Terms 1
The simplest form of business organization, in which the owner is the business. The owner reports business income on his or her personal income tax return and is legally responsible for all debts and obligations incurred by the business.
Sole proprietorship
A person who has an ownership interest in a limited liability company.
Member
Raven starts up Bene's Autos, an auto sales enterprise. Raven is
a. none of the choices.
b. a franchisor.
c. a franchisee.
d. a sole proprietor.
d. a sole proprietor.
Benedictine's Burritos, Inc., is incorporated in the state of Kansas and is doing business in the state of Missouri. In Missouri, Benedictine's Burritos is properly referred to as
a. a domestic corporation.
b. an alien corporation.
c. a foreign corporation.
d. a public corporation.
c. a foreign corporation.
general partner: In a limited partnership, a partner who assumes responsibility for the management of the partnership and has full liability for all partnership debts.
limited partner" In a limited partnership, a partner who contributes capital to the partnership but has no right to participate in its management and has no liability for partnership debts beyond the amount of her or his investment.
One receiving a license to use another’s trademark, trade name, or copyright in the sale of goods and services.
Franchisee
One licensing another to use the owner’s trademark, trade name, or copyright in the selling of goods or services.
Franchisor
Common franchise terms include all of the following EXCEPT
a. business organization.
b. business premises.
c. payment.
d. none of the above choices are correct (aka all of the above are common franchise terms).
d. none of the above choices are correct (aka all of the above are common franchise terms).
Common contract terms involve:
Payment
Business premises
Location
Business organization
Quality control
Pricing arrangements
Etc.
Darla is a member of Benedictine Snacks, LLC, a limited liability company. Darla is liable for Benedictine Snack’s debts
a. in proportion to the total number of members.
b. to the extent of her investment in the firm.
c. in proportion to her profit derived from the company.
d. to the full extent (aka must personally cover all of the company’s debts).
b. to the extent of her investment in the firm.
Advantages
Owns entire business - flexibility
Fewer legal formalities
Pays personal taxes
A corporation formed in another country but doing business in the United States.
Alien corporation
The action of a court to disregard the corporate entity and hold the shareholders personally liable for corporate debts and obligations.
Pierce the corporate veil
Kris is the franchisee. Although Kris’ franchise is highly profitable and conforms to the franchise contract, Jack terminates Kris’ franchise and gives it to his nephew Lars. In most cases, Jack’s action is
a. is a violation of federal law.
b. likely a wrongful termination.
c. permissible because franchise contracts usually contain "at-will" terms.
d. an act in the ordinary course of business.
b. likely a wrongful termination.
Kyle owns and operates Atchison Landscaping as a sole proprietorship. When Kyle dies, Atchison Landscaping will automatically
a. pass to Kyle's heirs.
b. dissolve.
c. pass to the state.
d. be offered for sale to its creditors and competitors.
b. dissolve.
Disadvantages
Bears all loses
Liability
Lack of continuity
What is the difference between dissociation and dissolution?
Dissociation: The severance of the relationship between a partner and a partnership.
Dissolution: The formal disbanding of a partnership, corporation, or other business entity.
An agreement in which the members of a limited liability company set forth the details of how the business will be managed and operated.
Operating agreement
The number of members of a decision-making body that must be present before business may be transacted.
Quorum
Fran & Paul Attorneys, LLP is a limited liability partnership (LLP). The major features of an LLP are that it limits the personal liability of the partners and
a. LLP statutes do not vary from state to state.
b. it can only do business in the state in which it was formed.
c. only a few states have enacted LLP statutes.
d. it allows the partnership to continue as a pass-through tax entity.
d. it allows the partnership to continue as a pass-through tax entity.
Rosa owns one share of stock in BC Corporation, as evidenced by a stock certificate. She loses the certificate. Her ownership of the stock is
a. forfeited immediately.
b. forfeited within 12 days of a third party’s claim to ownership.
c. forfeited within 15 days if she cannot find the certificate.
d. not affected.
d. not affected.
Elements of a general partnership
Sharing of profits and losses
A joint ownership of the business
An equal right to be involved in the management of the business
A rule under which courts will not hold corporate officers and directors liable for honest mistakes of judgment and bad business decisions that were made in good faith.
Business judgment rule
Acts of a corporation that are beyond its express and implied powers to undertake (the Latin phrase means “beyond the powers”).
Ultra vires
Hue and Isabel want to market a new line of bicycles and related gear under the brand name Riders as a corporation—Riders Inc. To avoid income taxes at the corporate level, they should form
a. an alien corporation.
b. a C corporation.
c. an S corporation.
d. a private corporation.
c. an S corporation.
S Corp: A close business corporation that has most of the attributes of a corporation, including limited liability, but qualifies under the Internal Revenue Code to be taxed as a partnership.
Raven's Development, LP, is a limited partnership that invests in residential real estate projects. Its limited partners include more than 175 sophisticated investors and investment professionals. A Raven's Development limited partner loses his or her limited liability if he or she
a. does not participate in the firm’s management.
b. participates in the firm’s management.
c. invests in a project that Cherry Creek has declined.
d. votes to sell or dissolve the firm.
b. participates in the firm’s management.
Rights of directors:
Right to Participation
Right of Inspection
Right to Indemnification