Legal and Social Chapter 20

Joint Venture

A partnership for a limited purpose

Flow-through tax entity

An organization that does no pay income tax on its profits but passes them through to its owners who pay the tax at their individual rates

Partnership

An unincorporated association of two or more co-owners who operate a business for profit

C Corporation

Provides limited liability to its owners / taxable entity

9. Which of the following are qualities of a non-profit corporation? Select 2 answers. a. Its goal is to earn a profit. b. It does not provide dividends to shareholders. c. It provides minimal dividends to company shareholders. d. Its goal is to not earn a profit.

a. Its goal is to earn a profit. b. It does not provide dividends to shareholders.

Q3. When a partner leaves the partnership, whether it be voluntary or by expulsion, death or bankruptcy, it is called a. dissociation b. termination c. seperation d. detachment

a. dissociation

Case Study - Marsh v. Gentry

Facts: Issue: Conclusion:

Case Study - National Franchisee Association v. Burger King Corporation

Facts: Issue: Conclusion:

Dissociation

When a parter leaves a partnership

Franchise Disclosure Document (FDD)

A disclosure document that a franchisor must deliver to a potential purchaser

6. The formation of LLCs is governed by: a. the laws of the state in which the LLC is created. b. the ULLCA. c. private agreements. d. federal statute.

a. the laws of the state in which the LLC is created.

3. The formation of a partnership without a partnership agreement requires which of the following? Select 2 answers. a. The intent to form a partnership b. Sharing of profits and losses c. Five or more partners d. Sharing of management duties

b. Sharing of profits and losses d. Sharing of management duties

Q.2 At what stage are the partnership debts paid and the proceeds distributed to the partners? a. during termination b. during winding up c. during dissociation d. during dissolution

b. during winding up

CH8. A sole proprietorship differs from a limited liability company (LLC) in: a. ability to earn a profit. b. the documentation required for formation. c. the minimum number of owners. d. how stock is sold.

b. the documentation required for formation.

Case Study - Ferret v. Courney

Facts: Issue: Conclusion:

Partnership by Estoppel

Non-partners are held out to be partners and, therefore, are as personally liable as if they were partners

Q1. Which of the following would NOT be personally liable for the debts of the business? a. A partner in a general partnership. b. A sole proprietor. c. an S corporation shareholder d. a partner in a general partnership

c. an S corporation shareholder

Q8. Corporations have a distinct advantage over other forms of business organization in the area of taxation. (T/F)

False

Q7. A limited liability company, unlike an S corporation, can have members that are corporations, partnerships, or nonresident aliens (T/F)

True

Fiduciary Duties

a person having a duty created by his or her undertaking to act primarily for another's benefit in matters connected with the undertaking

CH7. Which statement is true about creating a sole proprietorship? a. The owner of a sole proprietorship must file an official record of the business name with the secretary of state's office. b. There is a waiting period of 30 days between opening the business and the time a sole proprietorship becomes official. c. No documentation is required to create a sole proprietorship. d. The members of a sole proprietorship must write and sign an operating agreement.

c. No documentation is required to create a sole proprietorship.

CH4. Which of the following is a requirement for the formation of a limited liability company (LLC)? a. an operating agreement b. an initial stock offering c. articles (or certificate) of organization d. at least three members

c. articles (or certificate) of organization

S Corporation

Provides limited liability to its owners / the tax status of a flow-through entity

Close Corporation

Smaller number of shareholders whose stock is not publicly traded and whose shareholders play an active role in management / entitled to special treatment under some state laws

Sole proprietorship

An unincorporated business owned by one person

Case Study - BLD Products, LTC v. Technical Plastics of Oregon, LLC

Facts: Issue: Conclusion:

General partner

One of the owners of a general partnership

Managing partners of members of the executive committee

Partners who have primary management responsibility for a partnership

Social Enterprises

These organizations pledge to behave in a socially responsible manner even as they pursue profits

Piercing the Company Veil

a situation in which courts put aside limited liability and hold a corporation's shareholders or directors personally liable for the corporation's actions or debts

5. Partners have which of the following duties? Select 3 answers. a. Fiduciary duties b. Record keeping c. Litigating on behalf of the partnership d. Capital contribution

a. Fiduciary duties b. Record keeping d. Capital contribution

7. Which of the following is required in the Articles of Organization for an LLC? Select 2 answers. a. The principal place of business b. The name of the business c. The agent's name and address d. The attorney's name and address

a. The principal place of business b. The name of the business

2. A written agreement outlining the roles of partners, their rights, and their duties are called: a. a partnership agreement. b. Articles of Organization. c. Operating agreements. d. Articles of Incorporation.

a. a partnership agreement.

CH3. Most limited liability company (LLC) statutes provide that unless the articles of organization specify otherwise, an LLC is assumed to be managed by: a. its members. b. a board of six members and six non-member managers. c. one manager. d. a board of nine managers.

a. its members.

CH2. Which of the following provisions are typically in an operating agreement for a limited liability company (LLC)? Choose 2 answers. a. whether the dissociation of a member, such as by death or departure, will trigger dissolution of the LLC b. how membership interests may be transferred c. the advertising plan for the company d. a record of the company's assets and debts

a. whether the dissociation of a member, such as by death or departure, will trigger dissolution of the LLC b. how membership interests may be transferred

1. Which of the following is required to create a sole proprietorship? a. Filing Articles of Incorporation with the secretary of state b. Nothing c. Filing Articles of Organization with the secretary of state d. An intention between two or more people to run a business

b. Nothing

Q4. Charles and Ellen, an unmarried couple, run an ice cream store. The business is not incorporated and they have filed no formation papers with the state. Their business is a: a. sole proprietorship b. partnership c. franchise d. limited liability company

b. partnership

CH6. The simplest form of business to establish is a: a. limited liability company. b. sole proprietorship. c. partnership. d. corporation.

b. sole proprietorship.

Q5. All the business forms listed below have limited liability except the: a. limited liability company b. general partnership c. subchapter S corporation d. corporation

b.) general partnership

CH10. A sole proprietorship differs from a corporation in: a. the ability to be an educational organization. b. the ability to earn a profit. c. how stock is sold. d. where in the United States they may be located.

c. how stock is sold.

4. Any partner: a. may encumber the property of the partnership to satisfy personal debt. b. is entitled to compensation for their time, skill, and effort. c. may act as an agent who binds the partnership. d. may create a business in direct competition with the partnership.

c. may act as an agent who binds the partnership.

CH5. Which of the following documents spells out the rights and duties of the members of a limited liability company (LLC)? a. certificate of organization b. charter c. operating agreement d. bylaws

c. operating agreement

CH9. A sole proprietorship differs from a partnership in: a. how stock is sold. b. documentation required for formation. c. the number of owners. d. liability for debt.

c. the number of owners.

8. A foreign corporation is: a. one that it privately held. b. one that was incorporated outside of the United States. c. one that was incorporated in two or more different states. d. one that was incorporated in a different state.

d. one that was incorporated in a different state.

CH1. An operating agreement for a limited liability company: a. is required for the operation of a limited liability company. b. may not specify how profits are divided. c. must be in writing and signed by all the officers of the company. d. typically includes provisions about choosing the LLC's management.

d. typically includes provisions about choosing the LLC's management.

Q6. An organization that does not pay income tax on its profits but passes it through to its owners who pay the tax at their individual rates is called a

flow-through tax entity