LGLS 1101 Lecture Notes - Lecture 21: Capital Structure, S Corporation, Donald Trump

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coraltoad490

13 Apr 2017

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Consists of one or more general partners and one or more limited partners. This form of business is generally used to raise revenue since the liability of the limited partners is limited to the person"s investment as long as they have no say in the operation of the business. Limited (silent) partner can"t complain how business is run. Must file a certificate of limited partnership with the state which certificate must state that the business is a limited partnership. Business must be run by the general partners without the active participation of the limited partners. Liability of the limited partner is restricted to the investment, but the general partners have unlimited liability. Ex: steven starr; king of prussia mall; how movies are made: limited liability partnership (llp) Hybrid between a partnership and a corporation; used by professionals like accountants, lawyers and doctors to avoid personal liability. Only one personally liable in llp is person who screwed up.

Related Questions

A client of the CPA firm of Harston and Mendez is a medical practice of seven local doctors. One doctor has been sued for several million dollars as the result of a recent operation. Because of what appears to be this doctor's very poor judgment, a patient died. Although that doctor was solely involved with the patient in question, the lawsuit names the entire practice as a defendant. Originally, four of these doctors formed this business as a general partnership. However, five years ago, the partners converted the business to a limited liability partnership based on the laws of the state in which they operate.

Read the following articles as well as any other published information that is available on partner and partnership liability:

âPartners Forever? Within Andersen, Personal Liability May Bring Ruin,â The Wall Street Journal, April 2, 2002, p. C1.

âCollapse: Speed of Andersen's Demise Amazing,â Milwaukee Journal Sentinel, June 16, 2002, p. D1.

Required

Based on the facts presented in this case, answer these questions:

1.	What liability do the other six partners in this medical practice have in connection with this lawsuit?
2.	What factors will be important in determining the exact liability (if any) of these six doctors?

Regulations are

	A. equal in authorityto legislation if statutory
	B. equal in authorityto legislation
	C. presumed to bevalid and to have almost the same weight as the IRC
	D. equal in authorityto legislation if interpretative

2) Which of the followingstatements regarding proposed regulations is not correct?

	A. Practitioners andother interested parties may comment on proposed regulations.
	B. Proposedregulations expire after 3 years.
	C. Proposed andtemporary regulations are generally issued simultaneously.
	D. Proposedregulations do not provide any insight into the IRS'sinterpretation of the tax law.

3) Identify which of thefollowing statements is false.

	A. Members from boththe House and the Senate are on the Conference Committee.
	B. When tax advisorsspeak of the tax law, they usually have in mind just the InternalRevenue Code.
	C. Records ofcommittee hearings are helpful in determining Congressionalintent.
	D. All arefalse.

4) Which of the followingstatements about a partnership is true?

	A. Partners are taxedon distributions from a partnership.
	B. A partnership is ataxpaying entity.
	C. Partners are taxedon their allocable share of income whether it is distributed ornot.
	D. Partners areconsidered employees of the partnership.

5) Which of the followingstatements is incorrect?

	A. The number of Scorporation shareholders is unlimited.
	B. S corporationsmust allocate income and expenses to their shareholders based ontheir proportionate ownership interest.
	C. S corporationincome is taxed to shareholders when earned.
	D. S corporationlosses can offset shareholder income from other sources.

6) Which of the followingstatements is incorrect?

	A. Limited partners'liability for partnership debt is limited to their amount ofinvestment.
	B. In a generalpartnership, all partners have unlimited liability for partnershipdebts.
	C. In a limitedpartnership, all partners participate in managerialdecision-making.
	D. All of thestatements are correct.

7) Three members form an LLC inthe current year. Which of the following statements is incorrect?

	A. The LLC can electto have its default classification ignored.
	B. The LLC's defaultclassification under the check-the-box rules is as apartnership.
	C. The LLC can electto be taxed as a C corporation with no special taxconsequences.
	D. If the LLC electsto use its default classification, it can elect to change itsstatus to being taxed as a C corporation beginning with the thirdtax year after the initial classification.

8) Identify which of thefollowing statements is false.

	A. Under thecheck-the-box regulations, an LLC that has only two members(owners) must be taxed as a partnership.
	B. The check-the-boxregulations permit an LLC to be taxed as a C corporation.
	C. A business neednot be incorporated under state or federal law to be taxed as acorporation.
	D. Once an electionis made to change its classification, an entity cannot change againfor 60 months.

9) Identify which of thefollowing statements is true.

	A. The check-the-boxregulations permit an LLC to be taxed as a C corporation.
	B. Under thecheck-the-box regulations, an LLC that has only two members(owners) default classification is as a partnership.
	C. Once an electionis made to change its classification, an entity cannot change againfor 60 months.
	D. All of thestatements are true.

10) For Sec. 351 purposes theterm property does not include

	A. accountsreceivable
	B. cash
	C. inventory
	D. servicesrendered

11) Identify which of thefollowing statements is true.

	A. The exchange ofstock for services rendered is not a taxable transaction.
	B. The repeal of Sec.351 would result in more existing businesses beingincorporated.
	C. Section 351 wasenacted to allow taxpayers to incorporate without incurring adversetax consequences.
	D. All arefalse.

12) Barry, Dan, and Edithtogether form a new corporation; Barry and Dan each contributeproperty in exchange for stock. Within 2 weeks after the formation,the corporation issues additional stock to Edith in exchange forproperty. Barry and Dan each hold 10,000 shares and Edith willreceive 9,000 shares. Which transactions will qualify fornonrecognition?

	A. Only the secondtransaction will qualify for nonrecognition.
	B. Only the firsttransaction will qualify for nonrecognition.
	C. Because of thestep transaction doctrine neither transaction will qualify.
	D. Both transactionswill qualify under Sec. 351 if they are part of the same plan ofincorporation.

peararmadillo631

Question 1: Choice of entity

1. For the following situations, applying what you have learnedabout sole traders, partnerships, limited partnerships, andcompanies consider the most appropriate organisational structurefor the enterprise. In each case give a reason, or reasons, asappropriate, to support your suggestion. Guidance: Your reasons foreach part of this question should include why one or more of theavailable options are excluded, as well as the reasons that supportyour suggested organisational structure.

(a) Raya, who works in a gym, occasionally sells to sportsmagazines articles she has written on new developments in personaltraining. (4 marks)

(b) Three friends start a cafÃ©. All three will be active indecision making but a precise organisational structure is requiredfor operational practicality. The project involves a degree ofbusiness risk and they wish to protect their personal liability asmuch as possible. Some flexibility is also required as it isenvisaged their spouses will be added to the group over time astheir business expands. They do not require their participation inthe enterprise to be secret and are happy to get any publicityavailable. (10 marks)

(c) Dion is a scientist who has developed an enzyme that breaksdown plastic drink bottles. He wishes to patent and develop hisdiscovery. Iosefina, Rosa and Michelle are low profile venturecapital providers who are not technical experts in the scientificfield but have money to invest in high risk start-up businesseswhere successful development brings a high financial return. Theyagree to provide some funding for Dionâs project. They do not wantto take an active part in the business other than in providing themoney required and receiving a share of the anticipated profits. Ifthe project fails, Iosefina, Rosa and Michelle do not want anyfurther liability in addition to the money they have alreadyprovided. They also wish to keep their involvement in the projectsecret. (8 marks)

2. Explain two ways in which joint venturers could ensure theydo not form a partnership.

3. Compare the use of a partnership and a company as thebusiness form for SMEs when new capital is introduced.

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LGLS 1101 Lecture Notes - Lecture 21: Capital Structure, S Corporation, Donald Trump

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