Business Structures

Question 1

When would a sole prop be a good choice as business entity?

Answer 1

when an individual wants to form a business that they will manage, claim the income or losses from the business on personal taxes, and does not want to bother with a lot of formality. They risk all of their personal assets however.

Question 2

What type of business entity can be formed without filing organizational documents with the state?

Answer 2

A partnership or sole proprietorship

Question 3

What are the effects of a partner transferring interest in a partnership without the consent of the other parties?

Answer 3

Such a transfer does not make the assignee a partner (that can be done only with the consent of all of the parners). Thus, the trnsferee has no power to manage the pship, inspect the books, vote, etc. Generally, the assignees only right is to get whatever distribution the assignor would have gotten (same with a deceased partners interest or creditors charging order)

Question 4

what is a dissociated partners liability to other parties?

Answer 4

remains liable for the debts incurred by the pship prior to the association unless there has been a release by the creditor or a novation

if didnt give notice of dissociation, may be held liable for debts incurred by pship for up to 2 years after

Question 5

What is a new partner liable for?

Answer 5

only personally liable for debts incurred by pship after admitted, not for what was already there

Question 6

Events that cause dissolution of General Pship

Answer 6

• partner gives notice of withdrawal
• partners agree to dissoultion
• court order

Question 7

Can an LLP be formed with all limited liability for all partners?

Answer 7

No. you need at least one general partner who has unlimited personal liability

Question 8

Do limited partners owe a fiduciary duty to pship?

Answer 8

No

Question 9

How can a limited partnership be dissolved?

Answer 9

• occurence as stated in agreement
• written consent of all partners
• withdrawal or death of general partner
• judical decree

Question 10

How can an LLC be terminated (dissolved)

Answer 10

• expiration of period stated in articles
• consent of all members
• death, retirement, resignation, bankruptsy, incompetence of a member (unless the remaining members vote otherwise)

Question 11

Unless there is an agreement to the contrary, the voting power of members in a limited liability compayn is determined by..

Answer 11

each member’s capital contribution

Question 12

Restrictions for S-Corps

Answer 12

• stock can be held by no more than 100 people
• SHs must be individuals, estates, or certain trusts
• corp must generally be a domestic corp
• only one class of stock
• foreign SHs are prohibited

Question 13

Items included in Articles of Incorporation

Answer 13

1) name of corp
2) names n address of the corps registered agent
3) names and adresses of each of the incorporators
4) the number of shares authorized to be issued

Question 14

Courts gnerally will pierce the vail for any of the three reasons:

Answer 14

1) SHs commingle personal funds with corporate funds or use corporate assets for personal use
2) corp was inadequately capitalized (must start with sufficient capital)
3) formed to commit fraud on existing creditors

Question 15

Fundemental changes that require SH approval include:

Answer 15

DAMS

1) Dissolution
2) Amendments to the articles of incorporation that materially and adversely affect the SH rights (not bylaws)
3) mergers, consolidations and compulsory share exchanges
4) sale of substantially all the corps assets outside the regular course of business