| | | A corporation cannot avoid double taxation. 4) QUESTION 26 Which of the following examples of sharing of profits could constitute evidence of the existence of a partnership? | | | Pablo, a photographer, gives his friend Olita, who owns a building, $500 for letting him use an apartment for his photoshoots. | | | | After Pablo's photography partner dies, Pablo gives Olita, the partner's widow, $100 a month out of respect for Sander. | | | | Pablo, a photographer who sets up photoshoots, gives his friend Olita, who is learning the business, $100 for "helping him out" on the photoshoots. | | | | Pablo and Olita, two photographers, split the fees obtained at their photoshoots. | | | | Pablo, a photographer, gives Olita $500 from the fees of a photoshoot, to repay a loan. 5) Which of the following is a voluntary association between two or more persons who co-own a business for a profit? | | | Joint entity | | | | Co-owned business | | | | Partnership | | | | Joint proprietorship | | | | Joint corporation 6) Which of the following is another name for debt securities? | | | Preferred debt | | | | Certificates of deposit | | | | Equity securities | | | | Stocks | | | | Bonds 7) Which of the following is true under the Uniform Partnership Act regarding personal liability of partners for obligations of the partnership when the partnership itself is liable? | | | If a partnership is liable, each partner only has personal liability in proportion to the way in which losses are allocated. | | | | If a partnership is liable, each partner has unlimited personal liability. | | | | If a partnership is liable, each partner only has personal liability in proportion to the way in which profits are allocated. | | | | Partners do not have personal liability for obligations of a partnership when the partnership itself is liable. | | | | If a partnership is liable, each partner only has personal liability in proportion to the number of partnership members. 8) Which of the following is false regarding the rights and obligations of partners? | | | As long as the partner has authority to act, each partner's act in performing business duties is binding on the partnership. | | | | A partner cannot serve as an agent for other partners. | | | | As long as one partner has authority to act and the partnership is bound by the act, each partner has unlimited personal liability for the obligation. | | | | As long as the partner has authority to act, each partner's act in making agreements with third parties is binding on the partnership. | | | | Each partner can serve as an agent for the partnership. 9) Which of the following partnerships is distinguishable from other forms of partnership because the partners' liability for professional malpractice is limited to the partnership? | | | Limited liability partnership | | | | Limited partnership | | | | Loss limiting partnership | | | | Professional partnership | | | | General partnership 10) Which of the following statements is false regarding a general partnership? | | | Income of the business is personal income. | | | | It is easy to create. | | | | The partners are considered agents of the partnership. | | | | In most cases partners do not have personal liability for losses. | | | | Business losses can be deducted from taxes. 11) Yolanda is a shareholder in a corporation which is sued. Which of the following is true of Yolanda's potential liability? | | | Yolanda is fully liable for the corporation's actions | | | | Yolanda may be liable for the corporations' actions if the corporation is a C-corp but not an S-corp | | | | Yolanda may be liable for the corporation's actions if she was on the corporate board. | | | | Yolanda may be liable for the corporation's actions if the corporation is an S-corp but not a C-corp | | | | Yolanda's liability is limited to her investment in the corporation 12) [Drone Debacle] Bruno and Martin run Skyview, LLC, a drone company that takes aerial photographs. After an accident with the drone, Bruno tells Martin that he does not want to be involved in management any longer. Martin tells Bruno that if he stops participating in management, they will no longer be protected by the limited liability of an LLC. Bruno says that if there is a lawsuit, they are both equally liable. Martin replies that if Bruno wants, he could be a limited LLC member and then he won't have a say in the company. Is Bruno correct that they would both be equally liable? | | | Bruno is incorrect, they are liable to the extent of their investment. | | | | Bruno is correct. | | | | Bruno is incorrect, they are liable to the extent of the loans, if any, that they executed on behalf of the LLC. | | | | Bruno is incorrect, they are liable to the extent of the percentage based on a calculation of risk. | | | | Bruno is incorrect, they are liable to the extent of their participation in management. 13) [Drone Debacle] Bruno and Martin run Skyview, LLC, a drone company that takes aerial photographs. After an accident with the drone, Bruno tells Martin that he does not want to be involved in management any longer. Martin tells Bruno that if he stops participating in management, they will no longer be protected by the limited liability of an LLC. Bruno says that if there is a lawsuit, they are both equally liable. Martin replies that if Bruno wants, he could be a limited LLC member and then he won't have a say in the company. Is Martin correct that Bruno can be a limited LLC member but would not have any say in the company? | | | Although an LLC does not have limited partners and general partners, one can be a limited member without any say in the company. | | | | No, in general, each member of an LLC may have a say in the management of the company. | | | | Yes, like a limited partnership, only the general members of an LLC make management decisions. | | | | Martin is correct. | | | | Yes, like a limited partnership, an LLC can have limited partners and general partners. 