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Partnerships and Corporations > Partnerships and Corporations - Introduction > Flashcards

Partnerships and Corporations - Introduction Flashcards

1
Q

What are the different ways of doing business?

A

Sole Proprietorship, Partnership, Limited Liability Company (LLC), and Corporation

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2
Q

What are the two types of persons?

A

Natural persons- regular humans

Persons- legal entities

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3
Q

What is a legal entity?

A

is an organization the law recognizes as having its own existence that is separated from the humans behind it

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4
Q

What are the pros of a sole proprietorship?

A

one of the easiest businesses form of enterprise to create

it has the least amount of gov regulations in terms of getting advanced permissions or filings with any other gov agency

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5
Q

What is the meaning behind sole proprietorship?

A

Sole - one person but includes the concept of a legal entity. can be one human or one legal entity

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6
Q

Who does the law give SEPARATE LEGAL recognition to?

A

Marriage

a registered domestic partnership

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7
Q

Can a husband and wife form a business as sole proprietors?

A

Yes

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8
Q

Can a father and daughter go into business together as a sole proprietorship and why?

A

No, because the law does not recognize their relationship as a separate legal existence. The father would most likely be the owner

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9
Q

What is the most common form of partnership?

A

General Partnership

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10
Q

What is a general partnership?

A

It is a voluntary association of two or more persons to do business as co-owners, with the intention of making a profit

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11
Q

Can there be a non-profit partnership?

A

no

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12
Q

Why are general partnerships less popular?

A

They do not have a shield of liability

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13
Q

What is an exemption of general partnerships not having a shield of liability

A

another couple of businesses may have their own shield of liability

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14
Q

Where would the debts go if it was a corporation in a partnership?

A

Since the corporation has a shield of liability, the debts of the partnerships would go back to the corporation but not the natural person who owns the corporation

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15
Q

Who can create a partnership?

A

two or more persons/natural persons. Natural persons can be parties to a marriage, registered domestic partnership

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16
Q

What is community property?

A

property that belongs to both partners of a relationship
The law states that a couple in “commune” or marriage acquire rights on each other’s assets and liabilities, the assets which they hold together

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17
Q

If married individuals or registered domestic couples engage in a general partnership, what rule do they disregard?

A

the rule of community property

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18
Q

what happens if a general partnership breaks up between married individuals?

A

the distribution of assets and the dealing of the business are going to be rules that relate to the law of partnerships, NOT community property

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19
Q

How can partnerships be created?

A

In writing ( recommended)

orally (creates problems but still perfectly legal)

however, some aspects of agreements and partnerships have to be in writing to be enforced

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20
Q

What is the Statue of Frauds?

A

it is the important aspects of the nature of the partnerships

legal concept that requires certain types of contracts to be executed in writing

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21
Q

What are professional general partnerships?

A

they are formed by people that are licensed professionals such as doctors and lawyers

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22
Q

What is a limited partnership?

A
  • circumstance where you can recognize it as an investment

- some people who are merely investors (limited partners)

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23
Q

Who are limited partners

A

investors. they expect and hope to get a return on their investments.

they are not engaged in any type of management

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24
Q

Who are the two categories of individuals involved in a limited partnership?

A

limited partners - investors

general person/partner - manages the business

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25
Q

What do limited partners have?

A

Shield of liability as long as they DO NOT ENGAGE in the management of the business

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26
Q

What do limited partnerships do not have?

A

pass through taxation

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27
Q

What does a general partner in a limited partnership not have?

A

shield of liability

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28
Q

What happens if a limited partnership collapses?

A

they lost their investment, but not their personal assets. investors are protected

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29
Q

What is the most popular form of business today/ most popular to start out with?

A

Limited liability company LLC

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30
Q

What is a LLC also referred to?

A

as an incorporated partnership (they are not partnerships though)

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31
Q

What is the management structure of a LLC?

A

similar to a general partnership.

not a limited partnership where there are investment vehicles

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32
Q

What are the benefits of LLC?

A

People who are engaged and the owners have a shield of liability

easy to form, works as a general partnership

they have an opportunity to be taxed as a corporation if they wanted to

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33
Q

what is a pass through taxation?

A

refers to the fact that a pass-through business pays no taxes. Instead, some control person pays the business’s taxes through that person’s own personal tax return.

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34
Q

Does a LLC have a pass through taxation?

A

yes

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35
Q

How can a LLC being taxed as a corporation be beneficial?

A

The corporate tax rate has been reduced so they would be paying less

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36
Q

when can a LLC choose to be tax as a corporation?

A

when they generate high enough money

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37
Q

What are the characteristics of a Limited Liability Partnership (LLP)

A

liked an incorporated partnership

distinct limitation as to what professionals can engage in a LLP

great variance across the country as to which professional can operate as a LLP

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38
Q

Limited partnership is what we call

A

statutory creations

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39
Q

what is a statutory creation?

