Business Law and Corporate Structures Quiz

Legislation regulating commercial organizations with limited liability and investments represented by shares.

A business with no separate legal existence from its owner; owner has full control and risk.

Protects owners from being personally responsible for business debts.

Steps involved in creating a business, including choosing a name, location, type of entity, and registration with the Secretary of State.

Business profits/losses are passed directly to the owners' individual income tax returns, rather than being paid as corporate taxes.

Various legal structures for businesses, including sole proprietorships, partnerships, LLCs, and corporations.

The documents filed with the Secretary of State to establish a business entity.

The state in which a business is legally registered and where its principal place of business is located.

Simple structure, fewer formalities, owner controls decision-making, easy to sell the business.

Owner is personally liable for business debts (unlimited liability). Limited access to capital; relying on personal funds and loans.

Two or more parties operating a business and sharing profits.

Choosing a name, EIN, fictitious name permit, partnership agreement are needed.

Profits are split equally by default unless agreed otherwise.

Pass-through entity; profits are taxed on partners' individual returns (Form K-1).

All partners have full management and unlimited liability.

At least one general partner with full liability; limited partners' liability is limited to their investment.

Two entities working together on a project.

Each partner is personally liable for the debts of the partnership.

Partners owe each other a duty of care and loyalty.

Profits can be split proportionally to capital contributions, or equally if not agreed otherwise..

Filing Articles of Organization with the state's Secretary of State.

Default tax treatment is as a partnership, but members can elect corporate taxation (S-Corp, C-Corp).

Combines liability protection with flexibility of management. Less complicated than a corporation.

A contract outlining the rights, duties, and profit/voting interests of LLC members, including rules for adding/removing members and dissolving the LLC.

LLCs offer better tax treatment and limited liability compared to other business structures like sole proprietorships.

Members and managers in LLCs have a responsibility to act in the best interests of the LLC.

Not all people can form or be members of an LLC; professional groups like lawyers may need an LLP.

A limited liability limited partnership where general partners are also limited in liability to their investment.

Determining the value of a partnership or business in the event of a member's departure or dissolution.

One partner cannot force the sale of the partnership if the other partners decide to continue operating.

Contracts entered into before a business entity is formed can be transferred to the newly formed entity.

A distinct legal entity separate from its owners.

Steps to create a corporation, including filing articles, obtaining an EIN, and establishing bylaws.

Individuals in a corporation are not generally liable for corporate debts; fraud is an exception.

Corporations are taxed on profits at the business level and again on distributed profits received by shareholders.

An option for a corporation to be taxed as an S-Corp, reducing taxes to a single level.

S-Corps have limitations, including restrictions on shareholders, stock classes, or ownership by other companies

Individuals responsible for overseeing a corporation's operations and making key decisions.

The two main groups that oversee a corporation's activities.

Group elected or appointed by shareholders to represent them.

Employees that handle a corporation's day-to-day operations.

Doctrine making the company liable for employee actions within job scope.

Raising funds through loans or bonds; doesn't give up company control.

Raising funds by selling ownership shares (stock).

Individuals who buy shares in a company and become owners.

Distribution of company profits to shareholders; not mandatory.

Shareholders are generally not liable for company debts.

When a company sells shares publicly for the first time.

Officers must act with reasonable care and in good faith.

Prioritizing the company's interests over personal gain.

Protects officers from liability if decisions are reasonable.

Situations where personal interests clash with company's interests.

Minimum number of directors needed for a meeting to be valid.

Person authorized to vote on behalf of another in director meeting.

Stephanie must disclose any personal interest that could influence her vote before the vote takes place and abstain from voting on any transactions affecting her personally.

Shareholders have the right to approve amendments to bylaws and articles, and changes to authorized shares.

Companies can issue different types of shares (e.g., common, preferred) to attract diverse investors with varying rights and privileges.

Shareholders have the right to transfer their shares without needing approval from other shareholders or the board.

Companies have discretion to issue profits as dividends to shareholders, or reinvest them.

Shareholders can access corporate documents (e.g. financial statements)

Shareholders can sue the corporation or directors for mismanagement.

Shareholders can sue on behalf of the corporation against a third party that harmed it, often with a prior written demand.

Close corporations are privately held with fewer shareholders, who often have more control but are bound by fiduciary duties to minority shareholders.

Duty to act with reasonable care and diligence in managing the corporation.

Duty to act in the best interests of the corporation, not for personal gain.

A relationship where one party (agent) acts on behalf of another (principal).

Agency created by the conduct of the parties rather than a formal agreement.

