bec 1 - business table format
TRANSCRIPT
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BUSINESS 1
Sole Partnership
Characteristics Descriptions Number of owners One person owns the business
Participation in management No restrictions, mange's all of its affairs
Transferability of interest Free to transfer his interest
Available on all states Yes
Legal title to property Proprietor's name
Method of accounting Cash method permitted except for inventory
Limited liability of owners None, you can lose your personal assets disadvantage
Life of entity Limited
Formal acts required No
Governing documents None
Ease of formation Simple advantage
Cost of formation None
Tax year Calendar year
Applicable tax rate Individual income tax rates
Identity of the taxpayer Individual proprietor
Double taxation No, profit & loss flow through the business to the sole proprietor Timing of income recognition byowners Based on owner's tax year
Deductibility of losses Limited to amount at risk
Treatment of capital losses Net $3,000 annual loss allowed after offset of capitalgainsIRS filing requirement Proprietor files Schedule C to form 1040
Multiple classes of ownership NoType of owner permitted No restrictionIncome Accumulations within theentity No restriction
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General Partnership
Characteristics Descriptions
Number of owners Tow or more owners of a partnership
Formation of a general partnership
An agreement (intent sharing profit) between at leasttow or more to carry on as co-owners a business for
profit ( A partnership agreement that cannot becompleted within 1 year from the date on which it isentered into must be in writing)
Participation in management Absent an agreement to the contrary, all partners haveequal rights to manage the partnership business.Transferability of interest Generally required consent of all other partners
Available on all states Yes
Legal title to property Generally in the partnership name (A partner can use property she owns in the partnership without itautomatically becoming partnership property)
Rights in partnership property
1. Not assignable or mortgageable by partner individually2. Not subject to attachment by individual partner'screditors or for Alimony3. Rights vest in surviving partners upon death (Heirsget the interest)
Method of accounting Cash method permitted except for inventory
Limited liability of owners
Each partner is jointly & severally liable for partnership obligation (any partner may be held liablefor the entire amount of an obligation even if the other
partners are not named as defendants)Life of entity Limited
Formal acts required No
Existence of uniform act Yes; RUPA
Governing documents No requirement for a general partnership to file withthe stateEase of formation Simple to complex
Cost of formation Moderate to expensive
Tax year The same tax year as a majority of its partners
Applicable tax rate Individual, fiduciary, or corporate tax rate dependingon the type of the partner Identity of the taxpayer Partners
Double taxation NoTiming of income recognition byowners
In year in which partnership's year ends, whether or notdistributed
Deductibility of losses Deduction by partners limited to basis in partnershipinterestTreatment of capital losses Passed through to partners
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IRS filing requirement Files Form 1065 & distributes K-1s shareholders
Multiple classes of ownership No restrictions
Type of owner permitted NoneRetroactive modification toagreement YesIncome Accumulations within theentity No restriction
Profit allocation1. Per Agreement2. Equally between partner, unless there an a agreementfor distribution loss
Loss allocation 1. Per Agreement2. In the same manner for losses
Decision required consent of all partners
1. Admitting new partners2. Confessing a judgment
3. Making fundamental change in the partnership business (sale of partnership goodwill)4. Change partnership agreement5. Dissolution of the partnership not required approval
by all partners
partners power to bind the partnership
When the third party knows that the partner with whomhe deals lacks actual authority, there can be no apparentauthority. With such knowledge, the third party can nolonger reasonably believe that the partner has authorityto represent the partnership
purposes for treats partnerships
distinct as entities from their owners
- Property may be held in the name of the partnership- Suits can be maintained in the name of the partnership
Dissociated partner's liability toother parties
A retiring partner is liable to creditors for existing debtsof the partnership, but not for those incurred after retirement. Therefore, when partner leaves the
partnership, she is still individually liable on all pastcontracts and obligations, unless existing creditorsagree to release her and look to the new incoming
partner, (a novation). So actual authority terminated, but apparent authority continues for 2 years unlessnotice was given. A statement of dissociation must befiled with the state.