14 ) [Drone Debacle] Bruno and Martin run Skyview, LLC, a drone company that takes aerial photographs. After an accident with the drone, Bruno tells Martin that he does not want to be involved in management any longer. Martin tells Bruno that if he stops participating in management, they will no longer be protected by the limited liability of an LLC. Bruno says that if there is a lawsuit, they are both equally liable. Martin replies that if Bruno wants, he could be a limited LLC member and then he won't have a say in the company. Is Martin correct that they will lost the protection of limited liability if Bruno ceases participating in management decisions? | | | Martin would be correct if Bruno seeks dissolution. | | | | Yes, like a limited partnership, there is no limited liability unless Bruno is a limited member. | | | | No, an owner does not have to give up his right to participate in management in order for an LLC to obtain limited liability. | | | | Yes, if an LLC member who participated in management chooses to give up this right, the LLC could lose protection. | | | | Yes, an owner must give up his right to participate in management in order for an LLC to obtain limited liability. 15 ) [Drone Debacle] Bruno and Martin run Skyview, LLC, a drone company that takes aerial photographs. After an accident with the drone, Bruno tells Martin that he does not want to be involved in management any longer. Martin tells Bruno that if he stops participating in management, they will no longer be protected by the limited liability of an LLC. Bruno says that if there is a lawsuit, they are both equally liable. Martin replies that if Bruno wants, he could be a limited LLC member and then he won't have a say in the company. Is Martin correct that Bruno can be a limited LLC member but would not have any say in the company? | | | Yes, like a limited partnership, an LLC can have limited partners and general partners. | | | | Martin is correct. | | | | Although an LLC does not have limited partners and general partners, one can be a limited member without any say in the company. | | | | No, each member of an LLC has a say in the management of the company. | | | | Yes, like a limited partnership, only the general members of an LLC make management decisions. 17) [Heart surgery invention] Winston and Noe patented a mechanism that will change open heart surgery forever. They are setting up a business to produce and sell their invention to hospitals and will take advantage of Noe's non-U.S. citizenship to help with sales in international markets. They hire Lenita, a corporate lawyer, to assist in setting up their business. Winston's largest concern is taxes. Noe, on the other hand, doesn't want to bother keeping corporate minutes and having board meetings as he is too busy. Both are concerned about being sued personally for products liability. Which of the following business organizations would best address Winston and Noe's concerns? | | | Corporation, because shareholders are not double taxed, are not required to follow corporate formalities, and are generally shielded from liability. | | | | S Corporation, because shareholders are not double taxed, are not required to follow corporate formalities, and are generally shielded from liability. | | | | S Corporation or Corporation | | | | LLC, because it is not double taxed, members are not required to follow corporate formalities or hold annual meetings, and members have only limited liability. | | | | General Partnership, as it is only taxed once, and has no requirement to hold meetings or follow corporate formalities. 18 ) [Heart surgery invention] Winston and Noe patented a mechanism that will change open heart surgery forever. They are setting up a business to produce and sell their invention to hospitals and will take advantage of Noe's non-U.S. citizenship to help with sales in international markets. They hire Lenita, a corporate lawyer, to assist in setting up their business. Winston's largest concern is taxes. Noe, on the other hand, doesn't want to bother keeping corporate minutes and having board meetings as he is too busy. Both are concerned about being sued personally for products liability. Winston tells Lenita that he prefers to form an S corporation because he does not want to attach "LLC" to the name of the company. Lenita responds that the option of an S corporation is not available for their situation. Is she correct? | | | Yes, because all the owners are not U.S. citizens. | | | | Yes, because they do not have the appropriate number of shareholders for an S corporation. | | | | No, because only one owner need be a U.S. citizenship for purposes of forming an S corporation. | | | | Yes, because all the owners are not U.S. citizens and they do not have the appropriate number of shareholders for an S corporation. | | | | No, because the owners of an S corporation are not required to be U.S. citizens. 19 ) ________ means the change in the relation of the partners caused by any partner's ceasing to be associated with the carrying on of the business. | | | Resignation | | | | Resolution | | | | Dissolution | | | | Suspension | | | | Transformation | | 20 ) (a) What is a "unicorn" ? (2 points), and (b) Give one example of a unicorn (2 points) | | | | | | | | | | | | | |
