Podcast
Questions and Answers
What is one way a monopoly can be established?
What is one way a monopoly can be established?
Which of the following is exempt from Antitrust law?
Which of the following is exempt from Antitrust law?
Under the 1933 Securities Act, what is required for securities before they are publicly offered?
Under the 1933 Securities Act, what is required for securities before they are publicly offered?
What is one of the primary reasons corporate structures are important in society?
What is one of the primary reasons corporate structures are important in society?
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Which offering is exempt from registration and limited to $1 million under the regulations?
Which offering is exempt from registration and limited to $1 million under the regulations?
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Which statement accurately describes sole proprietorships?
Which statement accurately describes sole proprietorships?
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What is involved in the formation of a sole proprietorship?
What is involved in the formation of a sole proprietorship?
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What does Section 10(b)(5) of the Securities Act prohibit?
What does Section 10(b)(5) of the Securities Act prohibit?
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What document is necessary for forming entities like corporations or LLCs?
What document is necessary for forming entities like corporations or LLCs?
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Which element is NOT required to prove a violation of securities fraud under Section 10(b)(5)?
Which element is NOT required to prove a violation of securities fraud under Section 10(b)(5)?
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Why do sole proprietors pay taxes at two different rates?
Why do sole proprietors pay taxes at two different rates?
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What is NOT a characteristic of a secured transaction?
What is NOT a characteristic of a secured transaction?
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What is the implication of the 'flow-through' taxation method for sole proprietors?
What is the implication of the 'flow-through' taxation method for sole proprietors?
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Which of the following is a goal related to the prevention of insider trading?
Which of the following is a goal related to the prevention of insider trading?
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What is a major advantage of operating as a sole proprietor?
What is a major advantage of operating as a sole proprietor?
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What steps must be taken first when forming any corporate entity?
What steps must be taken first when forming any corporate entity?
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What is one significant disadvantage of a sole proprietorship (SP)?
What is one significant disadvantage of a sole proprietorship (SP)?
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In a general partnership (GP), how are profits typically shared by default?
In a general partnership (GP), how are profits typically shared by default?
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What is a necessary step in forming a partnership?
What is a necessary step in forming a partnership?
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Which type of partner in a limited partnership (LP) has unlimited personal liability?
Which type of partner in a limited partnership (LP) has unlimited personal liability?
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Which of the following is an inaccurate statement about the taxation of partnerships?
Which of the following is an inaccurate statement about the taxation of partnerships?
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What can lead to the dissolution of a partnership?
What can lead to the dissolution of a partnership?
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What is a significant advantage of a limited liability company (LLC) over a sole proprietorship?
What is a significant advantage of a limited liability company (LLC) over a sole proprietorship?
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Which requirement is NOT necessary for forming a limited liability company (LLC) in California?
Which requirement is NOT necessary for forming a limited liability company (LLC) in California?
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What type of partnership limits a partner's liability to the amount they invested?
What type of partnership limits a partner's liability to the amount they invested?
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What is a primary characteristic of franchises?
What is a primary characteristic of franchises?
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In what scenario would a partner in a GP NOT be liable for another partner's actions?
In what scenario would a partner in a GP NOT be liable for another partner's actions?
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What is one of the duties partners owe to each other in a partnership?
What is one of the duties partners owe to each other in a partnership?
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What is the primary purpose of the Operating Agreement in an LLC?
What is the primary purpose of the Operating Agreement in an LLC?
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Which of the following is a characteristic that distinguishes Limited Liability Limited Partnerships (LLLPs) from regular limited partnerships?
Which of the following is a characteristic that distinguishes Limited Liability Limited Partnerships (LLLPs) from regular limited partnerships?
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Why might certain professionals, like bankers and lawyers, not form LLCs?
Why might certain professionals, like bankers and lawyers, not form LLCs?
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What is required to resolve a dispute regarding the valuation of a partnership during separation?
What is required to resolve a dispute regarding the valuation of a partnership during separation?
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What must be filed to form a corporation in California?
What must be filed to form a corporation in California?
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What is a consequence of corporations being double-taxed?
What is a consequence of corporations being double-taxed?
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What is NOT an advantage of forming a corporation?
What is NOT an advantage of forming a corporation?
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Which document governs the internal rules and operations of a corporation once formed?
Which document governs the internal rules and operations of a corporation once formed?
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What limitation does a subchapter-S corporation face?
