LEGL 2700 Chapter 14

Question 1

what factors should be considered when choosing what business type you want?

Answer 1

-cost of creation
-continuity of the organization
-managerial control of decision
-owner liability
-taxation

Question 2

what are the forms of business organizations?

Answer 2

• sole proprietorship
• partnerships
  -corporation
• limited liability companies

Question 3

what is a sole proprietorship?

Answer 3

one single owner of the company, can still employ others

Question 4

what are the pros of sole proprietorship?

Answer 4

-least expensive to create
-no taxes as an organization
-sole proprietorship is in total control of goals and operations

Question 5

what are the cons of sole proprietorship?

Answer 5

-continuity is tied directly to the will of owner
-owner has unlimited liability for the obligations of the business organization

Question 6

define partnerships

Answer 6

an agreement between two or more persons to share a common interest in a commercial endeavor and share in profits and losses

Question 7

what do you get in a partnership to avoid when problems that arise when a partner dies or withdraws from a partnership?

Answer 7

a buy-sell agreement

Question 8

what are the pros of general partnership?

Answer 8

-creation can be automatic but may be modified by agreement
-taxed at partner level only

Question 9

what are the cons of general partnership?

Answer 9

• dissolved whenever one partner withdraws
• each partner has an equal voice which can lead to deadlocks, personal liability, doing and several liability for all debts

Question 10

how much liability do all partners in a general partnership have for their organizations debts?

Answer 10

unlimited

Question 11

what is limited partnership?

Answer 11

made up of general and limited partners

Question 12

what are limited partners not responsible for?

Answer 12

debts/liabilities of the organization

Question 13

what must be filed in the county of its principal PB and additional copes in other counties/states where limited partnership conducts business?

Answer 13

limited partnership certificate

Question 14

what can a limited partner assign without dissolving the partnership?

Answer 14

interest

Question 15

who is personally liable for the organizations debts in a general partnership?

Answer 15

general partner

Question 16

what is the primary advantage for a limited partner?

Answer 16

less risk

Question 17

under a limited liability partnership, all partners are considered what?

Answer 17

general partners

Question 18

under a limited liability partnership, what partners have some liability protection?

Answer 18

all partners

Question 19

who can participate in the operations of business under limited liability partnership?

Answer 19

all partners

Question 20

who is still liable for their individual negligence under limited liability partnership?

Answer 20

all partners

Question 21

limited liability partnership is commonly used by who?

Answer 21

doctors, lawyers, accountants

Question 22

what is a corporation?

Answer 22

artificial and intangible entity created under the authority of a state’s law

Question 23

what are the pros of a corporation?

Answer 23

-perpetual existence
- shareholder’s death or sale of stock does not affect the organizational structure
- limited personal liability owners
- allows for a large number of owners

Question 24

what are the cons of a corporation?

Answer 24

-created by a state issuing a charter upon the application of incorporators
- corporation must be licensed to be able to conduct business in foreign states
taxed at the corporation and individual owner’s level
-lack of direct control by owners

Question 25

what is the corporate management structure?

Answer 25

shareholders elected board of directors hired officers employees

Question 26

what is publicly held ownership?

Answer 26

businesses owned by hundreds of thousands of people

Question 27

what is traded on a public exchange and is an example of publicly held ownership?

Answer 27

business stock

Question 28

what is closely held ownership?

Answer 28

organizations owned by only a few people

Question 29

what is an example of closely held ownership?

Answer 29

family owned and operated businesses

Question 30

what is a closely held corporation?

Answer 30

no ready market for minority stock should shareholder desire to sell it

Question 31

what are minority shareholders subject to under a closely held corp?

Answer 31

decisions of the majority

Question 32

what is a derivative lawsuit?

Answer 32

minority shareholders can sue on behalf of the corp because the majority shareholders are acting illegal or oppressing the minority by acting in their personal interest

Question 33

what is the general rule of corporate liability?

