Chapter 3 GenBA 110 Stacey Lluhilier KSU

What are 4 advantages to S Corporations?

1. Limited liability for owners 2. Potential to consolidate financial statements of business and personal income for the tax benefit of the owners 3. Relatively easy formation compared with a Subchapter C Corporation 4. Legitimacy in the market as a more established form of business

How many people are needed to form a general partnership?

2 or more people

Subchapter S and Subchapter C Corporations take their names from subchapters in the _____ Code.

Internal Revenue Code

Which of the following is a disadvantage of forming a Subchapter C corporation?

It incurs double taxation.

In recent years, the ____ has become one of the most popular forms of incorporation for new businesses.

LLC

Relatively new business type, most popular. Has limited liability feature, limited to investment. Allows more investors and other corporations to hold stock. May have as few as one member. Allows profits to be handled flexibly and owners to flow the profits through to their personal returns to avoid double taxation. Has a low cost of formation. Limited by some states.

LLC

What is the newest form of business?

LLC

This help protect long-term businesses. Are multidimensional and should be carefully crafted before signing. Prevent problems by investigating legal issues and employing experts when needed.

Lease

Which type of insurance helps protect a business against lawsuit judgements?

Liability

Type of insurance that covers lawsuits resulting from accidents. Product liability insurance is obtainable.

Liability insurance

What type of business has at least two individuals who are partners in a venture but only one person declares a full pass-through of all income on his or her federal taxes and assumes unlimited liability?

Limited liability partnership

What are 4 good sources of information regarding regulatory requirements?

Local department of economic development Chamber of Commerce Small Business Assistance Centers Small Business Administration

An advantage of Subchapter __ Corporations is that it allows the owners to report their income or losses on their personal income tax returns, thus avoiding double taxation.

S

Which corporation limits the number of stockholders?

S Corporation

What 2 types of business forms are required to hold annual board meetings and file reports to local, state, and federal authorities?

S Corporations C Corporations

If a person is unsure about their business, or have a small business, or want to have a business with low costs and low risks, what business should they consider?

Sole proprietorship

What business type is required to pay income tax, which results in double taxation?

Subchapter C Corporations

What are the 3 types of corporations?

Subchapter S Corporation Subchapter C Corporation Limited Liability Corporation or L L C

What are 2 parts to the Uniform Partnership Act and Revised Uniform Partnership Act?

They are an effective means to handle the basics of partnership. Their provisions do not cover issues like noncompete agreements.

If the partners feel a partnership agreement to be unnecessary (business is a financial transaction), they are governed by...

Uniform Partnerships Act or Revised Uniform Partnership Act

What are 7 questions a business owner should ask before signing a lease?

What exactly is the business owner leasing? Can he renew the lease? Who is responsible for improvements? Who has responsibility for maintenance? Who has to carry the liability insurance and at what level? Can your landlord enter your place of business? What are the procedures for solving problems?

Type of insurance that covers liability for workers who are injured on the job. Can be a major expense.

Workers' compensation insurance

The effective application of ______ is one means to limit liability concerns of the new venture.

insurance

Patents are currently granted on a "________" basis.

"first to file"

What are 4 benefits of a Subchapter S Corporation?

1. Consolidation of business and personal income for tax benefits 2. Limited liability for the owners 3. Relatively easy to form compared with Subchapter C 4. Legitimacy in the market as a more established form of business

What are 2 advantages to sole proprietorships?

1. Easy to form and dissolve 2. Tax deductions (personal/business)

What are the 3 disadvantages to a sole proprietorship?

1. Only one owner is allowed (no investors) 2. There is liability for the owners associated with it 3. The value of the business is limited (legitimize)

What are the 3 types of businesses?

1. Sole proprietorship 2. Partnership, including both general and limited liability 3. Corporation: C, S, and limited liability company

What are the 5 things to consider specifying in a partnership agreement?

1. Who is involved and each party's contributions 2. How profits, losses, and draws are to be treated 3. How one partner can buy out the others 4. How new partners are brought into the partnership 5. How disputes are to be settled

How long is a trademark valid for?

10 years

Copyrights are valid for the life of the author plus ___ years.

70 years

A Subchapter S Corporation is limited to a maximum of _____ shareholders.

75

Insurance that covers damage done by employees in performance of work.

Bonding

Agreement between two parties to perform certain activities for some consideration. Does not have to be written, but writing it is advisable (legal guidance advised).

Contract

With a _______, the owner and business are viewed as separate entities.

Corporation

After several years in business, PODS changed from a sole proprietorship to a corporation. What was a major reason for making this organizational change?

Expansion and growth

True or False: Subchapter C Corporation treats fringe benefits that are paid out as income for its employees.

False

Which is not one of the three basic types of legal business organization?

Franchise

What are the 2 types of partnerships?

General Limited

What was the problem with general partnership for Swanson Farms?

Liability was still too high.

Both LLCs and S Corporations...

have the limited liability feature

A _____ is a business formed between individuals directly.

partnership

New businesses deal with fewer _________ than established larger businesses.

regulations

Patents are valid for _____ years from the point that it is filed.

20 years

______ insures businesses from damagers caused by workers in the performance of their jobs.

Bonding

What type of organization? It considers the owners as employees and pays them salaries and bonuses.

C Corporation

What type of organization? Profits that are not paid out for such items as salaries are retained for future expansion.

C Corporation

Which business type has double taxation?

C Corporation

Virtually all businesses must have an ________ Number for tax purposes.

Employee Identification Number

What is the best form of business ownership?

One form is not better than the others.

What was the problem with an LLP for Swanson Farms?