What limitation does a subchapter-S corporation face?
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What occurs if a partner wants to force the sale of a partnership they own a majority interest in?
What occurs if a partner wants to force the sale of a partnership they own a majority interest in?
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What must members of an LLC file to provide information about all members?
What must members of an LLC file to provide information about all members?
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What is one disadvantage of forming an LLC compared to a corporation?
What is one disadvantage of forming an LLC compared to a corporation?
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Why do many corporations choose not to elect S-corporation status?
Why do many corporations choose not to elect S-corporation status?
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What is a primary responsibility of agents towards their principals?
What is a primary responsibility of agents towards their principals?
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Under what condition is an agency relationship NOT created?
Under what condition is an agency relationship NOT created?
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Which of the following is considered a violation of an agent's duty of loyalty?
Which of the following is considered a violation of an agent's duty of loyalty?
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Which factor is NOT considered when determining if a worker is classified as an employee or an independent contractor?
Which factor is NOT considered when determining if a worker is classified as an employee or an independent contractor?
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What is one exception to a principal indemnifying an agent for wrongful acts?
What is one exception to a principal indemnifying an agent for wrongful acts?
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What does Section 1 of the Sherman Act primarily address?
What does Section 1 of the Sherman Act primarily address?
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Which of the following is an example of horizontal restraint of trade?
Which of the following is an example of horizontal restraint of trade?
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In the gig economy, what benefits do drivers classified as independent contractors typically lack?
In the gig economy, what benefits do drivers classified as independent contractors typically lack?
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What is a 'work for hire' scenario?
What is a 'work for hire' scenario?
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When can a principal still be held liable for an agent's actions?
When can a principal still be held liable for an agent's actions?
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What is one factor that could indicate a worker is an independent contractor?
What is one factor that could indicate a worker is an independent contractor?
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What is a potential result of a company improperly classifying its workers as independent contractors?
What is a potential result of a company improperly classifying its workers as independent contractors?
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What is usually required for an agency relationship to end?
What is usually required for an agency relationship to end?
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What role do directors primarily serve within a corporation?
What role do directors primarily serve within a corporation?
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Which of the following accurately describes the duty of care owed by officers to a corporation?
Which of the following accurately describes the duty of care owed by officers to a corporation?
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What does the doctrine of respondeat superior imply for a corporation?
What does the doctrine of respondeat superior imply for a corporation?
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When are shareholders typically not liable for the debts of a corporation?
When are shareholders typically not liable for the debts of a corporation?
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Which financing method allows a company to raise funds without giving up control?
Which financing method allows a company to raise funds without giving up control?
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Which right does a director have regarding the corporation’s records?
Which right does a director have regarding the corporation’s records?
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In what scenario might a corporation not be liable for an employee's actions?
In what scenario might a corporation not be liable for an employee's actions?
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What must be present for an initial public offering (IPO) to take place?
What must be present for an initial public offering (IPO) to take place?
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What action should Stephanie take if her company considers moving into a building she owns?
What action should Stephanie take if her company considers moving into a building she owns?
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Which of the following is a requirement for a valid corporate meeting?
Which of the following is a requirement for a valid corporate meeting?
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What best describes the duty of loyalty that officers and directors owe to a corporation?
What best describes the duty of loyalty that officers and directors owe to a corporation?
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What is typically included in common stock ownership?
What is typically included in common stock ownership?
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Which of the following is true about the par value of shares?
Which of the following is true about the par value of shares?
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What must Stephanie do before any vote regarding a conflict of interest?
What must Stephanie do before any vote regarding a conflict of interest?
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What is one primary reason a company might issue multiple classes of shares?
What is one primary reason a company might issue multiple classes of shares?
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Which right allows shareholders to receive distributions of profit?
Which right allows shareholders to receive distributions of profit?
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What is a necessary condition for shareholders to bring a derivative action lawsuit?
What is a necessary condition for shareholders to bring a derivative action lawsuit?
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What argument might Nicole use to sue the directors for mismanagement?
What argument might Nicole use to sue the directors for mismanagement?
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What fiduciary duty do majority shareholders owe to minority shareholders in close corporations?
What fiduciary duty do majority shareholders owe to minority shareholders in close corporations?
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In agency law, who is responsible for contracts entered into by its employees?
In agency law, who is responsible for contracts entered into by its employees?
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How can an agency relationship be established without a formal contract?
