Business Organization > Business forms > Flashcards

Business forms Flashcards

(87 cards)

Study These Flashcards
1
Q
A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q
A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

SOLE PROPRIETORSHIP

A

A business with one owner and no legal distinction between the owner and the business.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Who manages and owns a sole proprietorship?

A

A single owner who owns all assets and manages all operations.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is the liability structure of a sole proprietorship?

A

The owner has unlimited personal liability for business debts.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How is a sole proprietorship taxed?

A

No business return; owner files taxes on their personal federal income tax return using Schedule C.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is a general partnership?

A

A multi-owner, for-profit business governed by state statute and UPA/RUPA.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How many owners are needed for a partnership to form?

A

Two or more owners.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

How is management determined in a general partnership?

A

By partnership agreement; default = equal shares of ownership and management.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the liability of partners in a general partnership?

A

Every partner has full personal liability for partnership debts.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

How are general partnerships taxed?

A

Pass-through taxation under Subchapter K — the partnership isn’t taxed; the partners are.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Why is a general partnership almost never advised?

A

Because of unlimited personal liability; an LLP is always safer.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is an LLP?

A

A partnership with partial or full liability shields for partners’ personal assets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Is an LLP managed like a general partnership?

A

Yes — same management structure, but safer due to liability protection.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Why would someone choose a partial liability shield instead of full?

A

Banks may require some personal liability for loans; incentives for owners to work hard; prevents liability for partners’ torts.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Provide the statutory language for a “limited” shield.

A

A partner is not liable for partnership debts arising from negligence or misconduct committed while the partnership is registered.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Provide the statutory language for a “full” LLP shield.

A

Obligations incurred while registered as an LLP are solely the partnership’s; partners are not personally liable.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Who are the two types of partners in an LP?

A

General partners and limited partners.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Do limited partners have management rights?

A

No — but they do have a liability shield.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Do general partners in an LP have personal liability?

A

Yes — they manage the business and lack a liability shield.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

How are LPs taxed?

A

Same as general partnerships (pass-through).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Why do venture capitalists prefer corporations?

A

For tax and structural reasons — they typically invest only in C-corps.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What governs corporations?

A

State statutes (MBCA/RMBCA). Most are incorporated in Delaware due to experienced corporate courts.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What documents are required to form a corporation?

