Sole Proprietorships and Partnerships

Flashcards covering key concepts from lecture notes on sole proprietorships, partnerships, corporations, and LLCs.

What tax form is used for reporting sole proprietorship income?

Schedule C

What is the sole proprietorship funding method often called?

Bootstrapping

Another name for a sole proprietorship entity in tax terms?

Disregarded Entity

What is a distribution from a sole proprietorship called?

Draw

What happens when another person joins a sole proprietorship?

It becomes a partnership.

What law governs general partnerships?

Revised Uniform Partnership Act (RUPA)

What kind of liability do general partners have?

Joint and several liability

What duty requires partners to share information?

Duty to inform

What is the taxation method where income flows to the partners?

Flow-thru taxation

What duty enforces following partnership agreements and decisions?

Duty to obey

What are the two types of partners in an LP?

General and Limited partners.

What law governs LPs in most states?

Revised Uniform Limited Partnership Act (RULPA)

What is the liability of general partners in LPs?

Joint and several liability

Who must consent to admit new partners in an LP?

All general partners.

What kind of partnership allows general partners to avoid liability?

Limited Liability Limited Partnership (LLLP)

What is a corporation called when operating outside its formation state?

Foreign Corporation

Which corporation can only have one class of stock?

S Corporation

What is it called when a corporation exceeds its purpose?

Ultra vires act

What are shares that were issued and repurchased called?

Treasury shares

Who is last to be paid in a corporate dissolution?

Shareholders (recovery of capital)

What document forms an LLC?

Articles of Organization

What governs the internal affairs of an LLC?

Operating Agreement

What kind of liability do LLC members have?

Limited liability

Two key duties of LLC members?

Duty to obey and duty to inform.

How are LLCs taxed?

It depends (chameleon tax treatment)

What is required for a shareholder quorum?

Majority of shares.

Voting method allowing all votes to one or multiple candidates?

Cumulative voting.

What is a written document allowing someone to vote on behalf of a shareholder?

Proxy.

What’s a lawsuit brought by a shareholder on behalf of the corporation?

Derivative lawsuit.

Duty requiring directors to prioritize corporate over personal interests?

Duty of loyalty.

risk of loss

depends on who had the title

FOB

shipment Contract

Title passes upon shipment

If something is loss on transport who ever has the title on shipment than they are at fault

OSHA

occupational safety and health act

EX: Construction- always have boots, glasses and hard hats

What is a disregarded entity for tax purposes? 

•  A sole proprietorship or single-member LLC that is not separate from its owner for tax purposes.

What are S Corporations? 

• Flow-through entities with specific IRS requirements (e.g., one class of stock, max 100 shareholders).

 How are C Corporations taxed?

• As separate taxpaying entities, subject to double taxation

How are partnerships taxed? 

• Using Form 1065 with individual reporting via Schedule K-1 (flow-through taxation).

What entities are tax-exempt? 

 Approved non-profits and certain trusts.

What is the defining feature of a sole proprietorship? 

 One owner/operator; owner is the business