Chapter 2

Question 1

What is the simplest ownership form to set up?

Answer 1

Sole Proprietorship

Question 2

If a sole proprietorship does business under a name different than its own, what type of certificate needs to be filed at a local or state government office?

Answer 2

Fictitious Name Certificate

Question 3

If you are doing significant business, a sole proprietorship may be a risky legal business structure because it exposes you to what?

Answer 3

Unlimited Liability for the Business’ Debt

Question 4

When is a sole proprietorship terminated?

Answer 4

Upon the Owner’s Death

Question 5

As a sole proprietor, your net income is reported as what?

Answer 5

Ordinary Income

Question 6

Do sole proprietors pay corporate income taxes?

Answer 6

No

Question 7

What are the two types of partnerships?

Answer 7

General Partnership and Limited Partnership

Question 8

What happens if a general partner leaves the partnership or dies?

Answer 8

The partnership dissolves and the assets of the partnership must be sold or distributed to first pay the creditors and then the partners.

Question 9

Can a general partnership be formed through an oral agreement?

Answer 9

Yes

Question 10

A limited partnership consists of one or more ________ and one or more ___________.

Answer 10

General Partners and Limited Partners

Question 11

Are owners in a general partnership liable for all actions and debts?

Answer 11

Yes

Question 12

What federal income tax form must partners file with the IRS?

Answer 12

Form 1065

Question 13

A business assumes a corporate identity in North Carolina when it files with the _____________________.

Answer 13

North Carolina Secretary of State

Question 14

How long does a C Corporation last?

Answer 14

As long as the stockholders determine it should

Question 15

Does a C Corporation continue to exist if one or more of the shareholders die?

Answer 15

Yes

Question 16

Do shareholders in a C Corporation own the stock, assets and money earned?

Answer 16

No. The corporation owns it all.

Question 17

The owners of the C Corporation are known as what?

Answer 17

The Stockholders

Question 18

Are stockholders personally liable for the losses of the business in a C Corporation?

Answer 18

No

Question 19

Who is responsible for the business debts in a C Corporation?

Answer 19

The Corporate Entity

Question 20

Why is there said to be a “double tax” on C Corporations?

Answer 20

Because the corporation must pay taxes on the profits and dividends paid to the shareholders.

Question 21

Is an out-of-state corporation considered a foreign corporation?

Answer 21

Yes

Question 22

What is the filing fee for a North Carolina (domestic) Profit Corporation?

Answer 22

$125

Question 23

What is the filing fee for a Foreign Profit Corporation?

Answer 23

$250

Question 24

What tax form must be filed as an S Corporation?

Answer 24

Form 2553

Question 25

What is the maximum amount of shareholders for an S Corporation?

Answer 25

100

Question 26

How is ownership in an LLC invested?

Answer 26

In memberships rather than shares of stock

Question 27

Does an LLC protect from liability for personal actions?

Answer 27

No

Question 28

Does an S Corporation pay "double tax"?

Answer 28

No

Question 29

Federal income taxes are paid only on income distributed to members in what type of companies?

Answer 29

LLC's and S Corporations

Question 30

How is an LLC taxed with one owner?

Answer 30

As a Sole Proprietorship

Question 31

How can an LLC with more than one owner elect to be taxed?

Answer 31

As a Partnership or as a Corporate Entity

Question 32

What is an assumed name certificate commonly referred to as?

Answer 32

"DBA" or "doing business as"

Question 33

Where is a DBA filed?

Answer 33

At the Registrar of Deeds in any county where you want to do business