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Management 311 > MGMT 311 Exam 4 - FLASHCARDS - Business entities > Flashcards

MGMT 311 Exam 4 - FLASHCARDS - Business entities

1
Q

What is the simplest form of business where the owner is the business? The owner reports income on his/her personal income tax return and is legally responsible for all debts and obligations incurred by the business.

A

Sole proprietorship

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2
Q

How is a sole proprietorship created?

A

Created at will by the owner

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3
Q

Is a sole proprietorship a seperate entity?

A

Not a seperate entity. Owner is the business

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4
Q

How much liability does a sole proprietorship have?

A

Unlimited liability

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5
Q

How is management conducted in a sole proprietorship?

A

Completely at the owner’s discretion

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6
Q

How are taxes in a sole proprietorship?

A

Owner pays personal taxes on business income

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7
Q

What is an example of a sole proprietorship?

A

Friend of mine sells custom made jewelry. She operates as a sole proprietorship. She has a website and takes orders in person and over the internet. She pays taxes on the income at the personal income tax rate. She has a show once a year and participates in other people’s home shows. She only wants to work it part time. A sole proprietorship is perfect for her needs.

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8
Q

What is a partnership?

A

An agreement by 2 or more parties to carry on, as co-owners, a business for profit.

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9
Q

How is a partnership created?

A

Created by agreement of the parties

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10
Q

Is a partnership a seperate entity?

A

A partnership is a seperate legal entity in most states

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11
Q

How much liability does a partnership have?

A

Unlimited liability

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12
Q

How is management conducted in a partnership?

A

Each partner has a direct and equal voice in management unless expressly agreed otherwise in the partnership agreement

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13
Q

How are taxes in a partnership?

A

Each partner pays pro rata share of income taxes on net profits, whether or not they are distributed. The entity itself does not pay taxes

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14
Q

What is an example using the uniform partnership act?

A

For example, if there were four partners going into a partnership together, each partner has a one quarter interest in the partnership

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15
Q

What is an example of a partnership?

A

Two guys named Dave have an idea for a pizza restaurant, and their signature dish is hand tossed pizza rolls. This is a partnership. They can take out liability insurance for the risk and they are agreeing to share profits and losses equally. They pay income tax based on their pro rata share of the profits

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16
Q

What is a partnership consisting of one or more general partners and one or more limited partners?

A

Limited partnership

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17
Q

What partners in a limited partnership manage the business and are liable to the full extent of their personal assets for debts of the partnership?

A

General partners

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18
Q

What partners in a limited partnership contribute only assets and are liable only to the extent of their contributions?

A

Limited partners

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19
Q

How is a limited partnership created?

A

Created by agreement to carry on a business for profit. At least one party must be a general partner and the others limited partners. Certificate of limited partnership is filed.

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20
Q

What is filed when a limited partnership is created?

A

Certificate of limited partnership

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21
Q

Does a limited partnership gat treated as a legal entity?

A

Yes

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22
Q

True or false: in a limited partnership, liability varies between genral and limited partners?

A

TRUE

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23
Q

True or false: all general partners in a limited partnership have unlimited liability?

A

TRUE

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24
Q

What type of liability do limited partners in a limited partnership have?

A

They are liable only to the extent of capital contributions

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25
Q

How is management in a limited partnership?

A

General partners have an equal voice or by agreement. Limited partners may not retain limited liability if they actively participate in management

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26
Q

How is a limited partnership taxed?

A

Like a partnership

27
Q

What is a form of partnership that allows professionals to enjoy the tax benefits of a partnership while limiting their personal liability for the malpractice of other partners?

A

Limited liability partnership (LLP)

28
Q

How is a limited liability partnership created?

A

Created by agreement of the partners. A statement of qualification for the limited liability partnership is filed

29
Q

True or false: a limited liability partnership is legally treated the same as a general partnership?

A

TRUE

30
Q

How is liability in a limited liability partnership?

