Midterm 1

Question 1

Two types of person

Answer 1

natural person - human being

person - legal entity

Question 2

Legal entity

Answer 2

law recognizes it as having its own separate legal recognition from the humans behind it

ie. marriage, registered domestic partnership

Question 3

Community property

Answer 3

Any income, real or personal property gained by either spouse during a marriage belongs to both partners

Question 4

Collections of sales tax

Answer 4

You are obligated to collect sales tax (that is paid to the government), if you are providing a product on an end-user basis (to the public)

Question 5

Pass-through taxation

Answer 5

profits and losses of the business are passed through the business and onto the owner’s 1040 tax return

passed from the business to owner

allows an individual to reduce their income because losses can be written against other sources of income

Question 6

Pass-through taxation for:

• Sole proprietorship
• General partnerships
• limited partnerships
• limited liability partnership
• limited liability company
• corporation

Answer 6

sole proprietorship - yes

general partnerships - yes

limited partnership - no pass-through taxation, paying entity on themselves

limited liability partnership -can elect pass-through taxation or be taxed as a corporation

limited liability company - can elect pass-through taxation or be taxed as a corporation

corporation - pay corporate taxes. separate tax-paying entity. cannot be written off any source of income

Question 7

Sole proprietorship

Answer 7

• Easiest form of business to create
• LEAST amount of governmental regulations in terms of advanced government filing
• involves one person or legal entity to start
• pass-through taxation
• no shield of liability
• less popular bc you can do LLC as one person
• 2 parts for gov filing: business license and a fictitious business name

Question 8

Business license

Answer 8

• not all cities require one
• fees vary from each city
• a tax so cities can raise revenue

Question 9

Fictitious Business Name Statement

Answer 9

• A person must prepare and file a FBN statement if the business is something other than their own legal name
• purpose is to disclose actual owners of the business to the public in an event a person wants to sue them

Question 10

Under-capitalism

Answer 10

More than half of business fail because they do not have enough money to keep them afloat for the first 1-2 years while they develop their clientele

underestimate what they need before they get started

Question 11

Federal deductions

Answer 11

7.65% social security account
1.45% medicare
-.090% deduction for medicare if an individual
gets paid 200k, 250k for family
employer matches so 15.30% goes into social
security account

Question 12

Unemployment Insurance

Answer 12

• employer and federal government pays, not employee.
• gets paid to federal government based on formula
• it is a personal liability if you do not pay it, from a state standpoint

Question 13

Workers Compensation Insurance

Answer 13

• employers pay for it
• state requirement employers have workers comp insurance
• an employee who has a job related injury can make a claim and receive money for medical care expenses

Question 14

ABC Test

Answer 14

Worker is deemed to have been suffered or permitted to work means they are an employee for wage order purposes UNLESS employer proves the ABC test

A - worker is free from control and directing of hiring entity in connection with the performance of the work

b- the worker performs work that is outside the usual course of hiring entity’s business

C- worker is customarily engaged in an independently established trade, occupations, or business of the same nature as work performed ie. individuals formed their own company

Question 15

Statute of frauds

Answer 15

Certain contracts need to be in writing in order to be enforced in a court of law. not self-executed

ie. purchase or sale of real property, contracts not capable of being completed within one year, purchase and sale of items other than real property, prenuptial contracts, marital settlement agreement

Question 16

General partnerships

Answer 16

voluntary association with two or more persons that do business together as co-owners with the intention of making a profit

does not have to register with gov agency

Question 17

partner by estoppel

Answer 17

individuals will be stopped from avoiding certain types of obligation based upon their conduct

online def - a person who is not technically a partner can be held liable as a general partner would for any debts and damages owed to a third party

Question 18

sharing of profit

Answer 18

most important aspect of a partnership status

individual shares profit out of the business that is there (can occur even if they never used the term partnership)

Question 19

Joint Ventures

Answer 19

Specialized partnerships created by entities such as two businesses, two corporations, to engage in a specific type of business or event ie build building, put an office building up

Question 20

Joint tenancy

Answer 20

Joint ownership of property
common between spouses
relates to real property. your life estate in that property is only good when you are alive. if you die, it goes to the surviving joint tenant. you do not have an inheritable estate

partnership property is owned as a tenancy in partnership. if they leave, they cannot take partnership property

when a partner dies, share does not die with a partner, but partnership value share dies. survivor gets paid value of parntership

Question 21

Initial Accounting

Answer 21

Starts when a partnership is established

• There will be a capital account for each partner, so money can be contributed to the partnership
• propety can be real property, personal property, content, contribution of knowledge as long as they can put dollar value in it
• it reprsents their investment in a partnership
• value of capital account may or may not relate to the percentage each person has to the percentage of ownership in the partnership

Question 22

Limited Partnership

Answer 22

-recognized as an investment

• limited partner: investors expecting a return ( does not engage in management
• general partner - manages the business
• has to register with gov agency

Question 23

Limited Liability Company (LLC)

Answer 23

• most popular form of business to start with
• referred to as an incorporated partnership (not a partnership)
• management structure similar to general partnerships but not limited to a partnership where partnerships are investment vehicles
• shield of liability
• can have pass-through taxation or be taxed as a corporation
• more costly

Question 24

Limited Liability Partnership

Answer 24

• like an incorporated partnership
• distinct limitation to which professionals can engage in a LLP
• variance across the country as to which professionals can operate as a LLP
• STATUTORY CREATIONS

Question 25

statutory creations

Answer 25

• rules and statue stored in statutory law
• limited liability companies are statutory creations created by statute about where they were created’’‘-50 varieties of limited liability statutes that vary
• no limited liability law across the country
• shield of liability

Question 26

Corporations

Answer 26

• People chose this before LLC because of the shield of liability
• pay corporate taxes
• refer to profit corporations organized in order to turn a profit
• C corporations regulated by chapter C part C of IRS
• nonprofit corporations have three varieties, shield of liabilities and similar in terms of organization