Chapter 9 Flashcards Preview

Business Law Midterm #2 > Chapter 9 > Flashcards

Flashcards in Chapter 9 Deck (35)
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1
Q

How might a sole proprietorship be defined?

A

A business owned and operated by a single individual

2
Q

What is the legal distinction between the business and the individual who owns it? (for sole proprietorship)

A

There is no distinction – they are an identity

3
Q

Describe one benefit relating to the creation of a sole proprietorship.

A

Its ease of creation – all the owner needs to do is start the business

4
Q

Identify and describe a specific challenge faced by an individual proprietor in starting up a business.

A

Difficult to raise capitol. No start up business can operate without some capitol (money), hard to get the money without collecting revenue

5
Q

Describe the level of control a sole proprietor has over the business.

A

They have complete control

6
Q

How does the owner of a sole proprietorship get compensated?

A

From the business

7
Q

Does it make sense for a sole proprietor to get a salary?

A

No, they would be paying themselves

8
Q

Be able to describe the important disadvantage of a sole proprietorship relating to liability.

A

Any liabilities incurred by the business are the owners.

9
Q

In the eyes of the law, how is a sole proprietorship viewed in regards to taxation?

A

Sole proprietorship doesn’t exist independently from its owner

10
Q

Who claims business deductions, the business or the individual?

A

Individual files them

11
Q

As a general rule, how long does a sole proprietorship last?

A

Until its owner dies, retires, or transfers it to another

12
Q

How does this concern creditors who are looking for payment?

A

Creditors are concerned about who owns the business. Each person is responsible for obligations with the creditors and it stays with them, not the business

13
Q

Generally, can creditors sue any new owners of a sole proprietorship if the old owner is insolvent?

A

no bitch

14
Q

What is the RUPA and when was it promulgated?

A

Revised Uniform Partnership Act – 1997
Revised version of the uniform partnership act: addressed the rights, liabilities and interest of persons acting as partners in businesses

15
Q

Be able to identify the three ways a business partnership can arise.

A
  1. expressly
    • the individuals agree to go into a partnership
  2. impliedly
    • two or more people conduct their business in a way that it fits the definition of the partnership
  3. by estoppel (apparently)
    • if appearances suggest that a person is a partner, whoever allowed the appearances to arise may be estopped (prevented) from denying the partnership relationship
16
Q

If the agreement between business partners fails to address a particular issue, what does the RUPA provide?

A

That all partners share equally in the profits or losses of the business

17
Q

With regards to business partners’ liability, what activities bind the partnership (See RULE OF LAW: The Business Partnership Rule)?

A

Torts committed while in the scope of partnership

18
Q

Does a business partnership pay Federal income tax?

A

No, because a partnership is not a taxable entity

19
Q

How is income tax paid by business partners?

A

Individual partners pay tax on the income they withdraw from the firm

20
Q

What two things does the “duration” of a business partnership involve?

A
  1. to whom can the creditors can turn to when the owner quits
  2. how easy is it for the owner to “alienate” their interest
21
Q

What is, probably, the single most important aspect of the corporate form?

A

It allows one group of people (managers) to use money from another group (investors) essentially without personal risk.

22
Q

Be able to identify the two sub-categories of for-profit corporations.

A
  1. publicly held corporations

2. closely held (family) corporations

23
Q

Identify the two initial ways corporations can raise money.

Be able to describe each

A

1.equity financing
• corporation sells itself off to people who buy shares and becomes owners (shareholders)
2. debt financing
• corporation borrows money. (bondholders)

24
Q

Be able to identify the seven rights of shareholders to control a corporation.

A
  1. The right to vote for directors
  2. The right to vote on extraordinary corporate transactions
  3. The right to inspect corporate records
  4. the right to bring a derivative lawsuit
  5. the right to subscribe to new shares of stock (preemptive right)
  6. the right to compensation: to receive dividends
  7. the right to receive a fair share of assets on liquidation
25
Q

What is a corporate board of directors analogous to?

A

City council, or congress. Its function is to set the policy. the execution is the role of the officers.

26
Q

What is an “inside director.”

A

if a director is also an employee of the company

27
Q

Who appoints (hires) corporate officers?

A

The board of directors

28
Q

What are the officers of a corporation analogous to?

A

Cabinet officers at the federal level, or major department heads at the state level. Function is to run the day to day operations of the company.

29
Q

How do the owners of corporations receive compensation?

A

Shareholders are paid their appropriate share of the profits of the business in dividends

30
Q

What is the general rule regarding corporations and liability?

A
The corporation is a legal entity, responsible for its own obligations
The owners (shareholders) are not liable for more than the value of their contribution
31
Q

What is the “corporate veil?”

A

The legal entity interposed between the shareholders and the corporate creditors

32
Q

Do corporations pay Federal income tax?

A

yes bitch

33
Q

Describe the “double taxation” of corporate income.

A

The money from the company is taxed twice: once with the corporation and once with the shareholder who receives it

34
Q

How is the owners’ interest in a corporation manifested?

A

Stock certificates (which are personal property)

35
Q

Identify and list four ways corporations can be ended?

A
  1. by the directors resolution of dissolution
  2. by vote of the shareholders
  3. insolvency (precludes the continuation of business)
  4. failure to pay the annual licensing fee