Answer 33

owners are liable for debts only to the extent of the shareholders' investment in the cost of stocks

Question 34

what is the exception to the general rule of corporate liability?

Answer 34

piercing the corporate veil, shareholders are treated like partners and are subject to personal liability for the liabilities of the corporation

Question 35

what is the alter ego theory?

Answer 35

corporate entity is disregarded so that there is unity of ownership and interest

Question 36

what are corporate taxes?

Answer 36

profits are taxed at a corporate level and then dividends taxed at individual level

Question 37

what are legal methods to avoid double taxation?

Answer 37

resonable salaries reasonable expense accounts reasonable loans from shareholders reasonable accumulation of earnings

Question 38

what are the types of corporations?

Answer 38

C corp and S corp

Question 39

why may you choose C corp over S corp?

Answer 39

because there can be many more shareholders and therefore a larger reach

Question 40

Shareholders of S corps elect unanimously to have the corporation treated as a partnership for tax purposes TRUE OR FALSE?

Answer 40

TRUE

Question 41

what must shareholders under an S corp do on their individual income tax returns?

Answer 41

their shares of the corps' profits of losses

Question 42

What must an S corp have?

Answer 42

cannot have more than 100 shareholders and only individuals can be owners

Question 43

what must be approved by the IRS?

Answer 43

non profit corporation

Question 44

what must be created for a specific reason allowed by law and for a public purpose to not personally benefit the owners or members?

Answer 44

non profit corporation

Question 45

a non profit corp must return what ?

Answer 45

profits made to the organization to be used for future operations

Question 46

what can be revoked after the IRS approves it for a non profit corp?

Answer 46

tax exempt

Question 47

what combines aspects of nonprofit and profit organizations?

Answer 47

benefit corporations

Question 48

what pursues explicit socially oriented goals?

Answer 48

benefit corporation

Question 49

what must be specified in articles of incorporations under benefit corporations?

Answer 49

public benefits

Question 50

what is a benefit corporation taxed as?

Answer 50

regular corporation

Question 51

why would you choose benefit corporation over non profit corporation?

Answer 51

if you can seek a profit and pay dividends, sell shares, etc

Question 52

what are the pros of legal liability companies?

Answer 52

treated as nontaxable entities owners have more flexibility compared to S corp membership is not limited to individuals

Question 53

what are the cons of legal liability companies?

Answer 53

articles of organization must be filed with state

Question 54

what is under agency law?

Answer 54

-operating through agents - duties of an agent to principal - liability of principal for actions of agent

Question 55

what is the general rule for operating through agents?

Answer 55

a principal (the organization) can be held liable for the damages caused by its agents

Question 56

who is an agent?

Answer 56

employees and independent contractors

Question 57

what are the duties of an agent to principal?

Answer 57

-duty of loyalty -duty to obey instructions - duty to keep the principal informed - duty to account to the principal for monies handled

Question 58

what type of liabilities are under liability of principal for actions of agent?

Answer 58

contractual, tort, and criminal

Question 59

what is under contractual liability for liability of principal for actions of agent?

Answer 59

actual authority , implied authority, apparent authority

Question 60

what is actual authority?

Answer 60

express written, spoken or derived from the circumstances

Question 61

what is implied authority?

Answer 61

authority that is incidental to express authority (arises from the position held and by the history of express authority)

Question 62

what is apparent authority?

Answer 62

authority perceived by a third party when no actual authority exist

Question 63

who would be liable to the principal under apparent authority ?

Answer 63

agent

Question 64

what is under tort liability under liability of principal for actions of agent?

Answer 64

respondeat superior

Question 65

what is the general rule of respondeat superior?

Answer 65

an agent who causes harm to a third party may create liability owed by the principal to the third party

Question 66

what is the test for respondeat superior?

Answer 66

whether the employee was in the scope of his/her employment (frolic and detour)

Question 67

what is criminal liability under liability of principal for actions of agent?

Answer 67

organizations may face criminal liability for the criminal actions of its agents