USF BUL3320 Professor Katz Exam 3 Questions And Answers

General Partnership - ANS General Partners Unlimited Personal Liability Limited Partnerships - ANS Limited Partners No Personal Liability - General Partners Unlimited Personal Liability Limited Liability Partnerships - ANS Partners Have No Personal For Negligence of Other Partners Corporations - ANS Shareholders No Personal Liability Sole Proprietor - ANS Unlimited Personal Liability LLC - ANS Members Have No Personal Liability C Corporation - ANS 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 - ANS 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 - ANS 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 - ANS Just One Person - Taxed Directly On Income On Individual Income Tax Return - No Entity Involved LLC Taxation - ANS 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 - ANS LLC Not Taxed - Members Taxed On LLC Income Like Partners LLC Treated as C Corporation - ANS LLC Taxed - Members Taxed - Compensation or Dividend LLC Treated as S Corporation - ANS LLC Not Taxed - Members Taxed On LLC Income LLC Treated as Sole Proprietor - Referred to As Single Member LLC - ANS 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 - ANS File Form 8832 - Referred to as the "Check the Box" Form Delaware A Haven For Corporations - ANS 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 - ANS 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 - ANS Shareholders Not Corporation Pay Tax On Entity Level Income • S Corporation - Shareholders Pay Tax On Earnings - Entity Pays No Tax On Earnings Respondeat Superior - ANS 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 - ANS 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 - ANS 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