LEGL 2700 Chapter 14 Flashcards
what factors should be considered when choosing what business type you want?
-cost of creation
-continuity of the organization
-managerial control of decision
-owner liability
-taxation
what are the forms of business organizations?
- sole proprietorship
- partnerships
-corporation - limited liability companies
what is a sole proprietorship?
one single owner of the company, can still employ others
what are the pros of sole proprietorship?
-least expensive to create
-no taxes as an organization
-sole proprietorship is in total control of goals and operations
what are the cons of sole proprietorship?
-continuity is tied directly to the will of owner
-owner has unlimited liability for the obligations of the business organization
define partnerships
an agreement between two or more persons to share a common interest in a commercial endeavor and share in profits and losses
what do you get in a partnership to avoid when problems that arise when a partner dies or withdraws from a partnership?
a buy-sell agreement
what are the pros of general partnership?
-creation can be automatic but may be modified by agreement
-taxed at partner level only
what are the cons of general partnership?
- 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
how much liability do all partners in a general partnership have for their organizations debts?
unlimited
what is limited partnership?
made up of general and limited partners
what are limited partners not responsible for?
debts/liabilities of the organization
what must be filed in the county of its principal PB and additional copes in other counties/states where limited partnership conducts business?
limited partnership certificate
what can a limited partner assign without dissolving the partnership?
interest
who is personally liable for the organizations debts in a general partnership?
general partner
what is the primary advantage for a limited partner?
less risk
under a limited liability partnership, all partners are considered what?
general partners
under a limited liability partnership, what partners have some liability protection?
all partners
who can participate in the operations of business under limited liability partnership?
all partners
who is still liable for their individual negligence under limited liability partnership?
all partners
limited liability partnership is commonly used by who?
doctors, lawyers, accountants
what is a corporation?
artificial and intangible entity created under the authority of a state’s law
what are the pros of a corporation?
-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
what are the cons of a corporation?
-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
what is the corporate management structure?
shareholders
elected board of directors
hired officers
employees
what is publicly held ownership?
businesses owned by hundreds of thousands of people
what is traded on a public exchange and is an example of publicly held ownership?
business stock
what is closely held ownership?
organizations owned by only a few people
what is an example of closely held ownership?
family owned and operated businesses
what is a closely held corporation?
no ready market for minority stock should shareholder desire to sell it
what are minority shareholders subject to under a closely held corp?
decisions of the majority
what is a derivative lawsuit?
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
what is the general rule of corporate liability?
owners are liable for debts only to the extent of the shareholders’ investment in the cost of stocks
what is the exception to the general rule of corporate liability?
piercing the corporate veil, shareholders are treated like partners and are subject to personal liability for the liabilities of the corporation
what is the alter ego theory?
corporate entity is disregarded so that there is unity of ownership and interest
what are corporate taxes?
profits are taxed at a corporate level and then dividends taxed at individual level
what are legal methods to avoid double taxation?
resonable salaries
reasonable expense accounts
reasonable loans from shareholders
reasonable accumulation of earnings
what are the types of corporations?
C corp and S corp
why may you choose C corp over S corp?
because there can be many more shareholders and therefore a larger reach
Shareholders of S corps elect unanimously to have the corporation treated as a partnership for tax purposes TRUE OR FALSE?
TRUE
what must shareholders under an S corp do on their individual income tax returns?
their shares of the corps’ profits of losses
What must an S corp have?
cannot have more than 100 shareholders and only individuals can be owners
what must be approved by the IRS?
non profit corporation
what must be created for a specific reason allowed by law and for a public purpose to not personally benefit the owners or members?
non profit corporation
a non profit corp must return what ?
profits made to the organization to be used for future operations
what can be revoked after the IRS approves it for a non profit corp?
tax exempt
what combines aspects of nonprofit and profit organizations?
benefit corporations
what pursues explicit socially oriented goals?
benefit corporation
what must be specified in articles of incorporations under benefit corporations?
public benefits
what is a benefit corporation taxed as?
regular corporation
why would you choose benefit corporation over non profit corporation?
if you can seek a profit and pay dividends, sell shares, etc
what are the pros of legal liability companies?
treated as nontaxable entities
owners have more flexibility compared to S corp
membership is not limited to individuals
what are the cons of legal liability companies?
articles of organization must be filed with state
what is under agency law?
-operating through agents
- duties of an agent to principal
- liability of principal for actions of agent
what is the general rule for operating through agents?
a principal (the organization) can be held liable for the damages caused by its agents
who is an agent?
employees and independent contractors
what are the duties of an agent to principal?
-duty of loyalty
-duty to obey instructions
- duty to keep the principal informed
- duty to account to the principal for monies handled
what type of liabilities are under liability of principal for actions of agent?
contractual, tort, and criminal
what is under contractual liability for liability of principal for actions of agent?
actual authority , implied authority, apparent authority
what is actual authority?
express written, spoken or derived from the circumstances
what is implied authority?
authority that is incidental to express authority (arises from the position held and by the history of express authority)
what is apparent authority?
authority perceived by a third party when no actual authority exist
who would be liable to the principal under apparent authority ?
agent
what is under tort liability under liability of principal for actions of agent?
respondeat superior
what is the general rule of respondeat superior?
an agent who causes harm to a third party may create liability owed by the principal to the third party
what is the test for respondeat superior?
whether the employee was in the scope of his/her employment (frolic and detour)
what is criminal liability under liability of principal for actions of agent?
organizations may face criminal liability for the criminal actions of its agents
