MIE 305 Final exam with complete verified solutions 2024

When choosing an organizational form, entrepreneurs should consider: Ease of creation Owners' liability--maximize gain, limit risk of loss Tax considerations--pass through or entity tax? Ability to raise capital--Private funding or shares? Basic forms of Business Organization Sole proprietorships-- one person owns it Partnerships-- Multiple people own it Corporations-- Ownership to shareholders Franchises-- operated by any of the above Brainpower Read More Previous Play Next Rewind 10 seconds Move forward 10 seconds Unmute 0:00 / 0:00 Full screen Corporate companies can create IPOs and can issue shares and generate lots of capital quickly Sole Proprietorships The owner IS the business Taxation: business profits immediately become personal income; reportable on personal returns Advantages to Sole Proprietorships Proprietor owns the entire business and has a right to receive all profits-- Easier and less costly to start; allows flexibility Disadvantages to Sole Proprietorships The owner is personally liable for all losses or liabilities incurred by the business enterprise Lacks continuity on the death of the proprietor General Partnerships Arises from partnership agreement between two or more persons to carry on a business together for profit. Note that writing is not required; partnerships may be express or implied. Essential elements: Sharing of profits and losses (must share both!) Joint ownership Equal right in management General Partnerships cont: Disputes? A majority of the partners wins. What if only 2? General partnership assumes equal shares, so some form of pre-agreed dispute resolution is usefule. NEW PARTNERS added only by approval of all existing partners (Shared dilution) General Partnerships Advantages Advantages: Firm does not pay federal taxes: profits are "passed through" to partners General Partnerships Disadvantages Disadvantages: partners are subject to personal liability for partnership obligations Partners share is considered personal property, and may be attached by civil case not related to the partnership joint and several liability a doctrine under which a plaintiff can sue & collect a judgement from, all of the partners together or one of more partners separately -if you sue one partner and win, you can only collect from them unless they dont have enough & then you can sue other partner for difference -partner who commits torts may be required to reimburse firm Fiduciary Duties Partnership is a separate entity from personal interested. Duties of loyalty and care: disclosure of conflicts Dissociation Occurs when partners ceases to be associated with partnership: normally entities partner to be bought out (or business operated w/o them). Limited Partnership (L.P.) Agreement of two or more persons to carry on a business for profit w/at least ONE GENERAL PARTNER AND ONE LIMITED PARTNER -must file certificate with state office general partner partner who assumes responsibility for the management of the partnership & liability for its debts limited partner a partner who contributes capital but has no right to participate in management or operation of the partnership & is not personally liable for partnership debts beyond the capital contributed L.P. Facts Limits the liability of the limited partners to their investment. General partner always on the hook for all damages. Profits distributed as per agreement. An L.P. is a creation of state statute so filing a certificate w/the secretary of state is required. Limited partners CANNOT participate in management. Limited Liability Partnership (L.L.P.) Hybrid form of business that allows for "pass through" taxation, but limits personal liability from malpractice of other partners, no general partner required; all partners can participate in management of organization. Popular in learned professionals. L.L.P. Formation Formed under state law (Uniform Partnership Act/RUPA of 1997) Easy to convert general or limited partnerships. Reporting requirement to maintain status L.L.P. Liability allows professionals to avoid personal liability for malpractice of partners as in an L.P. May be a more cumbersome registration process; some states (CA- accountancy, law, architecture) limit them. Limited Liability Companies (L.L.C.) hybrid form of business that offers limited liability of corporation and tax advantages of partnerships "members" operating agreement L.L.C. Formation Must be formed and operated in compliance with state law by members (may be single-member though) L.L.C. Facts Profits pass through and taxes are paid individually; may choose to reinvest and be taxed as a corporation. Operating agreement (articles of organization - required in some states, NC is minimalist but also requires): Managament (member or manager-managed) How profits will be divided (unequal is ok) Transfer of membership interests Whether LLC will be dissolved on death or departure of member; rules on dissolution/dissociation Registered Agent Corporations A legal entity formed in compliance with statutory that is distinct from its shareholder-owners formed in compliance w/statutory requirements (articles of incorporations) Model Business corporations Act (MBCA) Reused model business corp. Act (RMBCA) Corporation Advantages and Disadvantages Adv: Limited liability for losses ("Corporate