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70 Cards in this Set

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LLC paperwork that must be filed with the state's LLC filing office (usually the secretary or department of state).
Articles of Organization
An artificial legal entity that is formed to operate a business; it is considered a separate legal entity from its shareholders and must pay taxes on income left over after business expenses.
C-Corporation
Stock associated with a corporation that has no preferential benefits other than indicating a percentage of ownership in the company. Also, non­voting stock that has restrictions on transfer and redemption.
Common Stock
An artificial legal entity, typically chartered by a state, that is usually formed to operate a business
Corporation
A form filed with the local county clerk for a sole proprietorship operating other than under the name of the owner.
Doing Business As (DBA)
The situation in which the C-corporation is taxed twice on its profits–once as a corporation and a second time when those profits are dispersed as dividends or when the company is liquidated.
Double Taxation
Methods used by entrepreneurs to obtain money for their ventures.
Fund Raising
The party in a limited partnership who assumes total liability for the venture
General Partner
A business in which all partners have unlimited liability for the debts of the business.
General Partnership
A situation in which a number of individuals and businesses join together in order to accomplish a specific purpose or objective or to complete a single transaction.
Joint Ventrue
A business legal form that provides most of the benefits of a partnership but limits the liability exposure of all investors to the amount of their investment.
Limited Liability Company
A partnership designed to suit the purposes of professional groups such as attorneys and accountants.
Limited Liability Partnership
(LLP)
Partners in a limited partnership whose liability is limited to the extent of their respective investment.
Limited Partners
A partnership that has at least one general partner and one or more limited partners.
Limited Partnership
Investors in an LLC.
Members
An enterprise that is prohibited by law from distributing earnings (paying dividends) to owners; the nonprofit sector includes universities and other schools, charities, churches, volunteer organizations, credit unions, country clubs, government organizations, and cooperatives.
Nonprofit Corporation
A written contractual arrangement between or among partners in an LLC that sets the rules for governing the company and establishes the rights and responsibilities of the members.
Operating Agreement
Defined by Section 6 of the Uniform Partnership Act as "an association of two or more persons to carry on as co-owners of a business for profit."
Partnership
A written contractual arrangement between or among partners in a new venture. The agreement is not necessary but is highly desirable, and drawing it up usually involves only a modest legal fee.
Partnership Agreement
The taxation procedure of an LLC or a partnership; the owners or partners report business income or losses on their individual tax returns
Pass-through taxation
Stock in a corporation that has benefits beyond a percentage of ownership in the company, sometimes including such benefits as preferential treatment on liquidation, antidilution privileges, and rights to buy additional stock in the future. Also, stock that usually includes voting rights and is usually treated preferentially if the company is sold or liquidated.
Preferred Stock
Revisions to the Uniform Partnership Act that were approved in 1994, which brought the law of partnerships in line with modern business practices and trends while retaining many of the valuable provisions in the original act.
Revised Uniform Partnership Act (RUPA)
An artificial legal entity that is formed to operate a business; special regulations permit the shareholders of this entity to use noncorporate tax rates and to pass through the income or loss of the corporation to the individual shareholders as if they were partners.
S-Corporation
A business owned and managed by one individual.
Sole proprietorship
Law in the United States that regulates partnerships. It was originally introduced in 1914 by the National Conference of Commissioners on Uniform State Laws and subsequently enacted in forty-nine states.
Uniform Partnership Act (UPA)
The law stipulates that a sole proprietor's total wealth may be used to satisfy claims against the business.

This unlimited liability means that almost everything the entrepreneur owns could be sold to pay any debts or legal claims against the business
Unlimited Liabiltiy (Disadvatage of Sole Proprietorship)
The most commonly used business legal forms are (5):
- Sole proprietorship
- Partnership
- Limited liability company
- Corporation
- Nonprofit corporation
Selecting the legal form that best suits the venture's needs and long-term goals requires the entrepreneur to weigh a number of factors, such as
- The source of start-up financing
- The proposed ownership and management structure
- The potential for liability
- Tax treatment
- The expense and formalities associated with setting up and maintaining the legal form itself.
Advantages of a sole proprietorship go beyond being one's own boss. They also include...
- Ease of Starting
- Control
- Sole Participation in Profits and Losses
- Use of Owner’s Abilities
- Tax Breaks
- Secrecy
- Ease of Dissolving
Because the sole proprietor has no outside investors, he or she is the only one to participate in the profits and losses of the business.
Sole Participation in Profits and Losses
A major advantage of the sole proprietorship is that the business itself pays no income tax. The company's profits and losses are reported on the owner's personal tax return, using a simple form known as Schedule C
Tax Breaks
Disadvatages of Sole proprietorships
- Unlimited Liability
- Difficulty in Raising Capital
- Limitations in Managerial Ability
- Lack of Stability
- Demands on Time
- Difficulty in Hiring and Keeping Highly Motivated Employees
-
Sole proprietors often work sixty to eighty hours a week, especially when the business is new
Demands on time
Partnerships share everything including (4)
- The risk
- Hard work
- Assets
- Profits
The four major partnership types are
- General partnerships
- Limited partnerships
- Limited liability partnerships
- Joint ventures
Advantages of a Partnership
- Greater access to capital
- Combined managerial skills
- Ease of starting
- Clear legal status
- Tax advantages
Disadvantages of a Partnership
- Unlimited Liability
- Potential disagreements
- Investment withdraw difficulty
- Limited Capital Availablity
- Lack of Stability
The partnership has some tax advantages over other forms of business. In a partnership, as in a sole proprietorship, the owners pay individual taxes on their business earnings, but the partnership as a business does not pay income tax.
Tax Advantages
Each general partner is liable for a partnership's debts. Suppose Jack and Jill's partnership fails. A bad deal that Jack had made left the partnership with outstanding bills of $25,000. This amount must be paid by the partnership or through liquidation of one or both partners' personal assets. If the partnership has no assets and if Jack lacks the personal assets to pay his share of the debt, Jill would be legally obligated to make up the difference, including through the use of personal assets. Unlimited liability is a major reason for choosing partners carefully.
Unlimited Liablity
Anyone can participate in the management of an ___ and still have limited liability protection.

