MIE 305 Final Exam Questions And Answers 100% Verified

MIE 305 Final Exam Questions And Answers 100% Verified When choosing an organizational form, entrepreneurs should consider: - answerEase 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 - answerSole proprietorships--> one person owns it Partnerships--> Multiple people own it Corporations--> Ownership to shareholders Franchises--> operated by any of the above Corporate companies - answercan create IPOs and can issue shares and generate lots of capital quickly Sole Proprietorships - answerThe owner IS the business Advantages: Proprietor owns the entire business and has a right to receive all profits-- Easier and less costly to start; allows flexibility Disadvantages: The owner is personally liable for all losses or liabilities incurred by the business enterprise Lacks continuity on the death of the proprietor Taxation: business profits immediately become personal income; reportable on personal returns General Partnerships - answerArises 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: - answerDisputes? 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 & Disadvantages - answerAdvantages: Firm does not pay federal taxes: profits are "passed through" to partners Disadvantages: JOINT AND SEVERAL LIABILITY, a 3rd party has the option of suing all of the partners together, or one or more separately from liabilities of the partnership. Partners share is considered personal property, and may be attached by civil case not related to the partnership Fiduciary Duties - answerPartnership is a separate entity from personal interested. Duties of loyalty and care: disclosure of conflicts Dissociation - answerOccurs 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.) - answerAgreement of two or more persons to carry on a business for profit w/at least ONE GENERAL PARTNER AND ONE LIMITED PARTNER L.P. Facts - answerLimits 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.) - answerHybrid 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 - answerFormed 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 - answerallows 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.) - answerLimited liability of corporation and tax advantages of partnerships L.L.C. Formation - answerMust be formed and operated in compliance with state law by members (may be single-member though) L.L.C. Facts - answerProfits 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 - answerA legal entity that is distinct from its shareholder-owners formed in compliance w/statutory requirements