Chapter 9

Question 1

How might a sole proprietorship be defined?

Answer 1

A business owned and operated by a single individual

Question 2

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

Answer 2

There is no distinction – they are an identity

Question 3

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

Answer 3

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

Question 4

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

Answer 4

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

Question 5

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

Answer 5

They have complete control

Question 6

How does the owner of a sole proprietorship get compensated?

Answer 6

From the business

Question 7

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

Answer 7

No, they would be paying themselves

Question 8

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

Answer 8

Any liabilities incurred by the business are the owners.

Question 9

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

Answer 9

Sole proprietorship doesn’t exist independently from its owner

Question 10

Who claims business deductions, the business or the individual?

Answer 10

Individual files them

Question 11

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

Answer 11

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

Question 12

How does this concern creditors who are looking for payment?

Answer 12

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

Question 13

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

Answer 13

no bitch

Question 14

What is the RUPA and when was it promulgated?

Answer 14

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

Question 15

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

Answer 15

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

Question 16

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

Answer 16

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

Question 17

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

Answer 17

Torts committed while in the scope of partnership

Question 18

Does a business partnership pay Federal income tax?

Answer 18

No, because a partnership is not a taxable entity

Question 19

How is income tax paid by business partners?

Answer 19

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

Question 20

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

Answer 20

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

Question 21

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

Answer 21

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

Question 22

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

Answer 22

1. publicly held corporations

2. closely held (family) corporations

Question 23

Identify the two initial ways corporations can raise money.

Be able to describe each

Answer 23

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

Question 24

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

Answer 24

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

Question 25

What is a corporate board of directors analogous to?

Answer 25

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

Question 26

What is an “inside director.”

Answer 26

if a director is also an employee of the company

Question 27

Who appoints (hires) corporate officers?

Answer 27

The board of directors

Question 28

What are the officers of a corporation analogous to?

Answer 28

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.

Question 29

How do the owners of corporations receive compensation?

Answer 29

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

Question 30

What is the general rule regarding corporations and liability?

Answer 30

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

Question 31

What is the “corporate veil?”

Answer 31

The legal entity interposed between the shareholders and the corporate creditors

Question 32

Do corporations pay Federal income tax?

Answer 32

yes bitch

Question 33

Describe the “double taxation” of corporate income.

Answer 33

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

Question 34

How is the owners’ interest in a corporation manifested?

Answer 34

Stock certificates (which are personal property)

Question 35

Identify and list four ways corporations can be ended?

Answer 35

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