Midterm 1 Flashcards
(26 cards)
Two types of person
natural person - human being
person - legal entity
Legal entity
law recognizes it as having its own separate legal recognition from the humans behind it
ie. marriage, registered domestic partnership
Community property
Any income, real or personal property gained by either spouse during a marriage belongs to both partners
Collections of sales tax
You are obligated to collect sales tax (that is paid to the government), if you are providing a product on an end-user basis (to the public)
Pass-through taxation
profits and losses of the business are passed through the business and onto the owner’s 1040 tax return
passed from the business to owner
allows an individual to reduce their income because losses can be written against other sources of income
Pass-through taxation for:
- Sole proprietorship
- General partnerships
- limited partnerships
- limited liability partnership
- limited liability company
- corporation
sole proprietorship - yes
general partnerships - yes
limited partnership - no pass-through taxation, paying entity on themselves
limited liability partnership -can elect pass-through taxation or be taxed as a corporation
limited liability company - can elect pass-through taxation or be taxed as a corporation
corporation - pay corporate taxes. separate tax-paying entity. cannot be written off any source of income
Sole proprietorship
- Easiest form of business to create
- LEAST amount of governmental regulations in terms of advanced government filing
- involves one person or legal entity to start
- pass-through taxation
- no shield of liability
- less popular bc you can do LLC as one person
- 2 parts for gov filing: business license and a fictitious business name
Business license
- not all cities require one
- fees vary from each city
- a tax so cities can raise revenue
Fictitious Business Name Statement
- A person must prepare and file a FBN statement if the business is something other than their own legal name
- purpose is to disclose actual owners of the business to the public in an event a person wants to sue them
Under-capitalism
More than half of business fail because they do not have enough money to keep them afloat for the first 1-2 years while they develop their clientele
underestimate what they need before they get started
Federal deductions
7.65% social security account
1.45% medicare
-.090% deduction for medicare if an individual
gets paid 200k, 250k for family
employer matches so 15.30% goes into social
security account
Unemployment Insurance
- employer and federal government pays, not employee.
- gets paid to federal government based on formula
- it is a personal liability if you do not pay it, from a state standpoint
Workers Compensation Insurance
- employers pay for it
- state requirement employers have workers comp insurance
- an employee who has a job related injury can make a claim and receive money for medical care expenses
ABC Test
Worker is deemed to have been suffered or permitted to work means they are an employee for wage order purposes UNLESS employer proves the ABC test
A - worker is free from control and directing of hiring entity in connection with the performance of the work
b- the worker performs work that is outside the usual course of hiring entity’s business
C- worker is customarily engaged in an independently established trade, occupations, or business of the same nature as work performed ie. individuals formed their own company
Statute of frauds
Certain contracts need to be in writing in order to be enforced in a court of law. not self-executed
ie. purchase or sale of real property, contracts not capable of being completed within one year, purchase and sale of items other than real property, prenuptial contracts, marital settlement agreement
General partnerships
voluntary association with two or more persons that do business together as co-owners with the intention of making a profit
does not have to register with gov agency
partner by estoppel
individuals will be stopped from avoiding certain types of obligation based upon their conduct
online def - a person who is not technically a partner can be held liable as a general partner would for any debts and damages owed to a third party
sharing of profit
most important aspect of a partnership status
individual shares profit out of the business that is there (can occur even if they never used the term partnership)
Joint Ventures
Specialized partnerships created by entities such as two businesses, two corporations, to engage in a specific type of business or event ie build building, put an office building up
Joint tenancy
Joint ownership of property
common between spouses
relates to real property. your life estate in that property is only good when you are alive. if you die, it goes to the surviving joint tenant. you do not have an inheritable estate
partnership property is owned as a tenancy in partnership. if they leave, they cannot take partnership property
when a partner dies, share does not die with a partner, but partnership value share dies. survivor gets paid value of parntership
Initial Accounting
Starts when a partnership is established
- There will be a capital account for each partner, so money can be contributed to the partnership
- propety can be real property, personal property, content, contribution of knowledge as long as they can put dollar value in it
- it reprsents their investment in a partnership
- value of capital account may or may not relate to the percentage each person has to the percentage of ownership in the partnership
Limited Partnership
-recognized as an investment
- limited partner: investors expecting a return ( does not engage in management
- general partner - manages the business
- has to register with gov agency
Limited Liability Company (LLC)
- most popular form of business to start with
- referred to as an incorporated partnership (not a partnership)
- management structure similar to general partnerships but not limited to a partnership where partnerships are investment vehicles
- shield of liability
- can have pass-through taxation or be taxed as a corporation
- more costly
Limited Liability Partnership
- like an incorporated partnership
- distinct limitation to which professionals can engage in a LLP
- variance across the country as to which professionals can operate as a LLP
- STATUTORY CREATIONS
