?

A

They are still liable for debts incurred prior to dissociation, and may be held liable for new debts for two years, unless there is novation.

44
Q

What is dissolution?

A

Winding up of the partnership

45
Q

What is the order of the distribution of assets when a general partnership dissolves?

A
  1. Creditors (including partners)
  2. Return partner contributions
  3. Distribute any remaining profit or loss
46
Q

Does an LP have perpetual life?

A

Usually not

47
Q

How are profits and losses allocated in an LP?

A

Usually according to capital contributions

48
Q

Does the LP end when the LP dies?

How about the GP?

49
Q

What is an LLC a hybrid between?

A

A corporation and partnership

50
Q

How are voting rights and distribution of profit and loss determined in an LLC?

A

According to capital contributions

51
Q

Does an LLC have a perpetual life?

52
Q

What are the conditions to be an S Corp?

A 
No more than 100 shareholders
Shareholders are individuals, estates, or trusts
Corp must be domestic
One class of stock
Foreign shareholders are prohibited
53
Q

Does a corp have perpetual life?

54
Q

What do promoters do?

A

Procure capital contributions for corporations

55
Q

What items are to be included in the articles of incorporation?

A

name of corp
name and address of registered agent
names and addresses of incorporators
number of shares authorized

56
Q

What is the Ultra Vires Act?

A

If you decide to state our business purpose in your articles, and do something outside of that purpose, you are acting ultra vires. Whoever authorizes that action is liable to the corporation for damages caused by the act.

57
Q

What does piercing the corporate veil mean?

A

Shareholders are personally liable if:
They commingle funds
Corp was inadequately capitalized at formation
Committing fraud on existing creditors

58
Q

Are bondholders owners?

A

No. They are creditors

59
Q

What is cumulative voting?

A

If voting on directors, you can have one vote per director to do whatever you want with (you could use all of them to vote for one person)

60
Q

What are the fundamental changes that require unanimous approval or dissenting shareholders are given appraisal rights for?

A

Dissolution
Amendment
Merger/Consolidation
Sale of assets

61
Q

What are appraisal rights for a dissenting shareholder?

A

You can demand to be bought out at fair value

62
Q

What do directors do?

A

Appoint or remove officers, handle bylaws, set management compensation, and initiate fundamental changes

63
Q

Who declares distributions?

64
Q

Are directors individual agents?

Officers?

65
Q

What do officers do?

A

Run the day-to-day

66
Q

Can officers be directors?

67
Q

Do officers need to be shareholders?

68
Q

How are fundamental changes made in a C Corp?

A

Majority approval by board
Corp notifies shareholders
Shareholders give majority approval
Articles are filed

69
Q

Who has to approve mergers and consolidations and share exchanges?
Who has to follow the fundamental change procedure?

A

Both parties approve mergers, consolidations, and share exchanges
Both follow procedure, except in share exchanges, when only the one being acquired does

CPA: REG (35 decks)

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