Shareholders have the right to inspect corporate documents, including financial statements.

Corporate directors are protected from liability if they made a reasonable decision in good faith.

A situation where a principal is prevented from denying an agency relationship due to their actions that led a third party to reasonably believe the relationship existed.

A third party's belief in an agency relationship must be justified and reasonable for estoppel to apply.

An agency relationship is not formed when the purpose or subject matter of the agreement is illegal.

An agent must act with care and skill that a reasonable person would use in similar circumstances.

Agents must inform their principal of all relevant business matters that affect the principal.

Agents must act in the best interest of the principal, not their own self-interest.

Agents must follow lawful instructions from their principal.

Agents must appropriately record and account for all funds and property related to the agency.

A worker not subject to the direct control or supervision of the hiring party, in contrast to an employee.

Determining whether a worker is an employee or independent contractor involves examining the level of control the employer has over the worker.

Obligation of the principal to pay the agent for services rendered.

A principal's obligation to protect an agent from liability resulting from authorized acts within the scope of employment.

Legislation aimed at preventing unfair competition and monopolies.

Agreements among competitors that restrain competition between them and can hurt consumers by raising prices.

Agreements involving companies at different levels of the supply chain.

Demonstrating a company's dominant market share and intent to monopolize.

Selling the same good or service to different buyers at differing prices.

Specific groups (labor unions, music industry, etc.) are not subject to antitrust regulations.

A financial instrument that holds monetary value (stocks, bonds, options etc).

Required process of registering securities before public offering. Detailed information is presented in a prospectus.

Certain securities and transactions don't need registration or prospectus.

Misleading investors, especially with material misrepresentation, about a security in a buy/sell situation (10b5) is illegal.

Aim of laws to stop the unethical use of non-public information for personal gain in security transactions.

Stephanie must disclose any personal interest in a transaction and abstain from voting on it.

Shareholders have rights to vote, own/transfer stock, receive dividends, inspect documents, and sue.

Shareholders sue the corporation or its managers directly (as representatives) for wrongful acts.

Shareholders sue on the corporation's behalf against a 3rd party for harm.

Private corporation with fewer than 35 shareholders, where directors have fiduciary duty towards minority shareholders.

Directors/officers in close corporations must act in the best interest of all shareholders, including minorities.

Minority shareholders in close corporations can take action if unfairly treated by majority shareholders (e.g., refusal to let them sell).

Shareholders have the right to inspect corporate documents, including financial records.

A corporation is a separate legal entity distinct from its owners.

Filing articles with SOS, obtaining EIN from IRS, filing SOI with SOS, and optionally filing S-corp election are steps in creating a corporation.

Owners and employees are typically not personally liable for corporate debts, except in fraud cases.

Corporations are double taxed: once on profits and again on distributed profits to shareholders.

S-corporations are taxed like partnerships; profits pass through to shareholders' personal returns.

Directors represent the board and set the company's strategy.

Officers are employees who manage daily company operations.

Directors and officers have limited liability, unless they breach fiduciary duties (care/loyalty) or act outside their scope.

Raising capital through borrowing, where the company retains ownership but is responsible for loan repayment.

Raising capital by selling ownership shares (stock).

Shareholders have rights related to the corporation, including voting, dividends, and suing.

Generally, shareholders are not personally liable for corporate debts.

A legal duty of care, putting the corporation's interests before personal gain.

A business with no separate legal existence from its owner; the owner is fully responsible for the business's debts.

All business income is taxed at the owner's personal income rate. It's a 'pass-through' taxation system.

Choosing a name, state of operations, entity type, filing the required documents with the Secretary of State.

Business profits and losses are reported on the owner's individual tax return, instead of being taxed at the business level.

Different legal structures for businesses, like sole proprietorships, partnerships, LLCs, and corporations.

An arrangement where two or more parties run a business and share profits.

Profits are divided equally unless a partnership agreement specifies otherwise.

A partnership where all partners are actively involved and have unlimited liability.

Partnership with at least one general partner and one or more limited partners, whose liability is restricted.

A contract outlining rules for profit sharing, decision-making, and changes to membership within a partnership.

Shared profits/losses, shared ownership/liability define a partnership's core structure.

Franchisee uses franchisor's intellectual property (brand) and conforms to its requirements, paying a royalty.

LLCs combine features of sole proprietorships, partnerships, and corporations for easier management and limited liability.

LLCs file articles of incorporation with the Secretary of State.

LLCs do not have their own tax structure and are taxed as sole proprietorships, partnerships, or corporations, per member choice..

