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PCM > Firm legal structures - COMPLETE > Flashcards

Firm legal structures - COMPLETE Flashcards

1
Q

What is a sole proprietorship?

A

-simplest business type
- owned by an individual
- default type if no formal action is taken
- NOT an independent entity from the individual

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2
Q

What are benefits of a sole proprietorship?

A
  • ease of setup
  • total control of sole proprietorship
  • business expenses and losses deducted from gross income of business
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3
Q

What are some disadvantages of a sole proprietorship?

A
  • owner is personally liable for debts and losses. Assets and property can be seized
  • personal credit is on the line, can be impacted
  • difficult to sell the business
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4
Q

What are the tax implications of a sole proprietorship?

A
  • no separate federal tax return filed or tax incurred
  • File Schedule C (Form 1040) - Profit and Losses from Sole Proprietorship every business quarter
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5
Q

What is a General Partnership?

A
  • 2 or more general partners practicing together, sharing management, profit, risk
  • no formal legal steps required
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6
Q

What are advantages of a General Partnership?

A

-partnership allows sharing of different skills

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7
Q

What are disadvantages to a General Partnership?

A
  • partners are personally liable for debts and losses, including actions of other partners
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8
Q

What are tax implications of a general partnership?

A
  • file federal return but does not incur taxes
  • flow-through entity : income and losses pass to partners, taxed at individual rates
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9
Q

What is a limited partnership?

A
  • at least 1 general partner and at least 1 limited partner
  • general partners : invest in the business and are personally liable
  • limited partners : invest, receive portions of profit, are only liable for their own investment
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10
Q

What are advantages of limited partnership?

A
  • partnership allows sharing of different skills
  • differentiated partnership allows a means to distribute power and risk
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11
Q

What are disadvantages of a limited partnership?

A
  • general partners are personally liable for debts and losses including the actions of other partners
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12
Q

What are the tax implications of a limited partnership?

A
  • files federal tax return but does not incur taxes
  • flow through entity: income and losses pass to general partners, taxes at individual rates
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13
Q

What is a subchapter c corporation?

A
  • association of individuals that exists as a legal entity apart from its members
  • three types of members :
    1. Stockholder (elect directors)
    2. Directors (elect officers)
    3. Officers (manage day to day fiduciary duty to stockholders)
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14
Q

What are some advantages of a subchapter c corporation?

A
  • members personal assets are not at risk
  • taxes at Lower risk than individuals
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15
Q

What are some disadvantages to a subchapter c corporation?

A
  • initial cost, paperwork, formal requirements
  • double taxation
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16
Q

What are tax implications of a subchapter c corporation?

A
  • corporations are taxed twice:
    1. Corporations are taxed on profit
    2. Shareholders are taxed on dividends
17
Q

What is a subchapter s corporation?

A
  • small business corporations (no more than 100 shareholders)
  • allocates income and losses directly to shareholders in proportion to their holdings
18
Q

What are advantages of a subchapter s corporation?

A
  • stockholders are protected against claims except negligence
  • the corporation is not taxed
19
Q

What are the disadvantages to subchapter a corporations?

A
  • inhibited corporation growth
20
Q

What are the tax implications to a subchapter s corporation?

A
  • files federal return but does not incur taxes
  • flow through entity: income and losses pass to partners but taxed at individual rates
21
Q

What is a professional corporation?

A
  • owned by stockholders who must all be licensed
22
Q

What are advantages to a professional corporation?

A
  • liability of malpractice is limited to the professional that commuted the act
23
Q

What are disadvantages to a professional corporation?

A
  • specific regulations can be cumbersome
24
Q

What are tax implications to professional corporation?

A
  • files federal tax return but does not incur taxes
  • flow through entity : profits and losses pass through to stockholders, taxed at individual rates
25
Q

What is a limited liability partnership?

A
  • liability is limited to each partners individual professional negligence and malpractice.
  • partners are considered self employeed
  • frequently superseded today by LCCs
  • in a professional limited liability partnership, all partners must be licensed
26
Q

What are some advantages to a limited liability partnership?

A
  • partnership allows sharing of different skills
  • personal assets are protected from most claims, partners are liable for only their own negligence and malpractice
27
Q

What are some disadvantages to a limited liability partnership?

A
  • complex formation process
  • must form an LLP
28
Q

What are tax implications of a limited liability partnership?

A
  • files federal tax return but does not incur taxes
  • flow through entity: profits and losses are passed to partners, taxes at individual rates
29
Q

What is a limited liability corporation?

A
  • partners are members, liability is limited to individual professional negligence and malpractice
  • members elected managers. Managers have fiduciary responsibility to managers
  • professional limited liability corporation: members must all be licensed
30
Q

What are advantages of a limited liability corporation?

A
  • partnership allows sharing of different skills
  • personal assets are protected from claims, partners are liable for only their own negligence and malpractice
  • flexible taxation: taxation can be treated as a sole proprietorship, partnership, or corporation
31
Q

What are some disadvantages of a limited liability corporation?

A
  • complex formation process
  • must form an LLC
32
Q

What are tax implications of a limited liability corporation?

A
  • has the option to assess taxes as a corporation OR flow through entity
33
Q

What is a joint venture?

A
  • temporary alignment of 2 or more persons or firms to complete a specific project
  • memorandum of understanding is often used to formalize agreement
34
Q

What are advantages of a joint venture?

A
  • good for complex projects even firms have complementary experience
35
Q

What are disadvantages of a joint venture?

A
  • each partner or firm is liable for the actions of the other; they can be sued individually or collectively
  • difficult to allocate responsibility and liability
36
Q

What are tax implications of a joint venture?

A
  • pays no tax or earns no income or profit
  • each partner or firms taxation proceeds as separate entities

PCM (6 decks)

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