A

Varies from state to state, but under the Uniform Partnership Act, liability of a partner for acts committed by other partners is limited

31
Q

True or false: management in a limited liability partnership is the same as in a general partnership?

A

TRUE

32
Q

True or false: taxation in a limited liability partnership is the same as in a general partnership?

A

TRUE

33
Q

What is a hybrid form of business enterprise that offers the limited liability of the corporation but the tax advantages of a partnership?

A

Limited liability company (LLC)

34
Q

What are owners called in a limited liability company?

A

Members

35
Q

How is a limited liability company created?

A

Created by an agreement of the members (owners) of the company. Articles of organization are filed in the state of question. Charter must be issued by the state.

36
Q

Is a limited liability company treated as a legal entity?

A

Yes

37
Q

How is management in a limited liability company?

A

Members (owners) can fully participate in management or can designate a group of people to manage on behalf of the members

38
Q

How is liability in a limited liability company?

A

Member liability is limited to the amount of capital contributions or investments

39
Q

How is taxation in an LLC?

A

LLC is not taxed, and members are taxed personally on profits passed through the LLC

40
Q

What is an example of a LLC?

A

2 financial planners wish to start a company for wealth management. They will be equal partners in this venture and contribute equal capital. Because of the liability risk, but the desire for personal taxation rates, an LLC is the way to go. They also wish to buy a building for their business. So, another LLC can be set up to purchase the building and the wealth management LLC pays rent to the building LLC. This allows the liability associated with the wealth management company to be separate and apart from the building. Also, in the future when the wealth management LLC wishes to add members (like partners – other co-owners), these members do not have an ownership interest in the building – only the wealth management business.

41
Q

What is a legal entity formed in compliance with statutory requirements? The entity is distinct from its shareholders-owners

A

Corporation

42
Q

How is a corporation created?

A

Authorized by the state under the state’s corporation law

43
Q

Is a corporation treated as a legal entity?

A

Always treated as a legal entity separate and distinct from its owners.

44
Q

Can a corporation own property and be sued even though it isn’t a person?

A

Yes

45
Q

Do a corporation’s shareholders have limited liability?

A

Yes. Shareholders are not liable for the debts of the corporation

46
Q

How is management in a corporation?

A

Shareholders elect directors who set policy and appoint officers

47
Q

How is taxation in a corporation?

A

Double taxation

48
Q

What is an example of a corporation?

A

A bank owned wholly by one family but who wants to open up ownership to its employees through a profit-sharing plan (benefit plan) and eventually sell shares of stock publicly would want to be a corporation.

49
Q

True or false: Fortune 500 companies are all corporations?

A

TRUE

50
Q

Can anyone start a corporation?

A

Yes

51
Q

Can 1 person be a corporation?

A

Yes

52
Q

True or false: corporations an be non profit, like churches and schools?

A

TRUE

53
Q

True or false: in a sole proprietorship, the owner and business are entirely seperate?

A

FALSE

54
Q

True or false: The income of a sole proprietorship is taxed to the owner as personal income?

A

TRUE

55
Q

True or false: Unless a parternership agreement specifies otherwise, profits are shared in the same ratio as capital contributions?

A

FALSE. We share profits and losses equally. If it not writen, everyone has an equal share

56
Q

True or false: An LLC does not offer the limited liability of a corporation?

A

TRUE

57
Q

True or false: In an LLC, members (owners) are similar to shareholders in a corporation?

A

TRUE

58
Q

True or false: In a limited partnership, the liability of the general partner is limited to their capital contribution?

A

False. Exposed to all liability and risk

59
Q

True or false: In a limited liability partnership, no partner is exempt from personal liability for partnership obligations?

A

False:

60
Q

True or false: Generally, shareholders are not personally responsible for the deaths of the corporation?

A

True

61
Q

True or false: Corporations are subject to double taxation?

A

TRUE

62
Q

True or false: Corporations pay taxes twice?

A

TRUE

63
Q

True or false: A corporation is liable for the torts of its agents or officers committed within the course and scope of employment?

A

TRUE

Management 311 (25 decks)

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