An operating agreement governs LLC's internal affairs, detailing member rights and responsibilities, management, and dissolution procedures.

Pre-incorporation contracts can be transferred to a newly established LLC.

A partnership, not individual partners, owns property acquired by the partnership.

Setting up a limited partnership can be expensive due to legal requirements and potentially large syndication fees.

Establishing an LLC involves meeting state requirements, and costs can be high depending on the operating agreement.

Incorporating a company requires satisfying state rules. Form 8832 allows for corporate tax treatment.

General partners are fully liable for all business debts, unlike others.

Limited liability for LLC members, except if they personally guarantee debts.

Shareholders are typically not liable, unless personal guarantees exist.

General partners control management according to partnership agreements.

Management roles depend on LLC laws, and members typically have an active role.

Partnership profits and losses are passed directly to the partners' individual returns.

C corporations are subject to regular income tax, plus potential AMT, personal holding company, accumulated earnings, and underpayment penalties.

S corporations are generally not directly taxed at the corporate level.

There are no limitations on income accumulation since it's taxed to the partners.

Section 531 may impose a penalty tax if a C corporation unreasonably accumulates earnings.

There are no limitations on passive investment income in a partnership.

Personal holding company rules apply to certain C corporations if they have significant passive investments in certain types of income. The PHC Tax is a 39.6% tax on undistributed personal holding company income.

A partnership is not subject to the alternative minimum tax.

Property exchanged for partnership interest isn't taxed immediately, unless rules like excess debt or disguised sales apply.

Amount of cash and adjusted basis of contributed property, plus partner's share of partnership liabilities.

Partner's share of partnership liabilities increase the basis of their interest.

If the mortgage amount exceeds the property's adjusted basis, gain is recognized.

Non-income if received in profits interest only; § 83 applies if interest is for capital work.

Form 1065 filed by the 15th day of the 4th month following a year's end, for partnerships (unless single member LLC).

Equal to the cash and adjusted basis of property contributed; corporation liability doesn't increase basis.

Debt doesn't increase basis; § 385 might recharacterize debt to equity, affecting interest deductions.

Tax preferences are passed through to shareholders and included in AMTI computations.

Tax exempt income in a C Corp maintains its status and isn't taxed, but can sometimes be taxed under the AMT.

C Corps receive a dividends-received deduction (70%, 80%, or 100% depending on ownership).

Deductible up to 10% of taxable income; excess can be carried forward.

Capital gains are taxed to the corporation itself, not passed through.

No flow-through of net capital losses; losses can be carried back/forward.

C Corporations can avoid underpayment penalties by meeting estimated tax payment requirements.

C Corporations are required to pay estimated taxes on this income

The 15th day of the third month following the close of the taxable year.

A three-month automatic extension is given by filing Form 8736. An additional three months can be requested with Form 8800 and reason.

Examined at the partnership level, and partners have a duty for consistency.

Examined at the LLC level, members are accountable for consistency.

Can be changed only by incorporating from S-corp.

Transfer of more than 50% interest in capital and profits in a partnership within a year may lead to a termination but a new partnership is formed instead.

Generally no restrictions unless there's a C-corp partner, in which case § 448 applies.

Must use a Fiscal or Calendar year, No deferral of income available unless partnership has C-Corp as a partner.

A loss in a business's net operating income. It can be carried back fifteen years and carried forward twenty years to offset future profits.

A tax deduction for certain capital expenses that can be subtracted from income. It has limits based on the business type.

Interest expense from investments, has rules that impact partnerships vs. corporations.

Rules that govern the treatment of losses from passive activities (investments, real estate) as they relate to the individual partner versus the overall business entity.

Deductibility of amounts owed by an entity to its owners, differentiated by the type of payment and its classification as guaranteed payment or section 707 payment.

Capital gains treatment on property sales between an entity and its owner is often disallowed or modified as ordinary income, particularly in certain situations.

Losses between a business entity and its owner are frequently limited or disallowed when the owner holds a significant stake in the entity

Gains or losses affect the initial investment value of an entity under specific accounting rules. Usually for the partners or shareholders.

Curt Flood, a baseball player, refused a trade, challenging the reserve clause and leading to the eventual development of free agency in professional baseball.

A clause in sports contracts that legally bound players to their teams even after contract expiration.

Federal law requiring registration of securities before sale to the public, ensuring investors have essential information.

Securities offerings exempt from full registration for amounts up to $50M in 12 months.

Misrepresenting information to defraud investors in a security transaction is illegal under this section of federal law.

A relationship where one party (agent) acts on behalf of another (principal).

Worker not under direct control of the hiring party.