How can an agency relationship be established without a formal contract?
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What is one disadvantage of close corporations compared to publicly traded companies?
What is one disadvantage of close corporations compared to publicly traded companies?
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What could the company argue in defense of its spending practices?
What could the company argue in defense of its spending practices?
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What type of action allows shareholders to appoint a representative to sue for mismanagement?
What type of action allows shareholders to appoint a representative to sue for mismanagement?
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What is one way a corporation can be compelled to issue dividends?
What is one way a corporation can be compelled to issue dividends?
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Which of the following accurately describes a fiduciary relationship?
Which of the following accurately describes a fiduciary relationship?
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What legislative body might control a majority shareholder's duty to minority shareholders?
What legislative body might control a majority shareholder's duty to minority shareholders?
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What is a key feature of voting power for shareholders?
What is a key feature of voting power for shareholders?
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What action should Stephanie take if the board of directors decides to move into a building she owns, leading to her personal profit?
What action should Stephanie take if the board of directors decides to move into a building she owns, leading to her personal profit?
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Which power allows shareholders to approve amendments to bylaws or the election of directors?
Which power allows shareholders to approve amendments to bylaws or the election of directors?
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In a close corporation, what obligation do directors and officers have towards minority shareholders?
In a close corporation, what obligation do directors and officers have towards minority shareholders?
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What is required for shareholders to initiate a derivative action against a corporation or its directors?
What is required for shareholders to initiate a derivative action against a corporation or its directors?
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What is an example of a reason a minority shareholder in a close corporation might take legal action?
What is an example of a reason a minority shareholder in a close corporation might take legal action?
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Which power gives shareholders the right to inspect corporate documents?
Which power gives shareholders the right to inspect corporate documents?
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What does a direct action lawsuit involve for shareholders?
What does a direct action lawsuit involve for shareholders?
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What is a significant characteristic of close corporations?
What is a significant characteristic of close corporations?
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What is the first step in the formation process of a corporation?
What is the first step in the formation process of a corporation?
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Which of the following rights are included in shareholder agreements?
Which of the following rights are included in shareholder agreements?
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What is a characteristic of a C corporation?
What is a characteristic of a C corporation?
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What is one of the fiduciary duties of directors and officers?
What is one of the fiduciary duties of directors and officers?
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Which type of financing keeps the ownership structure unchanged?
Which type of financing keeps the ownership structure unchanged?
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What is a major feature of S corporations?
What is a major feature of S corporations?
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Which statement regarding corporate liability is accurate?
Which statement regarding corporate liability is accurate?
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What action can shareholders take in relation to the corporation?
What action can shareholders take in relation to the corporation?
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Under which condition can directors and officers be held liable for corporate actions?
Under which condition can directors and officers be held liable for corporate actions?
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Which of the following describes a vesting schedule for shareholders?
Which of the following describes a vesting schedule for shareholders?
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What is one of the primary responsibilities of the board of directors?
What is one of the primary responsibilities of the board of directors?
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What characterizes private equity financing?
What characterizes private equity financing?
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Which factor is NOT necessary for forming an S corporation?
Which factor is NOT necessary for forming an S corporation?
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Directors who cannot attend meetings may utilize which option?
Directors who cannot attend meetings may utilize which option?
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What is a defining characteristic of sole proprietorships?
What is a defining characteristic of sole proprietorships?
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Which step is essential in forming any type of business entity?
Which step is essential in forming any type of business entity?
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What does 'flow-through' taxation mean for sole proprietors?
What does 'flow-through' taxation mean for sole proprietors?
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Which of the following statements is true regarding the taxation of sole proprietorships?
Which of the following statements is true regarding the taxation of sole proprietorships?
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Which of the following is NOT a necessary step in the formation of a limited liability company (LLC)?
Which of the following is NOT a necessary step in the formation of a limited liability company (LLC)?
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What is a primary benefit of a partnership in terms of taxation?
What is a primary benefit of a partnership in terms of taxation?
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In a general partnership, what is the default rule for profit sharing if no agreement is made?
In a general partnership, what is the default rule for profit sharing if no agreement is made?
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What distinguishes a general partner from a limited partner in a limited partnership?
What distinguishes a general partner from a limited partner in a limited partnership?
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Which provision might be included in a partnership agreement to address potential misconduct?
Which provision might be included in a partnership agreement to address potential misconduct?
