Chapter 12: Commonly used Forms of Business

Question 1

Sole Proprietorship (SP) (456)

Answer 1

A single person engaged in business to make a profit

Question 2

General partnership (GP) (456)

Answer 2

At least 2 general partners engaged in business to make a profit

Question 3

Limited partnership (LP) (456)

Answer 3

At least 1 general and 1 limited partner engaged in business to make a profit

Question 4

Limited Liability COmpany (LLC) (457)

Answer 4

An unincorporated business entity that combines the most favorable attributes of general partnerships, limited partnerships and corporations

Question 5

Corporations (Corp.) (458)

Answer 5

A fictitious legal entity created by statutory requirement

Question 6

Most common form of business and is not separate from the owner? (459)

Answer 6

Sole proprietorship

Question 7

Formation is easy or difficult, depending on the occupation chosen? (459)

Answer 7

Sole proprietorship

Question 8

Owner has the right to make all management decisions concerning the business? (459)

Answer 8

Sole proprietorship

Question 9

______ have unlimited personal liability? (465)

Answer 9

Sole proprietorship

Question 10

A _____ access to capital is limited (465)

Answer 10

Sole proprietorship

Question 11

Sole proprietorships are taxed at ____? (466)

Answer 11

The personal rate of the sole proprietor

Question 12

The sole proprietor tax payer files a ____?

There is a _____ tax treatment? (466)

Answer 12

Form 1040 Tax Return augmented by Schedule C

Pass through

Question 13

Who governs general partnership law? (468)

Answer 13

The uniform partnership act (UPA)

Question 14

General partnership should file a _____ name? (468)

Answer 14

Fictitious

Question 15

The general partnership agreement can be ____, ____ or ___? (469)

Answer 15

Oral, written, implied

Question 16

Partnership agreement should be ___ and can also be called articles of _____? (469)

Answer 16

Written

Partnership

Question 17

Partnership at will (469)

Answer 17

General partnership formed impliedly by behavior or knowingly, but without any kind of partnership agreement, oral, or written

Question 18

General partnerships are taxed at ____? (470)

Answer 18

The personal rate of the general partner

Question 19

The partner tax payer files ____?

There is ____ tax treatment? (470)

Answer 19

All forms and schedules necessary for his personal tax bill

pass through

Question 20

Right of general partners are to: (471)

Answer 20

• Participate in management, each with an equal vote.
• Share in profits
• Receive compensation
• A return of loans and capital

Question 21

Duties of General Partnership: Loyalty (473)

Answer 21

• No self-dealing
• No usurping
• No competing
• No secret profits
• No breach of confidentiality
• No misuse of property

Question 22

Duty of Care (474)

Answer 22

Reasonable care and skill or an experts level of care and skill are required to be used by partners
Breach of this duty is negligence

Question 23

Duty of inform (474)

Answer 23

Each partner must sure with the other partners all relevant information

Question 24

Duty of obedience (474)

Answer 24

each partner must abide by the partnership agreement and the partners decisions

Question 25

General partners (481)

Answer 25

invest capital, manage the business, are personally liable for partnership debts

Question 26

Limited partners (481)

Answer 26

invest capital, do not participate in partnership management, are not persoanlly liable for partnership debts unless they exceed the "safe habor"

Question 27

Limited partnership agreements are governed by?

Answer 27

ULPA

Question 28

There must be a _______ Filed with the secretary of state

Answer 28

Formal written agreement

Question 29

A corporation is a separate legal entity:

Answer 29

A fictitious legal entity

Question 30

Shares are

Answer 30

freely transferable

Question 31

S Corporation

Answer 31

met certain requirement and have elected to be taxed as an S corporations for federal income tax purposes - loss flows to the shareholder or income must be reported on the shareholders’ individual income tax return. - No more than 100 shareholders - Corporations or partnerships CANNOT be shareholders in S corporations

Question 32

C Corporation

Answer 32

do not qualify for or have not sought S corporations statue. - Taxed twice “Double taxation” occurs when income is taxed when it comes into the corporation and then again when dividends are distributed to shareholders. - Taxed at corporate rate - Shareholders are taxed at personal rates

Question 33

Piercing the Corporation veil

Answer 33

when the corporation fails to act as a corporation and it fails to observe all the corporation formalities, shareholders will not be given the safety of limited personal liability.

Question 34

Watered Stock

Answer 34

Firm sells par or stated value stock for less than par or stated value, the potential investor is deceived into thinking the firm has greater assets than it does

Question 35

Derivative Lawsuit

Answer 35

initiated by shareholders to force the corporation to act when the humans running the corporation do not make the corporation act up its legitimate purposes