#1 RTTR326 exam 1 study guide

public, private, and nonprofit sectors

what is the purpose of the for profit sector

to make profit

what is a liability

legal responsibility for debts, losses, and obligations

what is a personal liability

the owner’s assets may be at risk for business debts

what business structure has one owner

sole proprietorship

what type of liability does a sole proprietor have

unlimited personal liability

how is a sole proprietorship generally taxed

pass through taxation

name three RTTR sole proprietorship examples

• a individual travel agent

• a tour guide

• photographer

what are two advantages of a sole proprietorship

• easy to form

• owner has more control

what are two disadvantages of sole proprietorship

• unlimited personal liability

• hard raising money or expansion

how many owners does a partnership have

2 or more owners

what is a general partnership

partners share ownership & management and can have personal libability

what is a limitied partnership

at least one general partner and one limited partner/investor

what is an LLP

a partnership providing liability protection for certain obligations

what are LLC partnership owners called

members

what are two partnership advantages

• pass through taxation

• shared financial responsibility

what is one major partnership disadvantage

• potential conflict between partners

give an RTTR partnership example

two people owning a tour company together

what does LLC stand for

Limited Liability Company

what are LLC owners called

members

what type of liability does an LLC generally provide

limited personal liability

how can an LLC generally be taxed

pass through taxation - generally

why choose an LLC over a sole proprietorship

greater personal liability protection with a flexible structure

what are two LLC advantages

• limited liability

• flexible structure

what is one disadvantage of an LLC

• more startup and ongoing requirements than a sole proprietorship

give an RTTR LLC example

• a tour boat company organized as an LLC

what is a corportation

a seperate legal entity from its owners

what are corporation owners called

stockholders or shareholders

what can a coporation legally do

• be sued / sue

• make contracts

• own property

• pay taxes

what type of liability do stockholders generally have

limited liability

how can corporations raise money

by selling shares or stock

what is a major corporation disadvantage

• more regulations

• paperwork

• complexity

what can happen with C corporation taxation

double taxation at the business and shareholder levels

why might a business choose a coporation

• liability protection

• ability to raise significant capital

what are three RTTR corporations

• Hilton

• Disney

• Royal Carribean

what is a flow through taxation

business profits and losses pass through to owners’ personal taxes

who reports pass through business income

the owners report their share on personal tax returns

which structures commonly use pass through taxation

• sole proprietorships

• partnerships

• LLCs

easy way to remember flow through taxation

business money flows to the owner’s personal taxes

what is double taxation

taxes can occur at the business level and shareholder level

which business structure is most associated with double taxation

C corporation

easy way to remember double taxation

business level + shareholder level

which structure has unlimited personal liability

sole proprietorship

which structures generally provide limited personal liability

• LLC

• corporations

what is the key differences between sole prop and LLC

• sole prop has unlimited liability

• LLC generally has limited liability

what is the key difference between LLC and corporation

• both offer limited liability

• corporations are seperate legal entities with shareholders

what is the main difference between partnership and sole proprietorship

• partnerships have 2+ owners

• sole prop have one

can the same RTTR business use different legal structures

yes

what RTTR business could be a sole proprietorship

a one person travel planning business

what RTTR business could be a partnership

a tour company owned by two people

what RTTR business could be an LLC

a travel and destination wedding planning company

what RTTR business can be corporations

hotels or cruise lines

what is the first step in creating a nonprofit

determine the organizations purpose or mission

what are bylaws

rules and procedures that guide how an organization operates

where does a nonprofit incorporate to become a legal entity

at the state level

what does a nonprofit apply for through the IRS

federal tax-exempt status

is every nonprofit automatically tax exempt

no. it must meet requirements and generally apply for status

what role does the IRS play with nonprofits

it determines whether an organization qualifies for federal tax exemption

what are the basic steps to create a nonprofit

1) purpose
2) bylaws
3) state incorporation
4) IRS
5) state / local requirements
6) maintain

who owns a nonprofit

doesnt have owners

who governs a nonprofit

the board of directors

what does the board of directors do

• provides governance

• oversight

• helps further the organizations mission

can nonprofit assets be distributed as personal profits

no

who typically hires senior nonprofit staff

the board of directors

what is the key difference between nonprofit and not-for-profit

• nonprofit usually means an organization

• not for profit usually means an activity

what is a nonprofit

an organization with a mission that can qualify for tax-exempt status

what is a not-for-profit activity

an activity where making a profit is not the primary purpose

give an RTTR example of a not-for-profit activity

a free community recreation event focused on providing recreation

what does the 501©(3) generally refer to

charitable organizations that qualify for tax-exempt status

what does 501© refer to

a section of the Internal Revenue Code covering tax-exempt organizations

what does the (3) in the 501© (3) indicate

the charitable organization category

name three types of 501©(3) organizations

• religious

• educational

• literary

• amateur athletic organizations

can 501©(3) organizations receive tax-deductible donations

yes, when requirements are met

what is 501© (4)

social welfare organizations

what is 501©(5)

labor, agricultural, and horticultural organizations

what is 501©(6)

business leagues and professional associations

what is 501©(7)

social and recreational clubs

what 501 © category is especially important for RTTR

501©(7) = social and recreational clubs

why do nonprofits exist

to address needs or causes not adequately served by government or business

can nonprofits make money

yes, they can generate revenue and have a surplus

what happens to nonprofit surplus/revenue

it generally supports the organization’s mission rather than owners

are nonprofit employees allowed to receive salaries

yes

are all nonprofits tax exempt

no

must nonprofits benefit the entire general public

no

are nonprofits charitable

no, all charities are nonprofits but not all nonprofits are charitable

what is a key characteristic of nonprofits

they have a mission and serve a purpose or cause

can nonprofit assets become personal profits for individuals

no

how can nonprofits generate revenue

fundraising and other revenue generating activities

what does the board of directors provide

governance and oversight

what is the board responsible for regarding the mission

ensuring the organization follows and furthers its mission

who is generally on a nonprofit board of directors

volunteers

what must a nonprofit do to maintain its status

• follow bylaws

• hold board meetings

• file required reports

what is form 990

a required IRS information return for many tax-exempt organizations

what is the easiest way to remember 501©(7)

social and recreational clubs

what is the public sector

government organizations and services

name three RTTR examples of the public sector

• national parks

• state parks

• city recreation departments

what is the primary funding source for government

taxes

name three other public sector funding sources

• fees, charges

• grants

• concensions

• other government revenue

where does the federal government get its authority

the U.S. constitution and federal laws