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If Adam contributes $60,000 and Bryan contributes $40,000 to a partnership with no specific agreement, how would profits be distributed under default rules?
If Adam contributes $60,000 and Bryan contributes $40,000 to a partnership with no specific agreement, how would profits be distributed under default rules?
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What is a requirement for a franchisee when entering a franchising agreement?
What is a requirement for a franchisee when entering a franchising agreement?
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What element is NOT included in the governance of an LLC's Operating Agreement?
What element is NOT included in the governance of an LLC's Operating Agreement?
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What happens to the rights and obligations of a business once it transitions from a sole proprietorship to an LLC?
What happens to the rights and obligations of a business once it transitions from a sole proprietorship to an LLC?
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Which statement accurately reflects the income and taxation structure of an LLC?
Which statement accurately reflects the income and taxation structure of an LLC?
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What is one of the primary cons of an LLC pertaining to membership interests?
What is one of the primary cons of an LLC pertaining to membership interests?
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Which of the following best describes the ownership of real property in a partnership?
Which of the following best describes the ownership of real property in a partnership?
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Why might certain professionals be ineligible to form LLCs?
Why might certain professionals be ineligible to form LLCs?
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What must happen for limited partners wishing to dissolve their partnership with a majority interest partner?
What must happen for limited partners wishing to dissolve their partnership with a majority interest partner?
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What is a potential tax liability for a C corporation?
What is a potential tax liability for a C corporation?
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What is one characteristic that distinguishes S corporations from partnerships?
What is one characteristic that distinguishes S corporations from partnerships?
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What limitation exists for income derived from personal investments in C corporations?
What limitation exists for income derived from personal investments in C corporations?
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Which statement correctly describes estimated tax payment requirements for partnerships?
Which statement correctly describes estimated tax payment requirements for partnerships?
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What is a key aspect of the accumulation of earnings for C corporations?
What is a key aspect of the accumulation of earnings for C corporations?
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What distinguishes S corporations in terms of personal holding company income taxation?
What distinguishes S corporations in terms of personal holding company income taxation?
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What occurs when a shareholder provides excessive loans to an S corporation?
What occurs when a shareholder provides excessive loans to an S corporation?
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What is the consequence of a C corporation failing to make estimated tax payments on certain taxes?
What is the consequence of a C corporation failing to make estimated tax payments on certain taxes?
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How is passive investment income treated in partnerships compared to C corporations?
How is passive investment income treated in partnerships compared to C corporations?
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Which tax preference only applies at the corporate level?
Which tax preference only applies at the corporate level?
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How are capital gains taxed for a C corporation?
How are capital gains taxed for a C corporation?
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What limitation exists for charitable contributions made by a C corporation?
What limitation exists for charitable contributions made by a C corporation?
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What characterizes the treatment of dividend income in a C corporation?
What characterizes the treatment of dividend income in a C corporation?
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Which of the following statements about tax-exempt income is incorrect?
Which of the following statements about tax-exempt income is incorrect?
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Which statement correctly describes the treatment of net capital losses in a C corporation?
Which statement correctly describes the treatment of net capital losses in a C corporation?
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How do tax preferences function within a partnership compared to a C corporation?
How do tax preferences function within a partnership compared to a C corporation?
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What is the deadline for filing Form 1120S after the end of the taxable year?
What is the deadline for filing Form 1120S after the end of the taxable year?
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What is necessary to obtain an automatic six-month extension for filing corporate tax returns?
What is necessary to obtain an automatic six-month extension for filing corporate tax returns?
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What happens to the S corporation election if passive income exceeds 25% of gross receipts for three consecutive years?
What happens to the S corporation election if passive income exceeds 25% of gross receipts for three consecutive years?
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Which statement is correct regarding the examination of tax returns for an LLC?
Which statement is correct regarding the examination of tax returns for an LLC?
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What restriction applies to accounting methods used by partnerships with a C corporation as a partner?
What restriction applies to accounting methods used by partnerships with a C corporation as a partner?
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Under what condition can a partnership's terminative event occur without problem?
Under what condition can a partnership's terminative event occur without problem?
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What is a primary requirement for forming an LLC?
What is a primary requirement for forming an LLC?
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How does the liability of owners in a limited partnership compare to that in a general partnership?
How does the liability of owners in a limited partnership compare to that in a general partnership?
