USF BUL3320 Professor Katz Exam 3
Questions and Answers
General Partnership - answer- General Partners Unlimited
Personal Liability
Limited Partnerships - answer- Limited Partners No
Personal Liability - General
Partners Unlimited
Personal Liability
Limited Liability
Partnerships - answer- Partners
Have No Personal For
Negligence of Other
Partners
Corporations - answer- Shareholders No Personal
Liability
Sole Proprietor - answer- Unlimited
Personal Liability
LLC - answer- Members Have No
Personal Liability
C Corporation - answer- Individual or Individuals Create a Corporation Under State
Law - Shareholders
Entity Taxed On Entity Income By the IRS as a "C" Corporation Because Rules for
Taxation In
Subchapter C of the Internal Revenue Code
Shareholders Not Taxed On Corporate Income - Taxed by Receiving Compensation
-
Shareholder/Employee Or If Receive Dividend
S Corporation - answer- Individual or Individuals Create a Corporation Under State
Law - Shareholders
Make IRS "Election" To Be Treated By the IRS as an "S" Corporation Because Rules
for
Taxation In Subchapter S of the Internal Revenue Code - Entity Does Not Pay Tax
Shareholders Taxed On Corporate Income - Income "Flows Through" To
Shareholders Taxed
on Their Individual Income Tax Returns
Partnership - answer- Individuals (Must Have At Least 2) Create a Partnership (Any
Type) State Law Registration
May Be Required
,Partnership Not Taxed on Income - Income Flows Through to Partners Taxed on
Their
Individual Income Tax Returns
Sole Proprietor - answer- Just One Person - Taxed Directly On Income On Individual
Income Tax Return - No Entity
Involved
LLC Taxation - answer- An LLC Can Be Taxed As Any of the Entities
Described in the Previous Slides!!!! It is the Swiss
Army Knife of Entities!!!
Create An LLC Under State Law
Members Can Decide How the Entity and the Members Will Be Taxed
Members Enjoy Limited Liability
Taxation Determined By Completing IRS Form 8832
LLC Treated as Partnership - answer- LLC Not Taxed - Members
Taxed On LLC Income Like
Partners
LLC Treated as C Corporation - answer- LLC Taxed - Members Taxed -
Compensation or Dividend
LLC Treated as S Corporation - answer- LLC Not Taxed - Members
Taxed On LLC Income
LLC Treated as Sole Proprietor -
Referred to As Single Member LLC - answer- Single Member Taxed As
Sole Proprietor - Income
Taxed Directly and
Reported On Individual
Income Tax Return
How to Elect How the Entity and Members of an LLC Will
Be Taxed - answer- File Form 8832 - Referred to as the "Check the Box" Form
Delaware
A Haven For
Corporations - answer- Nearly 70% of All Fortune 500 Companies Are Incorporated
in Delaware
• Corporate Related Litigation - Shareholder Disputes Against
Corporate Directors/Officers Expeditiously Resolved by Delaware
Chancery Court - No Jury Heard by Judges Who Specialize in
Corporate Law
• No Residency Requirement For Directors, Officers or Shareholders
• No Corporate State Income Tax If Corporation Does Not Do
Business In Delaware
• Privacy - Formation Documents Do Not List Names and Addresses
of Directors or Officers
,Taxation of C Corporation - answer- C Corporation - Entity Taxed On Entity Income -
Files Its Own Return
Shareholders Taxed When Receive a Dividend From the Corporation or
Compensated as an Employee
• C Corporation - Entity Pays Tax On Earnings
- Shareholders Pay Tax When Receive
Dividend or Compensation
Taxation of an S corporation - answer- Shareholders Not Corporation Pay Tax On
Entity Level Income
• S Corporation - Shareholders Pay Tax On
Earnings - Entity Pays No Tax On Earnings
Respondeat Superior - answer- Respondeat Superior Means That the Employer Is
Responsible for the Wrongful Acts of Its
Employees - This Applies to Corporations
Corporations Cannot Be Imprisoned - However, Its Officers, Directors, Employees,
Etc. Can Be
Imprisoned For Wrongdoing.
Corporations Can Be Assessed Fines and Penalties for the Wrongful Acts of
Officers, Directors
and Employees
Victims Harmed by Those Actions Can Sue the Corporation Based On Respondeat
Superior.