Incoming partner's liability to other parties
An incoming partner is not personally liable for debtsincurred by the partnership before he became a partner,
but he is personally liable for all debts incurred by the partnership after he becomes a partner
Implied ( actual) authority
Is authority that can be reasonably implied from actualauthority and from the conduct of the principal,example buy and sell goods, receive money, and paydebts of the partnership
Apparent authority Is authority that can be created by the title, position of
partners, not derived from the express power
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Owners are not always distinct fromentity
The law treats partnerships as entities distinct fromtheir owners for some purposes (e.g., property may beheld in the name of the partnership; suits can bemaintained in the name of the partnership), but not for others (e.g., partners are personally liable for
obligations of the partnership).
When partner is dissociated fromthe partnership
- The partner notifies the partnership that he or shewants to withdraw- The partner become a debtor in bankruptcy- The partner dies - 90 days have passed since a partner has died- The partner is expelled from the partnership
When partner is dissolution fromthe partnership
Wrongful withdrawal of a partner in conversation of the agreement between the partners
Fiduciary dutyEach partner owes a fiduciary duty to the general
partnership
Identify the joint venture?
A joint venture is an association of persons with the intent of engaging in a single business venture (special transaction) for profit Other than this it's a GP.Joint venture will be treated as a partnership in most important legal respects
What the difference between dissociation & dissolution? Dissociation: is a change in partner relationship but the business can continue Dissolution: is terminated the partnership
Unless otherwise provided for, the assignment of a partnership interest will result in the
Unless otherwise stipulated in the partnership agreement, an individual partner's interestin the partnership is freely assignable without the consent of the other partners. However,upon the assignment, the assignee merely obtains the right to receive the assigning
partner's share of the profits and return of capital contribution.
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Limited Liability Partnership
Characteristics Descriptions
Number of owners Minimum of tow; no upper limit
Participation in management No restrictions
Transferability of interest Transfer generally required consent of all other partners
Available on all states Yes
Legal title to property Partnership name
Legal entity separate from its owner Yes
Method of accounting Generally follows rules for limited partnerships
Limited liability of owners1. Partner's are still liable for their own negligence2. Negligence of subordinates under their control3. Breach of contract damages
Life of entity Limited Death, bankruptcy, incapacity, withdrawingof partner Formal acts required Yes; generally must be filed by secretary of state
Governing documents Partnership agreement
Ease of formation More complex
Cost of formation Moderate to expensive
Tax year The same tax year as a majority of its partners
Applicable tax rate Individual, fiduciary, or corporate tax rate dependingon the type of the partner Identity of the taxpayer Partners
Double taxation NoTiming of income recognition byowners
In year in which partnership's year ends, whether or notdistributed
Deductibility of losses Deduction by partners limited to basis in partnershipinterestTreatment of capital losses Passed through to partners
IRS filing requirement Files Form 1065 & distributes K-1s shareholdersMultiple classes of ownership No restrictions
Type of owner permitted No limitation, except that for professional partnershipseach partner may have to be certified or licensed in the
professionRetroactive modification toagreement Yes
Income Accumulations within theentity No restriction
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Limited Partnership
Characteristics Descriptions
Number of ownersTow or more; no upper limit
- One or more general partners- One or more limited partners
Participation in management Generally restricted to general partners only
Transferability of interest Transfer generally required consent of all other partners
Admission of a new general partner Requires approval of all of the existing general partners
Admission of a new limited partner Requires the approval of not only all the general partners, but also the majority of the limited partnersAvailable on all states Yes
Legal title to property Partnership name
Legal entity separate from its owner Yes
Method of accounting Cash method permitted except for inventory
Limited liability of owners
- General partners personal liability for all partnershipdebts- Limited partners have limited liability to his
investment unless they significantly participate in the business
A limited partner can lose hislimited liability by doing any one of
the following