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What must be filed to adopt a taxable year end that provides a deferral of income for a partnership?
What must be filed to adopt a taxable year end that provides a deferral of income for a partnership?
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What could cause an inadvertent termination of an S corporation election?
What could cause an inadvertent termination of an S corporation election?
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What is a key difference in management between an LLC and a general partnership?
What is a key difference in management between an LLC and a general partnership?
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What happens if a partner receives an interest in capital for performing services?
What happens if a partner receives an interest in capital for performing services?
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How does a partner’s share of liabilities affect their basis in the partnership?
How does a partner’s share of liabilities affect their basis in the partnership?
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What occurs to the continuity of an LLC in cases of member withdrawal?
What occurs to the continuity of an LLC in cases of member withdrawal?
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Under what circumstance is gain recognized when transferring mortgaged property to an equity?
Under what circumstance is gain recognized when transferring mortgaged property to an equity?
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Which statement accurately describes the tax implications for an LLC?
Which statement accurately describes the tax implications for an LLC?
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What is a common misconception regarding the expenses involved in forming an LLC compared to a general partnership?
What is a common misconception regarding the expenses involved in forming an LLC compared to a general partnership?
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What must be filed by a partnership following the close of its taxable year?
What must be filed by a partnership following the close of its taxable year?
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What is the effect of transferring stock in exchange for services upon incorporation?
What is the effect of transferring stock in exchange for services upon incorporation?
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What limitation does a general partnership face that is different from a corporation regarding continuity?
What limitation does a general partnership face that is different from a corporation regarding continuity?
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Which statement accurately reflects the role of managers in an LLC?
Which statement accurately reflects the role of managers in an LLC?
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How is liability treated when transferring property in a partnership under § 357?
How is liability treated when transferring property in a partnership under § 357?
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What determines the basis of interest in a partnership upon formation?
What determines the basis of interest in a partnership upon formation?
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When transferring property to an S corporation, what is the impact of liabilities under § 357?
When transferring property to an S corporation, what is the impact of liabilities under § 357?
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What is the treatment of net operating losses for C corporations?
What is the treatment of net operating losses for C corporations?
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How does § 179 Additional Depreciation apply to S corporations?
How does § 179 Additional Depreciation apply to S corporations?
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What must occur for gains on transactions between an entity and an owner to qualify for capital gain treatment?
What must occur for gains on transactions between an entity and an owner to qualify for capital gain treatment?
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What is the impact of owning more than a 50% interest for losses on transactions between an entity and its owner?
What is the impact of owning more than a 50% interest for losses on transactions between an entity and its owner?
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How does the calculation of investment interest differ between partnerships and S corporations?
How does the calculation of investment interest differ between partnerships and S corporations?
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Which statement is true regarding expenses owed by an entity to its owner?
Which statement is true regarding expenses owed by an entity to its owner?
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For subsequent basis adjustments under § 705, what happens to basis when cash or property is distributed?
For subsequent basis adjustments under § 705, what happens to basis when cash or property is distributed?
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Which condition affects the passive loss rules for S corporations?
Which condition affects the passive loss rules for S corporations?
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What significant outcome occurred as a result of Curt Flood's refusal to be traded?
What significant outcome occurred as a result of Curt Flood's refusal to be traded?
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What does Rule 506 of Regulation D primarily pertain to?
What does Rule 506 of Regulation D primarily pertain to?
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Which of the following is NOT a requirement for proving a violation under Section 10(b)(5) of the Securities Act?
Which of the following is NOT a requirement for proving a violation under Section 10(b)(5) of the Securities Act?
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What is the maximum amount a company can offer under Regulation A within a 12-month period?
What is the maximum amount a company can offer under Regulation A within a 12-month period?
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What is the primary focus of the 1933 Securities Act regarding financial instruments?
What is the primary focus of the 1933 Securities Act regarding financial instruments?
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What is a principal's duty to an agent?
What is a principal's duty to an agent?
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Under the gig economy, which of the following is a characteristic of independent contractors?
Under the gig economy, which of the following is a characteristic of independent contractors?
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Which factor is primarily considered to classify a worker as an independent contractor or employee?
Which factor is primarily considered to classify a worker as an independent contractor or employee?
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Which is NOT a method for creating an agency relationship?
Which is NOT a method for creating an agency relationship?
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What does Section 2 of the Sherman Act address?
What does Section 2 of the Sherman Act address?