Public Corporations - answer- A Public Corporation
• Created by A Government Authority (e.g., Federal or State)
• Carry Out Public Mission and/or Provide Products or Services
• May Include Services Provided by Private Enterprise
Examples:
U.S. Postal Service
AMTRAK
Cities and Counties
Private corporations - close corporations or closely held corporations - answer-
Individuals Who Create a Business With Relatively Few Shareholders Are Closely
Held
Corporations
• Often the Shareholders, Directors and Officers the Same Individuals
• Often Shareholders Are Family Members
• Due to Small Number of Shareholders - Sale of Shares Governed By Buy-Sell
Agreement
Example: Father and Three Sons as Equal Shareholders Create a Nursery Business
Called Floral,
Inc. Each Shareholder is Also a Member of the Board of Directors. Father is the
President, Son
, Victor is Vice President, Son Benjamin is Treasurer and Son Thomas is Secretary.
Pursuant to the Floral Buy-Sell Agreement, If a Shareholder Wants to Sell Shares
Must Offer
Shares to Corporation First; and Then to the Other Shareholders For a Purchase
Price Set in the
Agreement. If the Corporation and Other Shareholders Decide Not to Purchase
Shares, Selling
Shareholder Can Offer Shares to Third Party.
Differences Between
Large Publicly Held
And Privately Held
Corporations - answer- Publicly Held
• Shares Traded on Stock
Exchanges - Millions of
Shareholders
• Must Adhere to Regulations and
Reporting Standards Established
by the SEC
• Source of Funds Proceeds From
the Sale of Shares and Issuing of
Bonds
—————————————————
Privately Held
• Shares Traded by Small
Number of Private Investors
• Until Reach $10 Million in
Total Assets and More Than
500 Shareholders Not Subject
to SEC Regulations
• Source of Funds Proceeds
From the Sale of Shares Or
From Venture Capitalists
Nonprofit Corporations - answer- • A Nonprofit Corporation Is An Entity In Which All
Profits Remain in
the Corporation. This Means There Are No Dividends. Only Salaries,
Wages, Fees Can Be Paid Out.
• Nonprofit Corporations Must Be Registered With the State With
That Designation.
In Florida:
• Any Lawful Purpose Not For Profit
• The Florida Statute Lists a Number of Valid Purposes Including
Charitable, Benevolent, Religious and Civic - Florida Statutes Title
XXXVI Section 617.301
• Some Not For Profits Qualify For IRS Tax-Exempt Status - Most
Common 501(c) Organizations
• Generally, the Nonprofit Corporation Must Serve a Charitable
Purpose Per IRS (Broad Definition)
Questions and Answers
General Partnership - answer- General Partners Unlimited
Personal Liability
Limited Partnerships - answer- Limited Partners No
Personal Liability - General
Partners Unlimited
Personal Liability
Limited Liability
Partnerships - answer- Partners
Have No Personal For
Negligence of Other
Partners
Corporations - answer- Shareholders No Personal
Liability
Sole Proprietor - answer- Unlimited
Personal Liability
LLC - answer- Members Have No
Personal Liability
C Corporation - answer- Individual or Individuals Create a Corporation Under State
Law - Shareholders
Entity Taxed On Entity Income By the IRS as a "C" Corporation Because Rules for
Taxation In
Subchapter C of the Internal Revenue Code
Shareholders Not Taxed On Corporate Income - Taxed by Receiving Compensation
-
Shareholder/Employee Or If Receive Dividend
S Corporation - answer- Individual or Individuals Create a Corporation Under State
Law - Shareholders
Make IRS "Election" To Be Treated By the IRS as an "S" Corporation Because Rules
for
Taxation In Subchapter S of the Internal Revenue Code - Entity Does Not Pay Tax
Shareholders Taxed On Corporate Income - Income "Flows Through" To
Shareholders Taxed
on Their Individual Income Tax Returns
Partnership - answer- Individuals (Must Have At Least 2) Create a Partnership (Any
Type) State Law Registration
May Be Required
,Partnership Not Taxed on Income - Income Flows Through to Partners Taxed on
Their
Individual Income Tax Returns
Sole Proprietor - answer- Just One Person - Taxed Directly On Income On Individual
Income Tax Return - No Entity
Involved
LLC Taxation - answer- An LLC Can Be Taxed As Any of the Entities
Described in the Previous Slides!!!! It is the Swiss
Army Knife of Entities!!!
