legal evt of bus exam 4

Choosing a business entity is primarily driven by the_____

Risk, Taxes and operational objectives

How will tax authorities trat the entity? Will the entity itself pay taxes, or are the taxes passed through to the principals?

Taxation of income

How easy is the entity to form and maintain

formation

to what extent are the business owners personally liable for the debts and other contract or tort liabilities of the business entity itself?

Liability

personally liability

your personal assets are exposed

personal assets

things of value owned by a person

sole properitorship

this is where there is just one business owner

sole proprietorships are ____ to create and _____

easy; good for new businesses to use

How many times are sole proprietorships taxed?

only once

What is the chief drawback to sole proprietorships?

If something bad happens, your personal assets are at stake.

d/b/a

doing business as

How is a sole proprietorship terminated?

either by an express act of the owner or by operation of law in the case of death or bankruptcy of the proprietor

Operation of Law

in certain circumstances the law will operate to terminate the business.

If the sole proprietor dies, the business

does not pass to the heirs/family members; instead the business will die with the owner

Partnership

the simplest multiple-person business entiry

Do you have to file anything with the government to create a partnership or sole proprietorship?

No!

General partnership

When 2 or more people agree to become co-owners of a business

Can a partnership be created simply by agreeing out loud?

Yes!

What does the designation “G P” mean?

General Partnership

General partners have ______ of their personal assets for unpaid debts and liabilities of their partnership.

no protection

Joint and serval liability

the general partners personal assets are ate risk both together(jointly) and separately (severally) for all debts and liabilities of the partnership regardless of the source of the debt or liability

Pass through entity

profits are taxed after they pass through the business and are distributed to the indivudal partners

Sole proprietorships and General partnerships are both____

Pass through entities

Why is a general partnership only taxed once?

because when the money comes into the partnership, it wont be taxed then but when the money is divided up between the partners, then it will be taxed

Fiduciary duties

ensure the general partner is acting in the best interest of the business

What are the 3 fiduciary duties?

Loyalty, care and good faith

The loyalty Standard

prohibits a general partner from engaging in competition with the interests of the partnership and prohibits other conflicts of interest with the partnership such as using the partnership property for personal gain at the expense of the interest of the entity

Due care

partners should carefully do their job, because that is what is due.

Good faith standarad

requires partners exercise appropriate discretion in dealing with other partners and third parties concerning the partnership’s business enterprise operations

Limited partnerships

has two types of partners: General partner and limited partner

General partner in a limited partnership

manages the overall daily business activities

Who has the personal liability in a limited partnership? (Can be sued for personal assets)

The general partner in a limited partnership

A limited partner in a limited partnership

Only invest money and aren’t involved in daily business activities

Because they are not involved with the running the business, they have ___ liability

limited (they can’t be sued for their personal assets)

To create a limited partnership you _____

must file documents with the government

In Mississippi you file a certificate of limited partnership with_____

The secretary of State’s office

Limited Partnerships use ___ at the end of their business name

“ L P “

Limited pertnerships are also

Pass-through entites (only taxed once)

An LLC gives _________ like a corporation

limited liability

Is an LLC a pass through entity?

Yes!

What are the owners of a LLC called?

members

A Limited liabillity partnership (LLP)

is a business entity that limites the personal liability for it’s partners

An LLP gives limited personal liability to ____ of it’s partners

ALL

LP gives limited liability to ____ of it’s partners

SOME

Limited Liability partnerships (LLP) have only ___ type of pernter

one

LLP’s are used for

professionals

LP’s are used for

non-professionals

Hybrid entity

a combination of a partnership and a corporation

An LLC gives personal liability like a _____ but won’t be taxed taxed twice like a _____

corporation; partnership

And LLC is formed by:

filing articles of organization with the state

What do most States require when filing for formation?

Basic info like the name of the entity, the location of it’s principal place of employment and the name of it’s memebers

If a judge finds evidence that one of the members of the LLC took money out of the business accounts to make it look like the business didn’t have any money, then…

the person suing can now go after the LLC members personal assets

The ways an LLC can be managed is through a..

Member-managed LLC or a Manager-anaged LLC

Member-Managed LLC

This is an LLC where all the members manage/can do things on behalf of the LLC

Manager-managed LLC

Where only a few or only one member can manage the LLC

In a manager-managed LLC, non-managing members generally ____ have authority to act on behalf of the business

do not

Corporation

Is considered separate from the people that own the business

The law considers a corporation a _____

person

A corporation can…

sue someone, be sued and enter into contracts

To create a corporation you must file

Articles of incorporation with the secretary of State’s office

Corporations may be classified into one or more categories

Privately held corporations and publicly held corporations

Privately held corporations

owned exclusively by a group of private individuals

Publicly held corporations

sell their ownership interests via public stock exchanges

Privately held corporations do not…

sell ownership interests through sales via a broker to the general public or to financial institutions or investors

Initial public offering (IPO)

The corporation sells stock to the public for the first time

Why would privately corporations want to be converted to publicly held corporation?

To raise money

How does a corporation raise money?

By selling stocks

What is the hardest business entity to make?

A corporation

Articles of Incorporation

An article that incorporates a corporation

Owners (shareholders) of the corporation have..

limited personal liability (the shareholders personal aseets wont be taken if sued)

What is a corporations taxation based on?

wheatear it’s a C Corporation or an S corporation