BEC 1 - Business Table Format

8/8/2019 BEC 1 - Business Table Format

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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


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)


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


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


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


Tax year The same tax year as a majority of its partners


Double taxation NoTiming of income recognition byowners


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


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



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


Tax year Follows partnership or corporate rules, depending onhow it is taxed


Double taxation No

Timing of income recognition byowners


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


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


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


Legal title to property LLC or member name


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


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


Income Accumulations within theentity


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


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


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



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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


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


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

BEC 1 - Business Table Format

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