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Which of the following actions could potentially place an agent in violation of their duty of loyalty?
Which of the following actions could potentially place an agent in violation of their duty of loyalty?
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What is a common characteristic of vertical restraints of trade?
What is a common characteristic of vertical restraints of trade?
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Which illustration best describes a 'work for hire' situation?
Which illustration best describes a 'work for hire' situation?
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What does the term 'indemnity' in an agency relationship refer to?
What does the term 'indemnity' in an agency relationship refer to?
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Study Notes
Legal Environment of Business - BLAW110, Business Organizations II
- Corporations are separate legal entities from their owners.
- Corporations are formed by adopting bylaws, not partnership agreements.
- Formation process includes: filing articles with the Secretary of State, obtaining an EIN from the IRS, filing a statement of information with the SOS, optionally filing an S-Corporation election with the IRS, and entering into contracts to start operating.
- Corporations enjoy the same legal rights and responsibilities as individuals.
- Corporate owners and employees are not personally liable for corporate debts, except in cases of fraud.
- Corporations are subject to double taxation: first on corporate profits and again on employee salaries.
- An alternative to C-Corp taxation is S-Corp, which is taxed like partnerships (pass-through tax) with limitations regarding shareholders.
- Directors represent the board and establish the corporation's strategy; elected by shareholders.
- Officers (President, VP, CFO) are the daily employees of the corporation.
- Directors and officers are not liable for actions taken within the scope of their employment unless there's a breach of fiduciary duty.
- Corporations raise capital through debt and/or equity financing.
- Debt financing allows the corporation to retain ownership but obligates the repayment of principal and interest.
- Equity financing involves shareholders owning a portion of the company via purchasing stock.
- Shares of stock have voting rights and dividend eligibility, both of which are discretionary and outlined in the articles of incorporation.
- Shareholders are not personally liable for the corporation's debts.
- They can enter into shareholder agreements, sue the corporation, and be sued.
- Drag-along and tag-along rights provide options for shareholders if a majority stake in the corporation is sold.
- Vesting schedules determine how shareholder participation grows over a period.
- Financing methods include external ventures (Venture Capital, Private Equity), and private funding (Crowdfunding).
- Crowdfunding platforms (Kickstarter, IndieGoGo, GoFundMe) utilize donation and equity-based models.
- Directors have annual meeting obligations where each director has one vote on decisions.
- Absentees can authorize proxies to represent them.
- Directors have the right to review company books and records.
- Indemnification protects directors and officers from legal costs and judgments related to their corporate activities.
- Officers and directors have fiduciary duties, care, and loyalty to the corporation.
- Duty of care means acting in good faith and in the best interest of the corporation.
- Duty of loyalty implies prioritizing the corporation's interests above personal interests.
- Directors and officers are protected from liability under the business judgment rule if they took reasonable steps to be informed about the issue, had a rational basis for decisions, and did not have any conflicts of interest.
- Shareholders have the power to vote on amendments and the election of directors.
- They can buy and sell stock without external approval, they receive dividends, and can review corporate documents, and have the right to sue if the corporation/directors/officers act wrongfully.
- Shareholders can initiate lawsuits directly against the corporation or derivatively on behalf of the corporation against a third party.
- Lawsuits need to be preceded by written demand to the corporation before bringing a suit.
- Close corporations have fewer than 35 shareholders and are not publicly traded.
- Directors and officers in close corporations have a fiduciary duty not to act oppressively towards minority shareholders.
- In-class exercise involves searching for California corporations through a provided online resource and collecting specified data.
Hypothetical Scenarios
- Duty of Loyalty Hypothetical: Stephanie, a director, owns a building the corporation wants to purchase.
- Direct and Derivative Action Hypothetical: Nicole, a shareholder, questions the company's expenses concerning corporate assets.
Shareholder Powers and Rights
- Voting Power, Ownership/Transfer, Dividends, Inspecting Corporate Documents, Right to Sue.
Close Corporations
- Applies to corporations with fewer than 35 shareholders.
- Directors and officers have a fiduciary duty not to act oppressively towards minority shareholders.
In-Class Exercise
- Students need to research California corporations via the provided website and retrieve specific information.
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Description
Test your knowledge on key concepts in business law and corporate structures. This quiz covers topics such as monopolies, antitrust laws, securities regulations, and sole proprietorships. Perfect for students studying business or law at any level.