Intro
The form of ownership affects the business owner’s ease of start-up, ability to raise capital, liability, and ___.
(taxation)
A form of business ownership in which the owners share both losses and profits is a(n) __.
Partnership
Michael, Ryan, and Dwight are partners in a partnership. An angry client sues Ryan for breach of contract and fraud. Because Ryan doesn't have enough assets to cover the judgment, the angry client then sues both Michael and Dwight for the difference. This business organization is a(n) ___________.
Partnership!
Robert and Andy are members of the Dunder Mifflin LLC, a limited liability company. Regarding Dunder Mifflin’s liability, Robert and Andy are shielded from ___.
A. alter ego liability
B. no liability
C. personal liability
D. the LLC's tort liability but not contract liability
C. personal liability
All members of this LLC participate in the decision-making process through a majority vote.
What is a "member-managed LLC"?
This is how a sole proprietorship is taxed.
Psych! A sole proprietorship is not taxed. Rather, the owner is taxed personally on net profits taken from the business.
A partnership's profits are taxed when they are __.
Distributed/drawn
Kevin and Creed have a limited partnership. As a limited partner, Creed _________.
A. must attend partnership meetings
B. is personally liable for all partnership debts
C. has no right to participate in the firm’s management
D. may participate in the firm’s management
C. has no right to participate in the firm’s management
If an LLC member dissociates, what three options do the remaining members have regarding the departing member's interest?
The remaining members can:
1. Buy that interest from the departing member (or the member's heirs if death is the cause) and continue to carry on LLC business.
2. Dissolve the LLC and divide up the interests among all members according to the operating agreement.
3. Create a right of succession to the departing member's interest among the remaining members.
If the dissociation violates the LLC's operating agreement, the departing member can be held liable for damages caused to the LLC by the dissociation.
The maximum number of LLC members is ___; the minimum number of LLC members is ___.
What is infinity?
What is one?
Tom works as a computer consultant on his own. He obtains and services his customers and handles all billing and collections. On those facts, which business organization is Tom’s business most likely to be?
Sole proprietorship!
The purpose of forming partnerships is often to combine 2+ individuals' abilities, experience, and ___.
capital!
Gene invested $8,000 in his cousin’s sports equipment business. He doesn’t participate in the day-to-day business activities. This is an example of a(n) __________ partnership
(limited/silent)
Generally, an LLC is taxed in one of two ways.
(like a partnership or like a corporation) Psych!
These are THREE disadvantages of LLCs.
What are:
1. Higher formation/annual fees
2. Self-employment taxes on all profits
3. Compared to corporations with IPOs, less ability to attract capital.
Sole Proprietor Jim and General Partner Janet had to sell their personal assets to pay business debts. Their respective situations are examples of __.
Unlimited personal liability!
A partnership must have a minimum of ___ partners and a can have a maximum of __ partners.
1. Two
2. Infinity
This form of business ownership is often used to protect innocent partners from the malpractice of another partner.
(limited liability partnership/LLP)
The THREE advantages of LLCs.
(1. Protection against creditors and outside lawsuits
2. Optional taxation: either as a partnership or corporation
3. Total control via an operating agreement)
True or false? A limited Liability Company (LLC) can have foreign members, including non-resident aliens, foreign entities, and non-US citizens, regardless of whether they live abroad or hold a visa.
True.
True or false? A partnership must file its partnership agreement with the designated state office to exist.
False
Doctor Bob and his medical school friends are starting a psychiatric practice. They do not want the hassle of establishing and maintaining an LLC but are concerned about Bob’s poor grades in pharmaceuticals class, so they will likely form a _______ for the practice.
Limited Liability Partnership
The maximum number of LLC members is ___; the minimum number of LLC members is ___.
(infinity; 1)
How is an LLC taxed if it has 2+ members?
How is an LLC taxed if it only has 1 member?
1. An LLC with 2+ owners can either accept its default classification as a partnership or elect to be classified as a C corporation. If the number of members does not exceed 100, the LLC can elect to be classified as an S corporation.
2. For income tax purposes, an LLC with only 1 member is treated as NOT SEPARATE from the member unless it elects to be treated as a C corporation or S corporation.
-Westbury Properties, Inc. (Westbury) owned, managed, and developed real property.
-The Stoker Group, Inc. (Stoker), also developed real property.
-Westbury entered into contracts with Stoker concerning a large plot of land. They formed a separate third organization, "Bellemeade, LLC," to develop various parcels on that tract for family homes.
-Bellemeade LLC's operating agreement provided in part that no member would be accountable to the LLC or any other member concerning any business activity, even if that business activity competed with Bellemeade's.
-Later, Westbury entered into contracts with some third parties to develop other parcels WITHIN THE SAME TRACT, in competition with Bellemeade.
-Stoker filed a suit against Westbury, alleging, among other things, breach of fiduciary duty.
Q1. Westbury and Stoker owe these duties to each other.
Q2. The LLC operating agreement's terms [can/cannot] alter these duties.
Q3. __ will most likely prevail if this dispute is litigated.
Q1. What are the duties of care and loyalty?
Q2. can [like all contracts, the LLC's operating agreement may expand, restrict, or eliminate legal duties.]
Q3. Westbury
[Bellemeade LLC's operating agreement had an exculpatory clause that permitted members to compete without any consequences!. Stoker should have challenged that provision and threatened not to sign, aka blow up the deal, unless it was removed! Sheeeeeesh!]