CORPS MIDTERM

Question 1

What are the types of business entities/structures?

Answer 1

Sole Proprietorship
Partnership
Corporation

Question 2

Sole Proprietorship

Answer 2

Owned and operated by one individual

Unlimited personal liability

Question 3

Partnership

Answer 3

Involves two or more individuals sharing ownership and responsibilities

Two people jointly and severally liable

Question 4

Corporation

Answer 4

Legal entity separate from their owners

Perpetual life

Corporation pays taxes on its profits, and the shareholders pay taxes on their personal earnings [subject to double taxation]

Shareholders are not personally liable [corporate shield]

Question 5

Limited Liability Corporation [LLC]

Question 6

S Corp

Answer 6

Avoids double taxation

Question 7

Generally Accepted Accounting Principles [GAAP]

Answer 7

Rules-based accounting system for U.S. corporations

Sets the accounting standards that govern how companies prepare their financial statements

Question 8

Form 10-K

Answer 8

Report filed annually at the close of the company’s fiscal year by publicly traded companies with the Securities Exchange Commission (SEC)

Provides a detailed overview of a company’s financial performance and operations over the past year

Includes a description of the business, risk and a balance sheet

Audited**

Question 9

What is a balance sheet?

What does a balance sheet show?

Answer 9

Owns/owes

A financial statement that gives a snapshot of a company’s financial position at a specific point in time

What a company owns [assets], what it owes [liabilities], and the residual interest of its shareholders [stockholders’ equity]

Question 10

Income Statement

Answer 10

Profitability

How much $ the company earned and spent over a specific period

Earnings Per Share (EPS) indicates how much money each shareholder would receive per share if the company distributed all its profits

Question 11

Cash Flow Statements

Answer 11

Actual cash movement

Question 12

Statements of Shareholders’ Equity

Answer 12

Changes in ownership interest

Question 13

What is a fiduciary?

Answer 13

An obligation to act in the best interest of another party

Question 14

How is a fiduciary created?

Answer 14

By a relationship

Question 15

What is a fiduciary relationship?

Answer 15

A fiduciary relationship is any relation existing between parties to a transaction wherein one of the parties is duty bound to act with the utmost good faith for the benefit of the other party

Question 16

What are some obligations of a fiduciary duty?

Answer 16

Duty to disclose

Duty of care

Duty of loyalty

Duty of good faith

Question 17

What factors do you use to determine whether a partnership exists?

Answer 17

Fenwick Factors

Question 18

Fenwick Factors

Answer 18

The intention of the parties

The right to share in profits

The obligation to share in losses

The ownership and control of the partnership property and business

Community of power in administration

Language of the agreement

Conduct of the parties towards third persons

Question 19

Partnership by Estoppel

Answer 19

Per UPA §16, a person who represents themselves, or permits another to represent them, to anyone as a partner in an existing partnership or with others not actual partners, is liable to any such person to whom such a representation is made who has, on the faith of the representation, given credit to the actual or apparent partnership