Create An LLC Under State Law
Members Can Decide How the Entity and the Members Will Be Taxed
Members Enjoy Limited Liability
Taxation Determined By Completing IRS Form 8832
LLC Treated as Partnership - answer- LLC Not Taxed - Members
Taxed On LLC Income Like
Partners
LLC Treated as C Corporation - answer- LLC Taxed - Members Taxed -
Compensation or Dividend
LLC Treated as S Corporation - answer- LLC Not Taxed - Members
Taxed On LLC Income
LLC Treated as Sole Proprietor -
Referred to As Single Member LLC - answer- Single Member Taxed As
Sole Proprietor - Income
Taxed Directly and
Reported On Individual
Income Tax Return
How to Elect How the Entity and Members of an LLC Will
Be Taxed - answer- File Form 8832 - Referred to as the "Check the Box" Form
Delaware
A Haven For
Corporations - answer- Nearly 70% of All Fortune 500 Companies Are Incorporated
in Delaware
• Corporate Related Litigation - Shareholder Disputes Against
Corporate Directors/Officers Expeditiously Resolved by Delaware
Chancery Court - No Jury Heard by Judges Who Specialize in
Corporate Law
• No Residency Requirement For Directors, Officers or Shareholders
• No Corporate State Income Tax If Corporation Does Not Do
Business In Delaware
• Privacy - Formation Documents Do Not List Names and Addresses
of Directors or Officers
,Taxation of C Corporation - answer- C Corporation - Entity Taxed On Entity Income -
Files Its Own Return
Shareholders Taxed When Receive a Dividend From the Corporation or
Compensated as an Employee
• C Corporation - Entity Pays Tax On Earnings
- Shareholders Pay Tax When Receive
Dividend or Compensation
Taxation of an S corporation - answer- Shareholders Not Corporation Pay Tax On
Entity Level Income
• S Corporation - Shareholders Pay Tax On
Earnings - Entity Pays No Tax On Earnings
Respondeat Superior - answer- Respondeat Superior Means That the Employer Is
Responsible for the Wrongful Acts of Its
Employees - This Applies to Corporations
Corporations Cannot Be Imprisoned - However, Its Officers, Directors, Employees,
Etc. Can Be
Imprisoned For Wrongdoing.
Corporations Can Be Assessed Fines and Penalties for the Wrongful Acts of
Officers, Directors
and Employees
Victims Harmed by Those Actions Can Sue the Corporation Based On Respondeat
Superior.
Public Corporations - answer- A Public Corporation
• Created by A Government Authority (e.g., Federal or State)
• Carry Out Public Mission and/or Provide Products or Services
• May Include Services Provided by Private Enterprise
Examples:
U.S. Postal Service
AMTRAK
Cities and Counties
Private corporations - close corporations or closely held corporations - answer-
Individuals Who Create a Business With Relatively Few Shareholders Are Closely
Held
Corporations
• Often the Shareholders, Directors and Officers the Same Individuals
• Often Shareholders Are Family Members
• Due to Small Number of Shareholders - Sale of Shares Governed By Buy-Sell
Agreement
Example: Father and Three Sons as Equal Shareholders Create a Nursery Business
Called Floral,
Inc. Each Shareholder is Also a Member of the Board of Directors. Father is the
President, Son
, Victor is Vice President, Son Benjamin is Treasurer and Son Thomas is Secretary.
Pursuant to the Floral Buy-Sell Agreement, If a Shareholder Wants to Sell Shares
Must Offer
Shares to Corporation First; and Then to the Other Shareholders For a Purchase
Price Set in the
Agreement. If the Corporation and Other Shareholders Decide Not to Purchase
Shares, Selling
Shareholder Can Offer Shares to Third Party.
Differences Between
Large Publicly Held
And Privately Held
Corporations - answer- Publicly Held
• Shares Traded on Stock
Exchanges - Millions of
Shareholders
• Must Adhere to Regulations and
Reporting Standards Established
by the SEC
• Source of Funds Proceeds From
the Sale of Shares and Issuing of
Bonds
—————————————————
Privately Held
• Shares Traded by Small
Number of Private Investors
• Until Reach $10 Million in
Total Assets and More Than
500 Shareholders Not Subject
to SEC Regulations
• Source of Funds Proceeds
From the Sale of Shares Or
From Venture Capitalists
Nonprofit Corporations - answer- • A Nonprofit Corporation Is An Entity In Which All
Profits Remain in
the Corporation. This Means There Are No Dividends. Only Salaries,
Wages, Fees Can Be Paid Out.
• Nonprofit Corporations Must Be Registered With the State With
That Designation.
In Florida:
• Any Lawful Purpose Not For Profit
• The Florida Statute Lists a Number of Valid Purposes Including
Charitable, Benevolent, Religious and Civic - Florida Statutes Title
XXXVI Section 617.301
• Some Not For Profits Qualify For IRS Tax-Exempt Status - Most
Common 501(c) Organizations
• Generally, the Nonprofit Corporation Must Serve a Charitable
Purpose Per IRS (Broad Definition)
