Foundations of Business Organizations
for Paralegals - Final Exam Prep
Double Taxation - correct answer Taxation of corporate income at two levels;
- The corporate level: the corporation itself pays taxes on its profits
- The shareholder level: shareholders pay personal taxes due on distributions of corporate income
[dividends]
Pass-through Taxation - correct answer Taxation of business profits and losses as the personal income of
business owners.
Corporation - correct answer A legal business entity owned by shareholders and managed by en elected
board of directors and appointed officers.
5 Corporate Characteristics - correct answer 1. Continuity of life
2. Centralization of management
3. Limited Liability
4. Free transfer-ability of interests / liquidity
5. Ability to raise capital
Liquidity - correct answer Free transferability of interest.
Piercing the corporate veil - correct answer When individual shareholders are held personally liable for
corporate debts to prevent fraud or injustice [Doctrine that sometimes but rarely permits a creditor of
the corporation to sue its shareholders for corporate obligation.
Shareholders enjoy limited liability for corporate obligations. This means that shareholders risk only their
______________ in the corporation. - correct answer Investment
, The law considers a corporation a ___________ born of statute. - correct answer person.
Corporate Forms - correct answer 1. Business corporations
2. Nonprofit corporations
3. Professional corporations
4. S corporations (IRS designation)
What must be included in a corporation's name? - correct answer Identification of status as a
corporation (Inc.)
What is the purpose of requiring a corporation to include it's status as a corporation (inc.) in its name? -
correct answer Ability to identify who may be served in a lawsuit, or to put the public on notice of type
of organization and who may be liable for injury or detriment.
2 Main disadvantages of the corporate form - correct answer 1. The requirement of "formalities" in the
organization, operation, and annual reporting requirements.
2. Double taxation
S Corporation - correct answer Not actually a separate form of corporation but an IRS designation.
Professional Limited Liability Company (PLLC) - correct answer In some states an LLC may be formed to
offer professional services. In the event that a PLLC is formed, only the licensed professionals may be
members, managers, or officers.
Ultra Vires Act - correct answer Actions by a corporation that exceed the corporate purpose and/or
powers. [To go beyond or exceed agent authority.]
Promoter - correct answer The individual who organizes and forms a corporation.
Incorporator - correct answer The individual who signs and files the corporation's articles of
incorporation.
for Paralegals - Final Exam Prep
Double Taxation - correct answer Taxation of corporate income at two levels;
- The corporate level: the corporation itself pays taxes on its profits
- The shareholder level: shareholders pay personal taxes due on distributions of corporate income
[dividends]
Pass-through Taxation - correct answer Taxation of business profits and losses as the personal income of
business owners.
Corporation - correct answer A legal business entity owned by shareholders and managed by en elected
board of directors and appointed officers.
5 Corporate Characteristics - correct answer 1. Continuity of life
2. Centralization of management
3. Limited Liability
4. Free transfer-ability of interests / liquidity
5. Ability to raise capital
Liquidity - correct answer Free transferability of interest.
Piercing the corporate veil - correct answer When individual shareholders are held personally liable for
corporate debts to prevent fraud or injustice [Doctrine that sometimes but rarely permits a creditor of
the corporation to sue its shareholders for corporate obligation.
Shareholders enjoy limited liability for corporate obligations. This means that shareholders risk only their
______________ in the corporation. - correct answer Investment
, The law considers a corporation a ___________ born of statute. - correct answer person.
Corporate Forms - correct answer 1. Business corporations
2. Nonprofit corporations
3. Professional corporations
4. S corporations (IRS designation)
What must be included in a corporation's name? - correct answer Identification of status as a
corporation (Inc.)
What is the purpose of requiring a corporation to include it's status as a corporation (inc.) in its name? -
correct answer Ability to identify who may be served in a lawsuit, or to put the public on notice of type
of organization and who may be liable for injury or detriment.
2 Main disadvantages of the corporate form - correct answer 1. The requirement of "formalities" in the
organization, operation, and annual reporting requirements.
2. Double taxation
S Corporation - correct answer Not actually a separate form of corporation but an IRS designation.
Professional Limited Liability Company (PLLC) - correct answer In some states an LLC may be formed to
offer professional services. In the event that a PLLC is formed, only the licensed professionals may be
members, managers, or officers.
Ultra Vires Act - correct answer Actions by a corporation that exceed the corporate purpose and/or
powers. [To go beyond or exceed agent authority.]
Promoter - correct answer The individual who organizes and forms a corporation.
Incorporator - correct answer The individual who signs and files the corporation's articles of
incorporation.