A

rules and statues stored in statutory law

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40
Q

limited liability companies as statutory creations

A

created by statue about where they were created.

there are 50 varieties of limited liability statutes

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41
Q

What did people pick before LLC and why?

A

Corporations because of the shield of liability

so people who invested were owners of the corporations and did not have to worry about loss of personal assets

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42
Q

What is a C corporation?

A

corporations organized in order to turn a profit

regulated by chapter C part C of IRS

43
Q

how many varieties does a non profit corporation have?

A

three

44
Q

how is a non profit corporation similar to a corporation for profit?

A

has shield of liabilities

similar in terms of organizations

45
Q

What does sole proprietorship have?

A

pass through taxation

46
Q

What does sole proprietorship not have?

A

shield of liability

47
Q

what is shield of liability?

A

shield of liability protects the personal assets of the person who owns the business the if business goes under,

creditors are able to reach the personal assets of the people behind the business, all the debts that the business owes

everything is on the line

48
Q

What government filing do you need for a sole proprietorship?

A

business license

fictitious business name (fbn)

49
Q

Why do more than half of the businesses fail?

A

Because of under capitalism

they underestimate what they need to have before they start

50
Q

What is under capitalism?

A

It is when a business does not have enough money to get through 1 to 2 years until they develop a clientele

51
Q

What is a business license actually for?

A

They are a tax so cities can raise revenue

52
Q

Do all cities require a business license?

A

Not all cities require a business license

not every business is regulated

fees vary from city to city (not uniformed)

53
Q

What is the purpose of a Fictitious Business Name Statement?

A

To disclose to the members of the public at large who are the actual owners of the business is, in the event someone needs to sue them in court

not only can you sue the business, but you can also sue the individual owners

54
Q

What does a business need to do when they open a business in something other than their own name?

A

The law requires preparation and filing of a document: fictitious business name statement

55
Q

What is the punishment for failure to file a FBN statement?

A

the inability of the business owner to use the court of law from an affirmative basis

does not prevent a business from being sued

56
Q

What is the benefit for filing for a FBN statement?

A

It is a name protection and belongs to you in the COUNTY. nobody else can use it within the county. you can file in all counties to be protected in your state, but it is expensive.

your lawyer can send a cease and desist if someone else uses it. you can sue all the money they made when they started using your name, or loss of business

57
Q

How long is a FBN statement good for?

A

5 years

58
Q

What is the process of filing the FBN statement?

A
  1. Make sure the name is available
  2. File with your county clerk and it is a $40 filing fee
  3. Your business must be published in a newspaper - Newspaper of general circulation
  4. Circulation is published for 4 weeks
  5. . certification of publication is sworn and perfects the fbn statement
59
Q

What is a newspaper of general circulation?

A

It publishes legal notices (constructive notices - assumed ppl see it) such as fictitious name statements

60
Q

When you have employees, what deductions do you have to take out of their salary?

A

income tax - depends how much you are getting paid

social security

medicare

61
Q

When is income tax deducted?

A

If it is less than $600, deductions do not need to be made

62
Q

How much does an employer withhold for social security and medicare, and how much do they match?

A

6.2% social security, 1.45% medicare for every payment

the same amount so in total 15.30% from employment goes into a SS account

63
Q

What is the cap of deductions that can be made into social security?

A

Once a person gets to $142,800 in social security, there are no further deductions made from ss and medicare

64
Q

How much more would individuals who make 200k for medicare?

A

they will pay .9 percent for medicare..

200k if single

250k if married

not for ss

65
Q

what are the only federal deductions that are made?

A

social security and medicare

66
Q

when do employers have to match everything an employee has been deducted?

A

small employers - on a quarterly basis with the IRS. they can do it on paper

big employers - on a weekly basis because employees are paid weekly. have to do it electronically

67
Q

other than deductions, what do employers have to deal with?

A

unemployment insurance

- employer pays to federal government(based on formula) no deduction from enmployees though

68
Q

does an employer have to deduct and match the employee?

A

yes because it is a PERSONAL obligation. you do not have a shield of liability for this area

69
Q

how do employers work around the system of deducting?

A

they will say they deducted it but will not pay it. they would tell the employee and lie on the W2.

SOCIAL SECUrity wont be credited and you have to pay

70
Q

From a state standpoint, what is withheld?

A

state disability insurance - how much is taken out is based on how much individuals are getting -required for CA

-state income tax

71
Q

What should employers be aware about for workers compensation insurance?

A
  • employers pay for it
  • very regulated industry
  • little variance with different types of employment
  • it is a state requirement
72
Q

What does worker compensation do?

A
  • an employee who has a job-related injury can claim and receive money for medicare care expenses
  • if they cant do their current job, they will be trained for another
  • if they are totally disabled, they will get a disability rating and get money
73
Q

Will you be covered by worker comp insurance if you are working between two job sites and travel from point a to point b and get into an accident?

