Chapter 14 Review
One of your clients is in the process of forming a new business venture with a friend and is considering whether to operate as a partnership or a C corporation. Among the advantages of operating as a partnership are: ease of dissolution. ease of raising additional capital. flow-through of income or loss. limited liability.
1 & 3 Unlike a C corporation, operating income or losses of a partnership flow through directly to the partners. There are several easy ways to dissolve a partnership. However, they do not offer the limited liability protection of a corporation. The corporate form of business is generally the most suitable for raising additional capital.
There are many different legal ways to structure a new business entity. One of these is the general partnership. Among the benefits of using this structure would be A) ease of formation B) limited liability C) substantial capital can be raised with little effort and low cost D) the 70% dividends received exclusion
A Compared to a corporation, it is generally easier to form (and dissolve) a partnership. General partners have full liability and there is no 70% dividends received exclusion for partnerships; that only applies to C corporations. C corporations are the entity for raising a lot of capital.
There are provisions in the IRS Code which allow certain forms of business to avoid being subject to income tax on the business level. The list would include all of the following EXCEPT: A) S corp. B) sole proprietorship. C) limited partnership. D) LLC.
B
A man is planning to start his own glass sculpturing business. He wants to be able to deduct his anticipated losses for the first two years. He anticipates that the enterprise will borrow money from lenders and is willing to personally guarantee the debt. He also wants to attract other investors but does not want to give up control of the day-to-day business decisions. What business form do you recommend? A) S corporation. B) Limited partnership. C) General partnership. D) C corporation.
B A limited partnership with him as general partner would allow for additional investment capital without giving up management control. C corporations do not allow deductibility of losses; S corporations do not allow guaranteed debt to be included in the taxpayer's basis. General partnerships could allow the other partners to more easily control the day-to-day operations than a limited partnership, in which the other investors (presumably limited partners) would not be permitted to take a role in the running of the business.
Your advisory client is an 86-year old woman who is presently in the hospital, unable to communicate due to a severe stroke. For the past 6 years, she has followed the practice of making annual gifts of stock to her children and grandchildren on her birthday. Since her 87th is coming up later this month, her oldest son approaches you and asks you to continue the policy. A) You should go to the hospital and see if she can blink her eyes to indicate yes or no. B) With 6 years of prior history, you know this is what she would want you to do so you go ahead as in previous years. C) Without a proper durable power of attorney being produced, you cannot do anything. D) You may only follow the provisions of her will.
C Unless proper written authorization has been provided, such as with a durable power of attorney, you cannot do anything without the client's consent. If she fails to recover and passes away, then the terms of the will must be followed by the executor.
Difference between CIP and Regulatory Bodies
CIP- DOB RB- just age
Which has the most ease in raising capital: LLC S Corp
LLC because it can have more than 100 investors
The 4 parts of the CIP that is required
Name Physical Address DOB SSN
During a trip to visit grandchildren, one of your clients suffers a massive heart attack and dies, intestate. Directions for handling the account could only come from the: A) person appointed as administrator of the estate. B) spouse. C) person named as executor of the estate. D) person with a durable power of attorney.
a Dying intestate means that there is no valid will. In that case, the state will appoint someone as administrator of the estate with the responsibility of handling all of the affairs of the deceased.
