Entities

Question 1

what are the most common legal forms of businesses used in the US?

Answer 1

• sole proprietorship
• partnership
• limited liability partnership (LLP)
• corporation
• limited liability corporation (LLC)

Question 2

what does “piercing the veil” of liability protection mean?

Answer 2

failure to maintain the identity of a limited liability status could result in personal liability for the owners

piercing the veil means disregarding the legal status of the entity that gives the owners limited liability

Question 3

what steps should a business take to avoid piercing the veil?

Answer 3

entity should keep its books and records separate from the personal books and records of the owners, segregate activities of business from personal affairs, follow corporate formalities, and address all content in contracts and correspondence from the view point of the business entity rather than the owners’

Question 4

how many owners are there in a sole proprietorship?

Answer 4

one

Question 5

when does a sole proprietorship arise?

Answer 5

when an individual engages in a business for profit

Question 6

does a sole proprietorship have to file with the Secretary of State?

Answer 6

no

Question 7

describe the formation of a sole prorietorship

Answer 7

easy, inexpensive

must register with state or local taxing authority if the proprietorship will be collecting sales tax

Question 8

describe the process of dissolution for a sole prorietorship

Answer 8

achieved by simply discontinuing business operations and paying creditor, or by the death of the proprietor

Question 9

describe the process of attaining capital for a sole proprietorship

Answer 9

capital for a proprietorship is limited to the resources of the proprietor

Question 10

describe the liability status of a sole proprietorship

Answer 10

the sole proprietor is personally legally liable for the debts and torts of the sole proprietorship

this is one of the major disadvantages of a sole proprietorship