Intro to Business Orgs Flashcards
What is a closely held business organization?
A business whose ownership interests are not publicly traded on an established market.
It usually has a smaller number of owners who take a more active role in management.
What types of closely held business organizations exist?
Typically, two or more persons choose between the partnership and corporation structures.
These structures facilitate commercial ventures.
Why study closely held business organizations?
The number of closely held businesses vastly exceeds publicly held businesses and they present unique challenges due to the lack of a market for ownership interests.
This can lead to issues such as lack of exit options for investors.
What is a sole proprietorship?
A business owned by a single individual that is not operated as a corporation or other special legal form.
It is easy to establish, but the owner has unlimited personal liability.
What are the advantages and disadvantages of a sole proprietorship?
- Advantage: Easy to establish
- Disadvantage: Unlimited personal liability for business obligations.
What is a general partnership?
An association of two or more persons to carry on as co-owners a business for profit.
It can be informally created and does not require filing an organizational document.
What characterizes a general partnership?
- Structural flexibility
- Restricted transferability of ownership interests
- Pass-through taxation
- Unlimited personal liability for partners.
- Easy exit via a buy out usually
What is a corporation?
A separate legal entity whose identity is distinct from that of its owners (shareholders).
It requires filing an organizational document with the state.
What is the primary benefit of a corporation?
It provides shareholders with limited liability for the obligations of the business.
Shareholders’ personal assets are not at risk in lawsuits.
What is double taxation in the context of corporations?
Corporation income is taxed twice: once at the corporate level and again at the shareholder level when distributed.
This is usually viewed as undesirable.
What are hybrid business organizations?
Business structures that combine attributes of general partnerships and corporations.
What is a limited partnership?
A partnership with two classes of partners: general and limited, formed by filing an organizational document with the state.
What are the characteristics of a limited partnership?
- General partners have unlimited personal liability
- Limited partners have limited liability
- Structural flexibility
- Restricted transferability of ownership interests
- Pass-through taxation.
- exit rights tend to be more restricted
What is a Limited Liability Partnership (LLP)?
A partnership that provides partners with limited liability for the partnership’s tort obligations or for both tort and contract obligations.
Establishment requires filing an organizational document wit the state.
What is a Limited Liability Company (LLC)?
A business organization that is a separate legal entity from its owners (members) and provides limited liability for all of the venture’s obligations.
What are the key features of an LLC?
- Structural flexibility
- Restricted transferability of ownership interests
- Pass-through taxation
- Limited liability for members.
exit rights restricted in a corporate-like manneras many statutes prevent a minority member from demanding a buy out of his interest or from compelling dissolution of the enterprise
*LLCs in most states avoid franchise taxes as well
What are Professional Corporations (PC) and Professional Associations (PA)?
Business structures allowing professionals to practice in a corporate form.
What is a business trust?
An organization that derives from the conventional common law trust, used in specialized areas rather than for general business operations.
True or False: A sole proprietor has limited personal liability for the business’s debts.
False.
Fill in the blank: A general partnership provides partners with an easy _______.
exit.
primary downside of general partnership
the law imposes unlimited personal liability on the partners for obligations of the partnership and Easy exit of the general partnership makes it a rather unstable business form in certain circumstances
