MGMT 271 WWU Final Exam Questions and
Answers
Business Organizations - -the legally recognized business form under which a business
operates
-Main factors for choosing business organizations - -1. legal status of the business with
respect to ownership
2. creation
3. control & compensation
4. liability
5. taxation
6. duration
-Sole Proprietorship - -1. NO LEGAL DISTINCTION BETWEEN BUSINESS AND OWNER (ON
FINAL)
2. easy to create with few formalities. can be formed by an individual or married couple.
can own a name or trade name.
3. owner has complete control of business. compensation comes from profits.
4. liability is directly with the owner & is unlimited
5. owner is taxed on income generated
6. duration is until owner dies, retires or transfers ownership. debt remains with owner,
unless creditors agree to a release from liability
-Partnership - -1. composed of 2 or more persons who contribute money, labor & skill to a
business. partners share profits, losses & management of business. each partner is
personally & equally liable for debts of the partnership. (revised Uniform Partnership Act
applies in WA)
2. Partnership is a contractual relationship (3 methods of creating contracts apply)
3. control is mutual & equal, absent an agreement of the contrary; compensation is from
profits, equally shared, absent an agreement of the contrary
4. liability is joint & several for tort liabilities incurred in the scope of business. contracts on
behalf of the partnership bind the partners.
5. partners pay tax on income. the partnership entity is not taxed
6. duration may be fixed term or indefinite
-Partnership contracts - -- Express. Partners expressly agree to form a partnership.
Partnership agreement should be in writing, but not required
- Impliedly. Two or more persons conduct business to meet definition of partnership.
Sharing profits is evidence of partnership
- Estoppel / apparent. When it appears that a person is a partner, whoever created the
apparent partner may be prevented from denying the partnership relationship, if a third
party reasonably and detrimentally relied on the representation (you never dien a
partnership was agreed upon)
, -Limited Partnership - -1. limited partnership is composed of one or more general or
limited partners. general partners manage business & share profits & losses. limited
partners share profits of business but their losses are limited to the extent of their
investment. limited partners aren't involved in day-to-day operations of business.
2. must file a certificate of limited partnership with the state
3. must contain words "limited partnership" in business name
4. no liability for limited partners, if they aren't actively involved in running the business.
general partners are personally liable.
5. taxation is like partnership, partners are taxed on income from the partnership.
6. limited partners are passive investors & may sell their interests. general partners can
withdraw like a partnership.
-LLCs - -- authorized in WA
- advantages of insulation from liability like a corporation & the tax treatment of a
partnership
- formed by one or more individuals or entities through a written agreement
- provides for organization, management, assigns interests, and distribution of
profits/losses
- title must include "LLC"
- can be used for any lawful for-profit business except insurance & banking
- WA STATE LAW: AN INDIVIDUAL CAN'T REPRESENT HIMSELF IN COURT, LLC MUST
HIRE LAWYERS
-Corporations - -1. has certain rights, privileges & liabilities beyond those of an individual.
it's a separate legal entity from the owners. doing business as a corporation may yield tax
or financial benefits, but these can be offset by other considerations, such as decreased
personal control corporations may be for profit or nonprofit
2. created through articles of incorportation
3. equity & debt financing
4. three groups involved in control (shareholders, directors & officers)
5. owners are insulted from liability. contract & tort liability can occur on the part of
shareholder-employee, director or officer may be personally liable for torts committed
within the scope of corporate business or unauthorized contracts.
6. a corporation is taxed on its own profits, follows from recognition of the corporation as a
separate legal entity.
7. duration - perpetual
-Corporate veil - -the legal entity between the shareholders & corporate creditors
-Defective incorporation - -if defense incorporation, then owner may be liable as partners
-Shareholder rights - -1. vote for directors
2. vote on extraordinary corporate transactions
3. inspect corporate records (with "proper purpose" - only for personal economic reasons)
Answers
Business Organizations - -the legally recognized business form under which a business
operates
-Main factors for choosing business organizations - -1. legal status of the business with
respect to ownership
2. creation
3. control & compensation
4. liability
5. taxation
6. duration
-Sole Proprietorship - -1. NO LEGAL DISTINCTION BETWEEN BUSINESS AND OWNER (ON
FINAL)
2. easy to create with few formalities. can be formed by an individual or married couple.
can own a name or trade name.
3. owner has complete control of business. compensation comes from profits.
4. liability is directly with the owner & is unlimited
5. owner is taxed on income generated
6. duration is until owner dies, retires or transfers ownership. debt remains with owner,
unless creditors agree to a release from liability
-Partnership - -1. composed of 2 or more persons who contribute money, labor & skill to a
business. partners share profits, losses & management of business. each partner is
personally & equally liable for debts of the partnership. (revised Uniform Partnership Act
applies in WA)
2. Partnership is a contractual relationship (3 methods of creating contracts apply)
3. control is mutual & equal, absent an agreement of the contrary; compensation is from
profits, equally shared, absent an agreement of the contrary
4. liability is joint & several for tort liabilities incurred in the scope of business. contracts on
behalf of the partnership bind the partners.
5. partners pay tax on income. the partnership entity is not taxed
6. duration may be fixed term or indefinite
-Partnership contracts - -- Express. Partners expressly agree to form a partnership.
Partnership agreement should be in writing, but not required
- Impliedly. Two or more persons conduct business to meet definition of partnership.
Sharing profits is evidence of partnership
- Estoppel / apparent. When it appears that a person is a partner, whoever created the
apparent partner may be prevented from denying the partnership relationship, if a third
party reasonably and detrimentally relied on the representation (you never dien a
partnership was agreed upon)
, -Limited Partnership - -1. limited partnership is composed of one or more general or
limited partners. general partners manage business & share profits & losses. limited
partners share profits of business but their losses are limited to the extent of their
investment. limited partners aren't involved in day-to-day operations of business.
2. must file a certificate of limited partnership with the state
3. must contain words "limited partnership" in business name
4. no liability for limited partners, if they aren't actively involved in running the business.
general partners are personally liable.
5. taxation is like partnership, partners are taxed on income from the partnership.
6. limited partners are passive investors & may sell their interests. general partners can
withdraw like a partnership.
-LLCs - -- authorized in WA
- advantages of insulation from liability like a corporation & the tax treatment of a
partnership
- formed by one or more individuals or entities through a written agreement
- provides for organization, management, assigns interests, and distribution of
profits/losses
- title must include "LLC"
- can be used for any lawful for-profit business except insurance & banking
- WA STATE LAW: AN INDIVIDUAL CAN'T REPRESENT HIMSELF IN COURT, LLC MUST
HIRE LAWYERS
-Corporations - -1. has certain rights, privileges & liabilities beyond those of an individual.
it's a separate legal entity from the owners. doing business as a corporation may yield tax
or financial benefits, but these can be offset by other considerations, such as decreased
personal control corporations may be for profit or nonprofit
2. created through articles of incorportation
3. equity & debt financing
4. three groups involved in control (shareholders, directors & officers)
5. owners are insulted from liability. contract & tort liability can occur on the part of
shareholder-employee, director or officer may be personally liable for torts committed
within the scope of corporate business or unauthorized contracts.
6. a corporation is taxed on its own profits, follows from recognition of the corporation as a
separate legal entity.
7. duration - perpetual
-Corporate veil - -the legal entity between the shareholders & corporate creditors
-Defective incorporation - -if defense incorporation, then owner may be liable as partners
-Shareholder rights - -1. vote for directors
2. vote on extraordinary corporate transactions
3. inspect corporate records (with "proper purpose" - only for personal economic reasons)