A

Charter (Articles of Incorporation), bylaws, board of directors, and officers.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Who elects the board of directors?
Shareholders.
26
What liability protection do shareholders have?
Full liability shield.
27
How are corporations taxed?
Under Subchapter C or S. C-corp = double taxation (corporation taxed + shareholders taxed on dividends). S-corp = pass-through (with restrictions).
28
What is an LLC?
A flexible business form governed by ULLCA/RULLCA.
29
How is ownership measured in an LLC?
By units or percentage of membership interests.
30
What are the two management structures for LLCs?
Member-managed (owners run the business) Manager-managed (managers run it, like a board).
31
Must the management structure be stated in formation documents?
Yes — it must appear in the Articles of Organization.
32
What liability protection do LLC members have?
Full liability shield.
33
How are LLCs taxed?
Pass-through taxation, unless the LLC elects to be taxed as a corporation.
34
What is a professional entity?
An additional filing for professions (law, medicine); non-lawyers cannot own law firms.
35
What is a close corporation?
A hybrid of corporation and LLC; very rare.
36
What is a nonprofit?
A business formed to provide a societal benefit; not profit-driven.
37
What is a B-corp?
A certification indicating the business meets certain societal benefit standards.
38
What is a public benefit corporation?
A legal business form requiring public-benefit goals.
39
What is a low-profit LLC (L3C)?
A social-purpose LLC where profit is not the primary goal.
40
Why do gig workers (Uber, Airbnb) not fit neatly into entity types?
They blur lines between independent contractor and business entity.
41
What factors determine where to incorporate a business?
Local laws, taxes, litigation prospects, statutes, business scope.
42
What is a registered agent?
A person or service with a physical presence in the state to receive service of process.
43
What does the internal affairs doctrine state?
A corporation’s internal affairs are governed by the law of the state of incorporation.
44
What counts as “internal affairs”?
Relationships among the corporation, officers, directors, shareholders.
45
Are employees covered by internal affairs doctrine?
No — employment law is governed by the state where the employee works (e.g., California).
46
What are default rules?
Statutory rules that apply unless the business alters them in its documents.
47
Why might default rules favor majority shareholders?
Default = votes proportionate to shares → majority always wins.
48
How can voting power be adjusted to protect minority shareholders?
By agreement — e.g., majority elects 2 directors; minority elects 1.
49
Why would majority shareholders agree to give minority shareholders more voting power?
Minority shareholders often contribute more money.
50
What are mandatory rules?
Rules that cannot be altered because of public policy.
51
What is a private company?
A company not traded on public markets.
52
What is a public company?
A company whose shares trade on a public stock exchange.
53
Why do investors prefer public companies?
Higher liquidity — shares are easily valued and sold.
54
Why does management prefer private companies?
More control over who becomes owners and fewer disclosure obligations.
55
What filing is required to form a sole proprietorship?
None — it automatically forms when one person starts doing business.
56
What is a major advantage of a sole proprietorship?
Simplicity — no formalities, no separate tax return, low administrative cost.
57
What is a major disadvantage of a sole proprietorship?
Unlimited personal liability and difficulty raising capital.
58
How can a general partnership be formed unintentionally?
Two people sharing profits and acting as co-owners = partnership by default (UPA presumption).
59
How do partnerships dissolve under default rules?
Withdrawal of any partner triggers dissolution unless otherwise agreed.
60
What fiduciary duties do partners owe each other?
Duty of loyalty, duty of care, and obligation of good faith and fair dealing.
61
What is the default rule for sharing profits and losses in a partnership?
Equal shares, regardless of capital contribution.
62
What is required to maintain LLP status?
Annual registration and compliance filings with the state.
63
What liabilities are partners still responsible for in an LLP?
Their own misconduct or negligence; the shield only covers other partners’ acts.
64
What must be filed to create an LP?
A Certificate of Limited Partnership with the state.
65
What is the risk if a limited partner participates in management?
Historically, it could destroy the liability shield (modern statutes are more forgiving).
66
Why do LPs appeal to investors?
Investors can contribute capital and enjoy liability protection without management duties.
67
What is the business judgment rule?
Courts defer to directors’ decisions if made in good faith, with care, and in the corporation’s best interest.
68
Who has authority to amend the Articles of Incorporation?
The board proposes amendments; shareholders must approve.
69
What protections are afforded to officers and directors?
Indemnification and D&O insurance (if permitted by statute and bylaws).
70
What is piercing the corporate veil?
The court disregards the liability shield when owners misuse the corporation (e.g., fraud, undercapitalization).
71
Why is Delaware preferred for incorporation?
Predictable case law, specialized courts (Chancery Court), and management-friendly statutes.
72
What distinguishes Subchapter S taxation from Subchapter C?
S-corps have pass-through taxation but have strict eligibility rules (e.g., 100 shareholder limit, only individuals).
73
What document governs LLC internal rules?
The Operating Agreement.
74
What fiduciary duties do LLC members/managers typically owe?
Duties of loyalty and care—often modifiable in the operating agreement.
75
What is “charging order protection”?
A creditor may receive distributions but cannot seize LLC assets or force liquidation.
76
What is the main advantage of manager-managed LLCs?
Passive investors can invest without participating in daily management.
77
What is the main difference between a B-corp certification and a Public Benefit Corporation?
B-corp = certification; PBC = statutory legal structure.
78
Why must law firms be professional entities?
Ethical rules prohibit non-lawyer ownership and require specialized regulation.
79
Why are close corporations rare?
Modern LLC statutes already provide flexibility and limited liability, making close corporations unnecessary.
80
What is one reason NOT to incorporate in Delaware?
Higher franchise taxes and annual fees.
81
When is it better to incorporate in your home state?
If the business operates exclusively in one state and wants to avoid foreign qualification fees.
82
What is “foreign qualification”?
Registering a corporation or LLC formed in one state to legally operate in another state.
83
What is the purpose of default rules in business statutes?
To create predictable outcomes when parties fail to contract for something.
84
Why do mandatory rules exist?
To protect shareholders, creditors, and public interests.
85
Give an example of a mandatory rule.
Corporations must observe certain formalities (e.g., annual meetings); cannot waive duty of loyalty.
86
Why must public companies provide regular disclosures?
Federal securities laws require transparency for investors and markets (10-K, 10-Q, 8-K).
87
What is the main drawback of being public?
Higher regulatory burden and loss of managerial control.
Business Organization
flashcards
Decks in class (7)
# Cards
Brainscape helps you reach your goals faster, through stronger study habits.
© 2026 Bold Learning Solutions. Terms and Conditions