Pg 43

Question 1

What is a professional corporation?

Answer 1

This allows professionals to use the business organization and be treated as a corporation for tax purposes so that they can get profit-sharing, pensions, and stock option plans. They must be a qualified member of the profession to be a shareholder or director.

Question 2

What is important with regard to a professional corporation’s name?

Answer 2

it must include “professional corporation, PC, professional association, or PA.” This is meant to give the public notice that they are dealing with a professional who has certain duties outside of his professional license.

Question 3

What does a PC do for its owners?

Answer 3

It shields them from liability, even though individuals are liable for their own torts.

Question 4

Who are people that could have a PC?

Answer 4

Licensed professionals such as attorneys, accountants, doctors, etc.

Question 5

What is important for a prerequisite to set up a PC?

Answer 5

Everyone that is a director or manager must be a member of that profession and licensed in it.

Question 6

What are non-corporate entities?

Answer 6

Unincorporated associations that are not recognized as legal units, but as an aggregation of individuals operating in business as co-owners with individual rights and duties.

Question 7

What is the uniform partnership act?

Answer 7

This follows an aggregate view and doesn’t treat a partnership as a separate identity. The partnership is dissolved if any partner stops associating with it, retires, or a new partner is admitted. The reasoning is that it changes the aggregate and the old partnership no longer exists.

Question 8

What is the rationale for the uniform partnership act?

Answer 8

A partnership is not an entity itself, but it is made up of original members, so when the members change, the partnership ceases

Question 9

What are the rights of all of the partners in a partnership business under the UPA?

Answer 9

All partners have equal rights in management and conduct of the partnership business unless there is a contrary agreement.

Question 10

If any partner of a partnership does something with a third person, does that bind everyone in the partnership under the Uniform Partnership Act?

Answer 10

Yes, that is binding on the partnership for any activities apparently carrying on the usual business unless there is some expressed limitation of authorization known to the third person.

Question 11

Under the Uniform Partnership Act, is it possible for a partnership to own property?

Answer 11

Technically no, because property is held by individual partners as TIC or JTs, but the UPA treats property like it is owned by the partnership. Partners are considered to be co-owners with the other partners as tenants in the partnership.

Question 12

Under the Uniform Partnership Act, does a partner have a right to possess partnership property?

Answer 12

No, and he cannot assign his interest in it

Question 13

Under the Uniform Partnership Act, if a partner dies, what happens to his right to the property?

Answer 13

It vests in the surviving partners because the partnership is treated as the owner of the partnership property.

Question 14

If a partnership is insolvent, what is the priority of payment?

Answer 14

Individual creditors get credit priority for individual property and partnership creditors get priority for partnership property

Question 15

Who has the right to wind up a partnership under the Uniform Partnership Act?

Answer 15

The partners that haven’t wrongfully dissolved the partnership or the legal representative of the last surviving non-bankrupt partner.

Question 16

What does “winding up“ mean?

Answer 16

Selling the assets and distributing the proceeds of a partnership.

Question 17

What is the order of priority for the distribution of the proceeds of a partnership upon winding up under the Uniform Partnership Act?

Answer 17

– non-partner creditors
– partner creditors
– partner capital contributions returned
– the rest is split between the partners in proportion to their profit shares.

If there isn’t enough money to pay the partnership’s liabilities, the partners contribute in proportion to their loss of shares.

Question 18

In order to avoid obligations after leaving a partnership, what should you do?

Answer 18

Advertise the dissolution in the paper everywhere that the partnership does business. If a creditor knows that a partner is leaving, but still does business with the successor partnership, an agreement has been inferred.

Question 19

Are new partners responsible for partnership obligations from before they were admitted to the partnership?

Answer 19

No

Question 20

What are popular ways to valuate a withdrawing interest of a partner?

Answer 20

– fixed sum
– book value
– supplemental appraisal
– capitalization of earnings in the past
– negotiation
– right of first refusal to meet the best offer elsewhere
– fraction of the partner’s income from the previous year or your average of years

Question 21

What is a minority discount with relation to valuation of a withdrawing interest of a partnership?

Answer 21

This decreases the value of the ownership interest because the minority ownership lacks control

Question 22

What is the marketability discount?

Answer 22

This decreases the value of an interest in a closely held business because of the lack of an established market and the idea is that this is less liquid than an ownership interest in a comparable publicly traded business

Question 23

What is the rationale behind the minority discount and the marketability discount for when they have a partnership?

Answer 23

Discounts should apply because buyers will pay less for minority ownership since it lacks control and liquidity