1. Serving as general partner 2. Allowing name to be used in the partnership name
3. Participating in controlLife of entity Limited Death, bankruptcy, incapacity, withdrawingof partner
Formal acts required Yes; generally certificate must be filed by secretary of state
Information must include in thecertificate
- Names of all general partners- Names of limited partners not required- Must amend certificate of partnership to show anyadditions or deletions of general partners
Existence of uniform act Yes; RULPA
Governing documents Partnership agreementEase of formation Simple to complex
Cost of formation Moderate to expensive
Tax year Follows partnership or corporate rules, depending onhow it is taxed
Applicable tax rate Individual, fiduciary, or corporate tax rate dependingon the type of the partner Identity of the taxpayer Partners
Double taxation No
Timing of income recognition byowners
In year in which partnership's year ends, whether or notdistributed
Deductibility of losses Deduction by partners limited to basis in partnership
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interest
Treatment of capital losses Passed through to partners
IRS filing requirement Files Form 1065 & distributes K-1s shareholders
Multiple classes of ownership No restrictions
Type of owner permitted No limitationRetroactive modification toagreement Yes
Income Accumulations within theentity No restriction
Termination of a limited partnership
1. Written consent of all general partners2. Withdrawal or death of a general partner 3. Judicial decree4. The occurrence of the time or event stated in the
partnership agreement
Profit allocation In proportion to the value of each partner'scontributions
Loss allocation In proportion to the value of each partner'scontributions
Properties for liquidation
1. Creditors (including partners)2. Partners for unpaid distribution3. Partners for capital4. Partners for remaining assets (undistributed profit) in
proportions for sharing distributions
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Limited Liability Company
Characteristics Descriptions
Number of owners No upper limit; some state permit single-member LLC's(One or more persons )
Participation in management All members may be participate in managing the company
Transferability of interest Transfer generally required consent of other partners
Available on all states Yes
Legal title to property LLC or member name
Legal entity separate from its owner Yes
Method of accounting Generally follows rules for limited partnership unless taxedas a corporation
Limited liability of owners All members unless otherwise provided for by statutesLife of entity Limited Death, bankruptcy, incapacity, withdrawing of partner Formal acts required Yes; generally must be filed by secretary of state
Governing documents Operating agreement (articles of organization)
Contents of operating agreement
- Management arrangement - Voting right- Member meetings - Profit sharing- Voting right - Dissolution- May be oral - Not legally required
Contents of articles
1. Statement that the entity is an LLC2. The name of the LLC3. The street address of the LLC's registered office & nameof its registered agent4.The name of the persons who will be managing thecompany
Ease of formation Simple to complex
Cost of formation Moderate to expensive
Tax year Follows partnership or corporate rules, depending on how itis taxed
Applicable tax rateFollows partnership or corporate rules, depending on how itis taxed
Identity of the taxpayer
Follows partnership or corporate rules, depending on how itis taxed:
- Members may be tax as corporation or partner- Single-member may be tax as sole partnership
Double taxation Follows partnership or corporate rules, depending on how itis taxedTiming of income recognition byowners
Follows partnership or corporate rules, depending on how itis taxed
Deductibility of losses Follows partnership or corporate rules, depending on how it
is taxedTreatment of capital losses Follows partnership or corporate rules, depending on how itis taxed
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IRS filing requirement Follows partnership or corporate rules, depending on how itis taxedMultiple classes of ownership No restrictions
Type of owner permitted No limitation
Retroactive modification toagreement
Follows partnership or corporate rules, depending on how itis taxed
Income Accumulations within theentity
Follows partnership or corporate rules, depending on how itis taxed
Voting strength Each member's capital contribution
Termination of a limited partnership
1. The consent of all members2. Death, retirement, resignation, bankruptcy, of a member 3. Judicial decree or administrative order 4. When only one member remains in some state
Profit allocation In the basis of members' contributions
Loss allocation In the basis of members' contributions
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C Corporation
Characteristics Descriptions
Number of owners No limitations
Available on all industry Not available for professional service
Participation in management No restriction
Transferability of interest Generally freely transferable