One person has to be a general partner, so someone is still liable.

How many people are needed to start an LLC?

Only one person is needed for an LLC.

What is a good local information resource for small businesses?

Small Business Assistance Center

Which of the following are drawbacks for sole proprietorships (3 answers)?

The formation is limited to a single founder. The liability of the business is the responsibility of the single owner. The lack of legitimacy with suppliers and customers.

General and limited are two broad categories of _________.

partnerships

Group formed at the discretion of the founders, regardless of the legal form chosen, and composed of individuals outside the business who advise the founder.

Board of Advisors

A copyright can be claimed on creative materials generated, such as what 6 things?

Books Magazines Advertising copy Music Artwork Any other creative product, published or unpublished

Typically a larger business formed. Organizational form that treats the firm as a unique entity responsible for its own taxes, may lead to double taxation (owners may pay salary of profits to avoid corporate tax). No limitations to shareholder participation, limits only to number of share issued. Fringe benefits not treated as income (health insurance/others benefits). Owners are protected beyond their equity investment.

C Corporation

Legal means to protect intellectual property. Grants ownership on creative materials generated, such as books, magazines, advertising copy, music, artwork, or virtually any other creative product, whether published or unpublished.

Copyright

In an LLP, the individual considered the manager of the firm, who, as such, has unlimited liability for the debts or judgments against the firm.

General partner

One partner in the limited liability partnership must be a ______ partner.

General partner

Besides sole proprietorships, which of the following business forms requires the business debt to flow directly to the owners?

General partnership

Which form of business involves two or more individuals sharing unlimited liability in a business venture?

General partnership

Why was a C Corporation a bad option for Swanson Farms?

It was too expensive and too cumbersome. C Corporations are typically reserved for larger companies.

What is the most popular business type?

LLC

What is one characteristic of a general partnership that is different from that of a sole proprietorship?

Partners are generally held to be jointly liable for all debts incurred by the partnership.

Organizational form that treats the firm as an entity separate from the individuals. Typically new business formed. Allows the owners to treat the income as they would if the firm were a sole proprietorship or a partnership. Has limitations in the number and type of shareholders.

Subchapter S Corporation

Which of the following is not a drawback of sole proprietorships?

The complexity and expense of formation.

Claim of intellectual property that is associated with a specific business.

Trademark

True or False: It is advisable for an entrepreneur to employ formal written contracts whenever there is an agreement with another party.

True

Two related entities that can help the new business owner foresee potential legal liabilities are:

a board of directors a board of advisors

A sole proprietorship is very popular among individuals who (3 answers)...

are unsure about their business idea. have a business where costs and risks are low. have a very small business.

A key concern of insurance is if it covers _______ cost or only ________ value.

covers replacement cost or only current value.

Corporations must have a board of ________.

directors

Patents are [expensive/inexpensive] to obtain and maintain.

expensive

What are 7 requirements for S and C Corporations?

1. Corporate name (must avoid patents and trademarks) 2. Location of the corporate headquarters 3. General nature of the business 4. Names, addresses, and titles of all founders 5. Time horizon for the firm's existence (in perpetuity) 6. Authorized stock and capital 7. By-laws of the organization (rules of the company)

What are 2 disadvantages to S Corporations?

1. Formation process is cumbersome and expensive, need legal representation 2. Limited number of shareholders, which is set at a maximum of 75 shareholders (significant limitation for a company that wishes to go public).

The _______ Act doesn't allow companies to discriminate against those with a disability.

Americans with Disabilities Act

Which of the following is an advantage of forming a sole proprietorship?

It is easy to form.

Claim of intellectual property that covers a specific innovation.

Patent

_______ insurance obtained by an entrepreneurial business primarily covers the building, fixtures, and inventory in all of the buildings in which the business has a function.

Property

A business where the person who owns the business and the business itself are treated as the same entity.

Sole proprietorship

The simplest form of business.

Sole proprietorship

What was the problem with S Corporation for Swanson Farms?

The cost to set up was too much money and too cumbersome.

Why was the sole proprietorship a problem for Swanson Farms Shooting?

They were completely liable for problems/injuries.

Claim of intellectual property that is associated with a specific business. May be the name of the firm, a symbol representing the firm, the names of its products, the color of a logo, or the font.

Trademark

What are the 3 types of patents?

Utility Plant Design

A _____ consists of individuals who have a fiduciary responsibility to the shareholders of an organization.

board of directors

The critical issues of personal liability and the desire to limit exposure to the original equity investment led to the development of corporations. A corporation addresses both drawback by ______.

considering the business and the individual separate entities.

Someone who desires to start a business, but who may not be comfortable with the risk associated with creating a new product or service, should consider a...

franchise business

_______ are only recognized in the country where it is filed.

patents

Which partner in a limited partnership is considered to be a passive investor and his or her liability is limited to his or her investment in the firm?

Limited partner

Which type of legal business organization is the simplest form to establish?

Sole proprietorship

What are 7 things to consider when signing a lease?

1. What exactly is being leased? (utilities, equipment, parking, repairs/improvements) 2. Who is responsible for improvements? (lease payment reductions) 3. Who is responsible for maintenance? 4. Can the lease be renewed? (renewed locations important) 5. Who carries liability insurance and how much? (occupants insured) 6. Can the landlord enter your place of business? (business inspections) 7. What are procedures for addressing or resolving problems?

Many regulations enacted by the federal government do not apply to businesses with fewer than ___ employees.

50

The three types of business ownership are partnerships, corporations, and _____.

sole proprietorships

Distribution of funds from the business. Some forms include cash dispersion in advance of salary, bonus, and expected year-end distribution.

Draw