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Flashcards in Business Entity: Financial Structure Deck (3)
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1

Business Entity
Financial Structure
Partnerships

Partnerships
Capital Accounts
- each partner has an account that is equal to money + property contributed, net liabilities
- partners are to be reimbursed for payments made and indemnified for liabilities incurred
- reimbursed for advances made beyond agreed capital contributions
- absent agreement to contrary, partners share equally in profits and share of losses follow profits
- receive interest on advances made to partnership
- No right to receive, and not required to accept distributions in-kind

2

Business Entity
Financial Structure
Corporations

Corporations
Equity Securities
- Common Stock: Bear most risk and have most gain. Have right to vote on directors. Share in profits when paid as dividends. And share in surplus of assets over liabilities upon dissolution.
- Preferred Stock: Superior rights to CS for dividends or asset over liability upon dissolution. Right to receive dividends accumulates and get 2 years worth next year. No right to payment of dividends
- Treasury Stock: Once issued, and now repurchased. ($ may be less than par)
Debt Securities
- Notes: short term and unsecured
- Debentures: long term and unsecured
- Bonds: debt instruments secured by corporate property
Dividends
- Stock Dividend: issued when no cash
- Stock Split: greater increase in outstanding shares

3

Business Entity
Financial Structure
LLC's

LLC's
- contributions may be made with cash, property, etc.
- obligations to contribute not excused by death, disability, or inability to perform. Creditors can force contribution
- reasonable compensation for services or ordinary course of business is okay
- improper distribution: member of manager who made is liable to creditors
- if LLC commits to make distribution and does not, creditors become general, unsecured creditors of the LLC

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