- Can have unlimited number of investors who are known as members
LLC
Is that partners are personally liable for any business debts of the partnership–meaning that creditors of the partnership can go after the partners' personal assets–whereas members (owners) of an LLC are not personally liable for the company's debts and liabilities.
The differnce between a partnership and an LLC
- Limited Liablity
- Pass-through taxation
- Investors can mangage
- Unlimited Membership
- Ease of Organizing
-
Advantages of LLC
- Diffculty raising money
- No continuity of life
- Limited Transferablity
Disadvantages of LLC's
The investors in an LLC enjoy limited liability for the commitments and actions of the company. Their personal assets are not at risk as long as the company does not engage in fraudulent business practices. The members are liable up to the amount of their percentage of ownership of the company's assets.
Limited Liablity
The LLC has no restrictions regarding the number of individuals who may participate as shareholders. In most states, the S-corporation restricts the number of investors to thirty-five individuals. An LLC can have as many members as necessary.
Unlimited Membership
Organizing an LLC is usually a simple matter, requiring only the filing of the articles of organization with the appropriate state secretary. Usually, LLC owners can file this paperwork without the aid of an attorney for less than $500.
Ease of Organizing
The LLC does not allow for the issuance of shares of stock. Rather, anyone who invests in an LLC is considered a member. Many seasoned and savvy investors are less comfortable with this form of investment and prefer to have actual stock certificates on file with their attorneys.
Difficulty Raising Money
An LLC does not have a reliable continuity of existence. The articles of organization must specify the date on which the LLC's existence will terminate. Unless otherwise provided in the articles of organization or a written operating agreement, an LLC is dissolved at the death, withdrawal, resignation, expulsion, or bankruptcy of a member (unless within ninety days a majority in both the profits and capital interests vote to continue the LLC
No Continutity of Life
No one can become a member of an LLC (either by transfer of an existing membership or the issuance of a new one) without the consent of members having a majority interest (excluding the person acquiring the membership interest) unless the articles of organization provide otherwise
Limited Transferablity
The main difference between a ____________ and other business structures is that a ___________ files and pays corporate income taxes directly. C-corporations are considered a separate legal entity from their shareholders and must pay taxes on income left over after business expenses.

____________ can take advantage of corporate income tax rates, which are sometimes lower than personal tax rates. For profitable companies, the C-corporation status has the ability to provide greater flexibility in terms of planning and controlling federal income taxes. C-corporations also can deduct the cost of certain fringe benefit packages.

________ is taxed twice on its profits–once as a corporation and a second time when those profits are dispersed as dividends or when the company is liquidated.

________ also has advantages for fund-raising because it is the only business form that is allowed to sell both common and preferred stock
C-Corporation
- It must be incorporated within the United States.
- It can only sell shares of common stock.
- All shareholders must be residents of the United States.
- Shareholders must be natural persons, estates, or trusts.
- No shareholder can be a partnership or a corporation.
- Some states limit the number of shareholders.
- No more than 20 percent of its income can come from passive activities (such as owning shares of stock in another corporation).
To qualify as an S-corporation, a business must meet the following requirements
- That the shareholders' tax brackets can result in tax savings
The primary advantage of S-Corporations
That the tax law governing the S-corporation is very complex.
Disadvantage of S-Corpoations
- Limited Liablity
- Skilled Management Team
- Transfer of Ownership
- Greater Capital Base
- Stablity
- Legal Entity Status
Advantages of Regular Corporation
- Difficulty and Expense of Starting
- Lack of Control
- Multiple taxation and fess
- Lack of Secrecy
- Lack of Personal Interest
- Credit Limitations
Disadvantages of Regular Corporation
A sole proprietorship is a business owned and managed by a group (T or F)
False
The law provides that the sole proprietor's total wealth may be used to satisfy claims against the business. (T or F)
True
A situation in which a number of individuals and businesses join together in order to accomplish a specific purpose or objective or to complete a single transaction is called a joint venture. (T or F)
True
In a partnership, people with the same talents and skills should join together
(T or F)
False
The amount of financial capital that a partnership can raise does not depend on the personal wealth of the partners or on their credit ratings. (T or F)
False
If a partner dies or withdraws from the business, the partnership is dissolved
(T or F)
True
The LLC is not required to prepare an operating agreement, which is similar to a partnership agreement
(T or F)
False
An LLC does not have a reliable continuity of existence (T or F)
True
A C-corporation does not file or pay corporate income taxes. (T or F)
False
The power and presence of corporations in American business suggest that the corporate business legal form has certain advantages over other forms of business ownership. (T or F)
True
In which of the following business legal forms must the company file articles of organization?
LLC (Linited Liablity Company)
In which type of partnership is each person liable for all the debts of the business?
General
In which type of partnership do investors receive special tax advantages and protection from liability?
Limited
To qualify as an S-corporation, a business must meet the following requirements:
A)It must be incorporated within the United States.
B) It can only sell shares of common stock.
C All shareholders must be residents of the United States
D) All of the Above
Which of the following is not an advantage to creating a partnership?
Unlimited Liablity