A

yes, because you are still on the job

74
Q

do you need a lawyer to be represented in WCAB?

A

no. you just have to be trained to

75
Q

What is the ABC test to determine if a worker is only an independent contractor?

A

A) they are free from hiring entity control in connection with the performance of the worker. ie, worker can only be told what they can and are suppose to do, how longg they can take, and what it looks like

B) worker performs work outside of the usual entity’s business

c)worker is customary engaged in an independely established business of the same nature as the work performed for the hiring entity ( individuals form their own company)

76
Q

why does the federal government not like independent contractors?

A

because the irs are not getting paid the weekly or quarterly payments

77
Q

What does the IRS consider as an independent contractor

A
  • an individual who is engaged to provide a product
  • they spend their own time and own way they want to complete the task, as long as they complete it within the timeframe
  • hiring entity cannot impose contractor to work specific hours or days
  • only have to satisfy the order, cannot be restricted
  • they work for more than one employer(principles) does not have to be at the same time
  • see if they formed their own company such as sole proprietorship/fbn
78
Q

are real estate workers considered independent workers?

A

yes, even though they are working for one person.they can only work for one broker at a time

79
Q

what does have a business have to do when it finishes its profit and losses for its business year?

A

a sole proprietorship will be required to have a taxation year as a calendar year

80
Q

how does a business determine their profits and losses?

A

total up the revenue in business they engaged in. then they deduct their expenses.. whatever the law allows you to.. done on IRS SCHEDULE C

81
Q

Can a loss in the tax return be deducted from other sources of income that the taxpayer has?

A

yes, but the IRS demands businesses earn a profit for 3 out of the 5 years

82
Q

when are you exempted from running a loss for more than 3 out of 5 years

A

if your expenses at risk are exceeding your income

expenses at risk being paying an office, landlord, rent, automobile, expenses

83
Q

how does claiming a loss on your taxes from your business benefit you?

A

going to reduce taxpayer’s overall income for tax purposes

beneficial bc it reduces adjusted gross income

can be written against other sources of income

84
Q

what are some examples of hobby businesses the IRS are cracking down?

A

breeding horses, artists, sculptors

85
Q

what is the trump tax bill

A

business that pass through taxation are exempt 20% of the income of the business

reduction in coporation taxes

sole proprietorship can exempt 20% of the income that they get to reduce the totality of their income

86
Q

pass through taxation

A

profits and losses of the business pass from business to the person through the 1040.

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

87
Q

what happens if you dont have another source of income when you want to exempt 20%?

A

you can reduce your income from 20% but you cant write your losses against anythihng because you dont have another source of income

88
Q

Which businesses use pass through taxation

A

-sole proprietors
-general partnerships (no choice)
-LLC - they a choice to pick that or to be taxed as a corporation
LLP- can elect pass through taxation or be taxed as a corporation

89
Q

what is corporate taxes

A

it is a separate tax paying entity

its profits and losses are made within the corporation.

it cannot be written off any other source of income

90
Q

what businesses do not have pass through taxation

A

corporation - separate tax paying entity

limited partnership- tax paying entity to themselves

corporate taxes ^^

91
Q

What happens if a corporation makes profit?

A

it will be distributed to its shareholders called a dividend on their tax 1040

they do not have to profit 3 our of 5 years

if they have a loss they call it paper losses

92
Q

what is a dividend?

A

an ordinary income

93
Q

What is obligated from all forms of businesses?

A

the collection of sales tax

94
Q

why is a sole proprietorship less popular than a LLC?

A

you can do business as a LLC as one person

you have total personal liability for debts of their company

95
Q

what licenses do you need from the government for certain businesses?

A

restaurant - cleanliness, the way you operate, health department inspection, license to expose cooking oil

salon- cleanliness

96
Q

Which businesses have no shield of liability?

A
  • sole proprietorship
  • general partnership

GENERAL PARTNERS in -limited partnership

97
Q

Which businesses have a shield of liability?

A
  • Corporations
  • limited partners in a limited partnership
  • Limited liability companies) but more costly)
98
Q

When are you obligated to collect sales tax? (paying to gov)

A

If you are providing a PRODUCT on an end user basis ( to members of the public)

  • it is a personal obligation
  • applies to all forms of business
99
Q

What do you need i order to pay sales tax?

A

A sales tax permit.

100
Q

Where are sales tax paid to?

A

board of equalization

101
Q

What do you not pay sale tax on?

A

going to the dentist or doctor

102
Q

When do you pay taxes when you buy food from restaurants?

A
  • don’t pay tax if you take it home

- pay tax if you eat it there

103
Q

True or false. Sale tac varies from place to place

A

true

Partnerships and Corporations (3 decks)

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