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Flashcards in Ch 14 Deck (63)
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Closely held

Organizations owned by few people

Ex. Family owned and operated businesses

1

Publicly held

Have hundreds or thousands of owners

Ex. Business whose stock is traded on public exchange

2

5 factors to consider when selecting business organizations form

1 creation cost
2 continuity (stability)
3 managerial control of decisions
4 owner's personal liability
5 taxation/distribution of earnings

3

Creation

2 Examples of issues with creation

Legal steps necessary to form particular business organization

Ex. Issues, cost and length of time to create

4

Continuity

Durability, how can the organization continue to operate

5

Dissolution

Any change in ownership that changes legal existence of
Organization

6

Managerial control, important issue

Have mechanisms in place to solve disputes about who
Has control over decisions in the company

7

Sole proprietorship: creation

No formal documentation, business licenses only

8

Sole proprietorship: continuity

As long as proprietor desires, but no transfer to others

9

Sole proprietorship: control

Total control by proprietor

10

Sole proprietorship: liability

Personal obligation for all debts and laibilities

11

Sole proprietorship: taxation

All business income subject to personal taxation

12

Partnership: creation

Automatic based on business conduct

Modified by agreement

13

Partnership: continuity

Dissolved when 1 partner withdraws

14

Partnership: control

Each partner has equal voice, though can be modified
By agreement

15

Partnership: liability

Personal obligations for all debts and liabilities

Joint and several liability

16

Partnerships: taxation

All business income subject to personal taxation divided
equally

17

Corporation: creation

Incorporators apply for state charter with articles of
Incorporation

18

Corporation: continuity

Perpetual, as long as it can conduct business

19

Corporation: control

Managed by officers, appointed by directors, who are
Elected by shareholders

20

Corporation: liability

Shareholder obligations limited to investment, absent
Other commitments

21

Corporation: taxation

Corporate income taxed

Shareholders taxed on income distributed

22

Limited partnership: Creation

Partnership agreement and certificate filed in public
Office where business is conducted

23

Limited partnership: continuity

Dissolved when general partner withdraws

24

Limited partnership: control

General partners have total control

25

Limited partnership: liability

Personal obligation for general partners

Limited partners obligated for investment

26

Limited partnership: taxation

All business income subject to personal taxation

27

S Corporation: Creation

Incorporators apply for state charter with articles of
incorporation

28

S Corporation: continuity

Perpetual, so long ad number of shareholder limited

29

S Corporations: control

Managed by officers, appointed by directors, who are
Elected by shareholders

30

S Corporation: liability

Shareholder obligations limited to investment, absent
Other commitments

31

S Corporation: taxation

All business income subject to personal taxation

32

Limited liability company or partnership: Creation

Organizers file articles of organization with state official

33

Limited liability company or partnership: continuity

Dissolved when member withdraws, but may be continued
By those remaining

34

Limited liability company or partnership: control

Equal management by members unless manager designated

35

Limited liability company or partnership: liability

Members are agents, but liable only for investment

36

Limited liability company or partnership: taxation

All business income subject to personal taxation

37

Articles of partnership

Formal agreement drafted among parties to form partnership

38

State assumed name statute

If name of partnership is other than name of partners,
The partners must give notice of their actual identity

39

Partnership: Buy and sell agreement

Agreement provides for amount and manner of compensation
for deceased or withdrawing owner of partnership

40

Domestic corporation

Name for Corporation within state it is incorporated in

41

Foreign corporation

Name for corporation when it is in all other states that
It's not incorporated in

42

Alien corporation

Corporation created under the authority of a foreign country

43

Charter of incorporation AKA Articles of incorporation

Application to set up corporation

44

Incorporators

Individuals who founded the corporation

45

Corporations outside of state they are incorporated in must be...

Licensed in any outside state it operates in

46

Board of directors, 2 functions? How are they elected?

Set goals for corporation and appoint officers

Elected by shareholders

47

Why are a lot of corporations incorporated in Delaware? 2 reasons

1 Respected judiciary deciding issues related to general
Corporation law

2 no income tax

48

Proxy

Agent appointed by shareholder for purpose of voting the
shares

49

Derivative suit

Lawsuit brought on when board of directors (majority
Shareholders) act illegally oppressing the rights of minority
Shareholders

50

The alter ego theory: Piercing the corporate veil

Situations where corporate organization is being misused
And shareholders face unlimited liability

51

Methods for avoiding double taxation 3 things

1 Deduct reasonable salaries, interest from debt and meals

2 Not pay dividends (but IRS then makes company pay tax)

3 Elect to file subchapter s of internal revenue code
Which eliminates corporate tax

52

4 advantages of being organized as a corporation

1 transferring ownership
2 limited shareholder liability
3 control held by those of minority investment
4 perpetual existence

53

4 Disadvantages of forming corporation

1 high costs of formation (license, franchise fees, procedural)
2 must be qualified in all states where business is conducted
3 subject to more gov. Regulation
4 corporate income subject to double taxes

54

6 Advantages of partnerships

1 easily formed
2 low costs
3 not a tax paying entity
4 each partner has equal voice in management
5 may operate in more than 1 state without liscences
6 less gov regulation

55

4 disadvantages of partnerships

1 only limited # of people can be partners
2 partnership dissolved when any partner leaves
3 unlimited liability
4 partners taxed on share of profits whether distributed
Or not

56

Limited partner

Partner not personally responsible for debts of business
Organization

57

General partners of limited partnership

Managers of limited partnership

Personally liable for organization's debts

58

Articles of Organization

Filings to create a limited liability company

59

Organizers

Creators of limited liability company

60

Members

Owners of LLC's

61

LLC'S: managerial control

Unanimous consent by all members or managers is
Necessary to make a binding decision

62

What has the Dodd Frank Act given Shareholder's the right to do?

1 non binding periodic shareholder votes to whether
Executives are overpaid

2 shareholders can include own board of director candidates
In their proxy