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LEGL 2700 > LEGL 2700 Chapter 14 > Flashcards

LEGL 2700 Chapter 14 Flashcards

1
Q

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

A

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

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2
Q

what are the forms of business organizations?

A
  • sole proprietorship
  • partnerships
    -corporation
  • limited liability companies
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3
Q

what is a sole proprietorship?

A

one single owner of the company, can still employ others

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4
Q

what are the pros of sole proprietorship?

A

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

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5
Q

what are the cons of sole proprietorship?

A

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

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6
Q

define partnerships

A

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

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7
Q

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

A

a buy-sell agreement

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8
Q

what are the pros of general partnership?

A

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

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9
Q

what are the cons of general partnership?

A
  • 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
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10
Q

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

A

unlimited

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11
Q

what is limited partnership?

A

made up of general and limited partners

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12
Q

what are limited partners not responsible for?

A

debts/liabilities of the organization

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13
Q

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

A

limited partnership certificate

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14
Q

what can a limited partner assign without dissolving the partnership?

A

interest

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15
Q

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

A

general partner

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16
Q

what is the primary advantage for a limited partner?

A

less risk

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17
Q

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

A

general partners

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18
Q

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

A

all partners

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19
Q

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

A

all partners

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20
Q

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

A

all partners

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21
Q

limited liability partnership is commonly used by who?

A

doctors, lawyers, accountants

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22
Q

what is a corporation?

A

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

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23
Q

what are the pros of a corporation?

A

-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

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24
Q

what are the cons of a corporation?

A

-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

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25
Q

what is the corporate management structure?

A

shareholders
elected board of directors
hired officers
employees

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26
Q

what is publicly held ownership?

A

businesses owned by hundreds of thousands of people

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27
Q

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

A

business stock

28
Q

what is closely held ownership?

A

organizations owned by only a few people

29
Q

what is an example of closely held ownership?

A

family owned and operated businesses

30
Q

what is a closely held corporation?

A

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

31
Q

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

A

decisions of the majority

32
Q

what is a derivative lawsuit?

A

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

33
Q

what is the general rule of corporate liability?

A

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

34
Q

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

A

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

35
Q

what is the alter ego theory?

A

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

36
Q

what are corporate taxes?

A

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

37
Q

what are legal methods to avoid double taxation?

A

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

38
Q

what are the types of corporations?

A

C corp and S corp

39
Q

why may you choose C corp over S corp?

A

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

40
Q

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

A

TRUE

41
Q

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

A

their shares of the corps’ profits of losses

42
Q

What must an S corp have?

A

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

43
Q

what must be approved by the IRS?

A

non profit corporation

44
Q

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

A

non profit corporation

45
Q

a non profit corp must return what ?

A

profits made to the organization to be used for future operations

46
Q

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

A

tax exempt

47
Q

what combines aspects of nonprofit and profit organizations?

A

benefit corporations

48
Q

what pursues explicit socially oriented goals?

A

benefit corporation

49
Q

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

A

public benefits

50
Q

what is a benefit corporation taxed as?

A

regular corporation

51
Q

why would you choose benefit corporation over non profit corporation?

A

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

52
Q

what are the pros of legal liability companies?

A

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

53
Q

what are the cons of legal liability companies?

A

articles of organization must be filed with state

54
Q

what is under agency law?

A

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

55
Q

what is the general rule for operating through agents?

A

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

56
Q

who is an agent?

A

employees and independent contractors

57
Q

what are the duties of an agent to principal?

A

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

58
Q

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

A

contractual, tort, and criminal

59
Q

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

A

actual authority , implied authority, apparent authority

60
Q

what is actual authority?

A

express written, spoken or derived from the circumstances

61
Q

what is implied authority?

A

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

62
Q

what is apparent authority?

A

authority perceived by a third party when no actual authority exist

63
Q

who would be liable to the principal under apparent authority ?

A

agent

64
Q

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

A

respondeat superior

65
Q

what is the general rule of respondeat superior?

A

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

66
Q

what is the test for respondeat superior?

A

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

67
Q

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

A

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

LEGL 2700 (18 decks)

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