bus 250 chapter 31
s corporations
Congress created S corporations (aka "S corps") to encourage entrepreneurship by offering tax breaks. The name "S corporation" comes from the provision of the Internal Revenue Code that created this form of organization.Footnote Shareholders of S corps have both the limitedliability of a corporation and the tax status of a partnership
Alan Dershowitz, a law professor famous for his wealthy clients (O. J. Simpson, among others), joined with other lawyers to open a kosher delicatessen, Maven's Court. Dershowitz met with greater success at the bar than in the kitchen— the deli failed after barely a year in business. One supplier sued for overdue bills. Of the following, what form of organization would have been the best choice for Maven's Court?
Limited Liability Company
Andy wants to start his own business. He has decided to rent space in a "strip mall" and open a pet shop. Additionally, he will provide dog grooming services. He figures he can do almost everything himself, though he will need to hire a part-time employee on an "as needed" basis. His friend, Lacy, has agreed to work when needed.
There are no formal procedures required to create a this type of business ownership b. A sole proprietorship is not regarded as a separate tax entity c. Sole proprietors are exempted from a great deal of statutory law that applies to larger businesses. d. All of the above are advantages of operating as a sole proprietorship.
Susan wishes to buy a national franchise. Which of the following does the FTC require the seller to provide to Susan before she buys the franchise?
To provide Susan with an offering circular at least 14 business days before any contract is signed or money is paid. b. Disclose in the offering circular any litigation against the company for the prior ten years and any claims the company made against franchisees during the prior year c. Disclose in the offering circular how many franchisees have gone out of business within the last three years; d. All of the above are required by the FTC.
Wanda is a partner in business with some partners in a limited partnership. Two of her partners made a bad investment and owe Big Bank $50,000. Is Wanda personally liable for the debt?
b. Yes, unless Wanda is a limited partner in this limited partnership.
Ray and Chris decided to open a franchise. They were debating whether to operate as a partnership or an S Corporation. Which of the following is (are) are characteristic(s) of operating as an S Corporation?
. only one class of stock issued. b. 100 or fewer shareholders. c. Shareholder cannot be partnership, corporate shareholders or non US citizen/resident. d. All of the above are characteristics of an S Corporation.
close corporation
A company whose stock is not publicly traded. Also known as a closely held corporation.
joint venture
A partnership for a limited purpose.
sole proprietorship
An unincorporated business owned by one person.
George owns a sole proprietorship. What is true?
George can issue stock in the proprietorship.
Alan Dershowitz, a law professor famous for his wealthy clients (O. J. Simpson, among others), opened a kosher delicatessen, Maven's Court. Dershowitz met with greater success at the bar than in the kitchen— the deli failed after barely a year in business. One supplier sued for overdue bills. What form of organization would have been the worst choice for Maven's Court?
In a General Partnership each partner is personally liable for the debts of the enterprise whether or not she caused them.
Wanda is a general partner of a limited liability, limited partnership. Her other partners made a bad investment and owe Big Bank $50,000. Is Wanda liable for the debt?
No, general partners are not personally liable in an LLLP.
Leonard C. Blum, an attorney, was negligent in his representation of Louis Anthony, Sr. In settlement of Anthony's claim against him, Blum signed a promissory note for $10,400 on behalf of his law firm, an LLC. When the law firm did not pay, Anthony filed suit against Blum personally for payment of the note. Is a member personally liable for the debt of an LLC that was caused by his own negligence?
No, regardless of his actions, Blum cannot be personally liable for this debt.
Wanda is a member of a limited liability partnership. Her other partners made a bad investment and owe Big Bank $50,000. Is Wanda liable for the debt?
No, unless she agreed to be liable.
Harry and Sally want to form a partnership. What is necessary to create a legal partnership between them
Nothing.
Which of the following is true?
Partners of general partnerships must pay taxes on their revenue.
What is not a common characteristic of close corporations?
Requirements for a board of directors.
What is true about type S Corporations?
Shareholders are not liable for corporate torts, but must pay taxes on dividends
Andy wants to start his own business. He has decided to rent space in a "strip mall" and open a pet shop. Additionally, he will provide dog grooming services. He figures he can do almost everything himself, though he will need to hire a part-time employee on an "as needed" basis. His friend, Lacy, has agreed to work when needed.
Sole proprietors are personally liable for any debts or claims made against the company or their employees. b. A sole proprietorship will have a difficult time raising capital. c. A sole proprietor has no one else to share the potential liability in the event of a claim not covered by insurance d. All of the above are disadvantages of operating as a sole proprietorship
Which is true regarding franchises and the FTC
The FTC will not investigate the factual claims of a circular.
George wants to sell franchises. What must he include in the circulars
The number of franchises in operation
George forms a general partnership with Susan. If Susan gave a client bad legal advice and is sued, where does liability lie
With both Susan and George.
Kristine bought a Rocky Mountain Chocolate Factory franchise. Her franchise agreement required her to purchase a cash register that cost $3,000, with an annual maintenance fee of $773. The agreement also provided that Rocky Mountain could change to a more expensive system. Within a few months after signing the agreement, Kristine learned that she would have to buy a new cash register that cost $20,000, with annual maintenance fees of $2,000. Did Rocky Mountain act in bad faith?
Yes if the franchisor can prove damage to the overall business was sever.
Roger was injured after he drove drunk and crashed his car. He sued Abbot and Costello personally who worked at the bar where Roger had the pleasure of becoming inebriated. Are Abbot and Costello personally liable to Roger?
Yes, if Abbot and Costello work at an LLC.
Mrs. Meadows opened a biscuit shop called The Biscuit Bakery. The business was not incorporated. Whenever she ordered supplies, she was careful to sign the contract in the name of the business, not personally: The Biscuit Bakery by Daisy Meadows. Unfortunately, she had no money to pay her flour bill. When the vendor threatened to sue her, Mrs. Meadows told him that he could only sue the business because all the contracts were in the business's name. Will Mrs. Meadows lose her dough?
Yes, if she operates as a sole proprietorship.
George is a member of a limited liability partnership. His other partners made a bad investment and owe El Globo Bank $100,000. Is George personally liable for the debt?
Yes, if the LLP was not properly registered.
Mack is the local owner of a restaurant franchise. Though the national chain is known for its hotdogs, Mack wants to sell vegetarian burritos. Must Mack get permission from the franchisor?
Yes, if the franchise agreement demands it.
Billy bought a franchise. His agreement demanded that he pay the franchisor over $10,000 per month. Is Billy liable if he cannot pay the month fee?
Yes, unless the franchisor induced the contract through fraud.
In order to obtain limited liability, Tom and Doris formed an LLC to operate their catering business. They sometimes deposited the proceeds from catering jobs into their personal checking accounts and if they needed to pay personal bills and were short of funds, they used the business account. If creditors of the business cannot get payment for their invoices, is there anything a court can do to help the creditors?
a. Yes. They can pierce the corporate veil of an LLC