BLAW EXAM 4 Questions with Answers
When choosing a business entity, entrepreneurs should consider:
Ease of creation
Owner's liability
Tax considerations
Need for Capital
has sole proprietorship
anyone who does business without creating a separate business organization has a sole propri...
has sole proprietorship anyone who does business w
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BLAW EXAM 4 Questions with Answers
When choosing a business entity, entrepreneurs should consider: - answer Ease of
creation
Owner's liability
Tax considerations
Need for Capital
has sole proprietorship - answer anyone who does business without creating a
separate business organization has a sole proprietorship
major disadvantage of owning - answer personally liable for all losses or liabilities
incurred by the business
formation - answer done by an individual
may have a fictitious name
no formal requirements for formation
may have to publish d/b/s name
Sources of funding - answer loans, government help
tax consequences - answer owner claims all income and losses, no separate filing
requirement
management and control - answer all assets with one person
transferability of interest - answer business can be sold- property, inventory and
goodwill, owner will usually sign a non-compete agreement
advantages of sole proprietorship - answer owner is in complete control and receives
all profits, flexibility, ease of creation, maintenance
Disadvantages of Sole Proprietorship - answer unlimited liability, lack of continuity
after death , difficulty to raise financing
partnership - answer an association of two or more persons to carry on as co-
owners, a business for profit
Can include corporations and natural persons
Uniform partnership act - answer act ordering common ownership interests, profit
and loss sharing, and shared management responsibilities in a partnership
involuntary partnership formation - answer sharing of profits, constitutes prime facie
evidence that a partnership exists.
, Partnership funding - answer capital contributions of partners, loans by partners,
outside loans
Agency Concepts and Partnership Law - answer Partnerships are governed both by
common law and by statutory laws.
-Each partner is deemed to be an agent and fiduciary of the other.
-There may be imputation of liability.
LLC - answer a hybrid entity that combines the limited liability of a corporation and
the tax advantages of a partnership
LLC's are creature of state law - answer owners are called "members" not share
holders
ownership is called an "interest" not shares
formation of an LLC - answer requires filing articles of organization with central state
authority
Name of business
Principal Address
Name and Address of registered agent
Names of the Owners
limited liability - answer members stand to lose capital contributions, but their
personal assets are not subject to attachment
tax consequence - answer income passes through to members
LLC does not pay taxes
advantages of LLC - answer limited liability
flexibility in taxation
management and foreign investors: can be member-owners of an LLC
disadvantage of the LLC - answer lack of uniformity with state laws
LLC Operating Agreement - answer Members decide how to operate the business.
Operating agreements may contain provisions concerning management, including the
selection and removal of managers, the division of profits (unless otherwise agreed,
profits will be distributed equally), the transfer of membership interests, whether the
death or departure of a member will trigger dissociation or dissolution (or both), formal
members meetings, the apportionment of voting rights.
operating agreement - answer specifies voting rights, one member or an outside
consultant can have operating authority delegated to him or her
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