Available on all states Yes
Legal title to property Corporate name
Method of accounting Cash method may be permitted except for inventory
Limited liability of owners All shareholders
Life of entity Existence may be perpetualFormal acts required Yes
Governing documents Articles & bylaws
Contents of articles
1. Name & address of the corporation's registered2. Name of the corporation3. Name & address of each of the incorporators4. Provision for the issuance voting stock 5. The number of shares authorized to be issued.(limiting the number of shares that may be issue)
Contents of bylaws
1. Rules for running the corporation2. Rules may not conflict with the articles3. Amendment usually by bored of directors or shareholders# Bylaws are not part of the articles of incorporation &are not required to be filed with the state
Ultra viresIf a corporation was formed to accomplish the single
purpose of operating a restaurant, any action to achievesome other purpose
Ease of formation Simple
Cost of formation Minimal
Tax year Any
Applicable tax rate Rate scale from 15% to 35%
Identity of the taxpayer Corporation
Double taxation YesTiming of income recognition byowners When distributed
Deductibility of losses Deducted at corporate level
Treatment of capital losses Must be used to offset capital gains
IRS filing requirement Files Form 1120
Multiple classes of ownership No restrictions
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Type of owner permitted No limitation
Retroactive modification to agreement NoIncome Accumulations within theentity Reasonable needs of the business
Disregard of corporate entity/Piercing the corporate veil/Challenged limited liability
1. Commingling personal funds with corporate funds2. Inadequate capitalization3.Committing fraud on existing creditors
Consideration or value is(are)sufficient to purchase this stock
Valid consideration or value for shares consists of cash, property, or services performed
Treasury stock Treasury stock may be resold without regard to par value. Thus, treasury stock can be resold at a price lessthan par value.
Example about fundamental corporate
change
- D issolution- A mending articles- M ergers, consolidation, share exchange- S ales of all or substantially all of the corporation'sassets outside the regular course
Promoters responsibility
- Promoters enter contracts with parties who areinterested in becoming shareholders "stock subscriptions"- Promoters are personally liable on the contracts theymake before the corporation is formed
Proxy- Written authorization to vote another person's shares-- Valid for 11 months- generally are revocable
Fiduciary duty A majority shareholder may owe a fiduciary duty to
follow shareholder
What are the general procedure regarding decision that might fundamentally change the nature of corporation?
Board must approve a resolution , but there is no requirement of unanimity Notice must given to all shareholder & summary of the merger plan A majority approval of all outstanding shares Filing of articles
If a corporation is faced with the prospect of being taken over and the board of directors wants toresist the takeover attempt, it may do so in a number of ways describe it?
- Suing the person or company attempting the takeover for misrepresentation or omission andobtain an injunction against the takeover - Making a " self-tender " (an offer to acquire stock from its own stockholders and thus retain
control in order to prevent a takeover);
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S Corporation
Characteristics Descriptions
Number of owners Limited to 75 restrictionParticipation in management No restriction
Transferability of interest Generally freely transferable, except for limitations asto number & type of shareholdersAvailable on all states Yes, but state taxation varies
Legal title to property Corporate name
Method of accounting Cash method permitted except for inventory
Limited liability of owners All shareholders
Life of entity Existence may be perpetualFormal acts required Yes
Governing documents Articles & bylaws plus "S" election
Ease of formation Simple
Cost of formation Minimal
Tax year Calendar year unless $444 election
Applicable tax rate Individual shareholder tax rates; highest corporate rateson built-in gains or excess passive income
Identity of the taxpayer Shareholder, except for built-in gains or passive incomeDouble taxation Generally noTiming of income recognition byowners
In year in which S corporation's year ends whether or not distributed
Deductibility of losses Deduction by shareholders limited to basis in stock plusloans to companyTreatment of capital losses Passed through to shareholders
IRS filing requirement Files Form 1120S and distributes K1s to shareholders
Multiple classes of ownership Only one class of stock allowed, but differences in
voting rights permitted restrictionType of owner permitted Basically limited to individual citizen & resident aliens;some corporate & trust ownership permittedRetroactive modification toagreement No
Income Accumulations within theentity No restrictions