Business Law

Business

Quiz 31 :

Starting a Business: Llcs and Other Options

Quiz 31 :

Starting a Business: Llcs and Other Options

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A limited liability partnership __________. (a) protects partners from liability for their own misdeeds (b) protects the partners from liability for the debts of the partnership (c) must pay taxes on its income (d) both (a) and (b) (e) (a), (b), and (c) are all correct
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A limited liability partnership is a form of partnership having limited liabilities. It has both the features of corporate and partnership. The liabilities of the partners are limited in the case of limited liability partnership. Limited liability partnership has the following features:
• The liabilities of partners are limited.
• Internal Revenue Service does treat LLP as separate entity for tax treatment. The partners of limited liability partnership are taxed. Hence, limited liability partnership has pass through tax treatment.
a. Protects partners from liability of their own deeds.
b. Protects the partners from the liability for the debt of the partnership.
c. Must pay tax on its income.
d. Both a and b.
e. (a), (b), and (c) are all correct.
Hence, the correct option is (b). Limited liability partnership protects the partners from the liability for debts of partnership.

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CPA QUESTION A joint venture is a(n): (a) association limited to no more than two persons in business for profit. (b) enterprise of numerous co-owners in a nonprofit undertaking. (c) corporate enterprise for a single undertaking of limited duration. (d) association of persons engaged as co-owners in a single undertaking for profit.
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A j oint venture is a partnership for a limited purpose; each organization that is part of a joint venture retains its own identity.
Therefore, the answer (d) association of persons engaged as co-owners in a single undertaking for profit is correct.

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What is the difference between close corporations and S corporations?
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Difference between S corporation and close corporation:
Close corporation stock is not traded in public and it is also named as "closely held corporation."
S corporation's shareholders have limited liability of corporation and partnership's tax status.
"S corporations" are ruled by IRS. It does not have a taxable entity. "Close corporations" are ruled by state law. C corporation may or may not act as a S corporation. But it may be subject to low regulation and rules than C corporations.

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As you will see in Chapter 20, Facebook began life as a corporation, not an LLC. Why did the founder, Mark Zuckerberg, make that decision?
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CPA Question: Assuming all other requirements are met, a corporation may elect to be treated as an S corporation under the Internal Revenue Code if it has __________. (a) both common and preferred stockholders (b) a partnership as a stockholder (c) 100 or fewer stockholders (d) the consent of a majority of the stockholders Strategy: Review the list of requirements for an S corporation. (See the "Result" at the end of this section.)
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Question: Mrs. Meadows opened a biscuit shop called The Biscuit Bakery. The business was not incorporated. Whenever she ordered supplies, she was careful to sign the contract in the name of the business, not personally: The Biscuit Bakery by Daisy Meadows. Unfortunately, she had no money to pay her flour bill. When the vendor threatened to sue her, Mrs. Meadows told him that he could only sue the business because all the contracts were in the business's name. Will Mrs. Meadows lose her dough? Strategy: The first step is to figure out what type of organization her business is. Then recall what liability protection that organization offers. (See the "Result" at the end of this section.)
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A limited liability company __________. (a) is regulated by a well-established body of law (b) pays taxes on its income (c) cannot have members that are corporations (d) must register with state authorities (e) protects the owners from all personal liability
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Corporations developed to encourage investors to contribute the capital needed to create large-scale manufacturing enterprises. But LLCs are often start-ups or other small businesses. Why do their members deserve limited liability? And is it fair that LLCs do not have to pay income taxes?
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ETHICS Frank Brown, who is African-American, tried to buy lunch at a McDonald's at the Dadeland Mall in Florida. The manager, Omar Zaveri, not only refused to serve Brown but verbally abused him, used racial slurs, and told all the other employees that he would fire them if they served Brown. This McDonald's was owned by a franchisee. Is McDonald's liable to Brown? Whether or not McDonald's is technically liable, should it pay Brown anyway?
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If you were to look online for a description of a professional corporation, you might find websites stressing that, in a PC, shareholders are still responsible for their own wrongdoing. For example: "In some states, these professionals can form a corporation, but with the distinction that each professional is still liable for his or her own wrongful professional actions." Why is this statement at best unnecessary and at worst misleading?
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Leonard, an attorney, was negligent in his representation of Anthony. In settlement of Anthony's claim against him, Leonard signed a promissory note for $10,400 on behalf of his law firm, an LLC. When the law firm did not pay, Anthony filed suit against Leonard personally for payment of the note. Is a member personally liable for the debt of an LLC that was caused by his own negligence?
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Question: Alan Dershowitz, a law professor famous for his prominent clients, joined with other lawyers to open a kosher delicatessen, Maven's Court. Dershowitz met with greater success at the bar than in the kitchen-the deli failed after barely a year in business. One supplier sued for overdue bills. What form of organization would have been the best choice for Maven's Court? Strategy: A sole proprietorship would not have worked because there was more than one owner. A partnership would have been a disaster because of unlimited liability. They could have met all the requirements of an S corporation or an LLC. (See the "Result" at the end of this section.)
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A sole proprietorship: (a) must file a tax return. (b) requires no formal steps for its creation. (c) must register with the Secretary of State. (d) may sell stock. (e) provides limited liability to the owner.
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Kristine bought a Rocky Mountain Chocolate Factory franchise. Her franchise agreement required her to purchase a cash register that cost $3,000, with an annual maintenance fee of $773. The agreement also provided that Rocky Mountain could change to a more expensive system. Within a few months after signing the agreement, Kristine learned that she would have to buy a new cash register that cost $20,000, with annual maintenance fees of $2,000. Does Kristine have to buy this new cash register? Did Rocky Mountain act in bad faith?
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Think of a business concept that would be appropriate for each of the following: a sole proprietorship, a corporation, and a limited liability company.
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