Question 1

The owners of California Canines,a firm that designs and manufactures coats,sweaters,jackets,and rainwear for dogs want to organize as an LLC.Two members are college students and two others are thirty something couples with young children.This is good strategy because each member can choose to commit to limited or unlimited liability.

Accepted Answer

The answer of The owners of California Canines,a firm that...

Question 2

If a corporation distributes after-tax profits to its stockholders in the form of dividends,the government considers these distributions as part of each stockholder's personal income.Stockholders pay taxes on these distributions.

Accepted Answer

When a corporation distributes after-tax profits to its stockholders in the form of dividends, it is considered as personal income for each stockholder and they have to pay taxes on it. This is because dividends are not tax-deductible for the corporation and are only taxed at the individual level.

Question 3

Public utilities are examples of quasi-public corporations.

Accepted Answer

Public utilities, such as water and electricity companies, are typically owned and operated by the government, but operate as quasi-public corporations in order to provide essential services to the public.

Question 4

The owners of Idle Time Gaming Company would like to switch to an S corporation.Unfortunately,their lawyer advised them that they do not meet some of the requirements necessary to qualify as an S corporation.An alternative form of business that would give them similar advantages is a limited liability company.

Accepted Answer

A limited liability company (LLC) provides similar advantages as an S corporation, such as limited liability protection and pass-through taxation, and may be a suitable alternative if a business does not meet the requirements to qualify as an S corporation.

Question 5

The purpose of corporate by-laws is to maintain a legal structure and also to stipulate how the firm will be managed.

Accepted Answer

Corporate by-laws are formal documents that outline the rules and regulations for managing a corporation. They are used to maintain a legal structure and to establish the responsibilities of the management team, shareholders, and other stakeholders.

Question 6

Double taxation means that a corporation pays twice the amount of taxes as a sole proprietorship or partnership.

Accepted Answer

Double taxation refers to a situation where a corporation is taxed on its profits, and then the shareholders are also taxed when they receive dividends. Sole proprietorships and partnerships do not face this issue because they are taxed as individuals, not entities separate from their owners.

Question 7

Mojo Motors is a small conventional corporation with only 212 stockholders.Eleven of the stockholders are citizens of Mexico,and eight others are citizens of Canad
A.Due to its size and diversity in ownership,you would recommend that Mojo Motors change to an S-Corporation.

Accepted Answer

The fact that there are 19 stockholders who are not U.S. citizens or permanent residents disqualifies Mojo Motors from being eligible to elect S-Corporation status according to IRS regulations.

Question 8

In order to establish a C-Corporation,it is a requirement that investors run the company,whereas in an S-Corporation,this is not the case.

Accepted Answer

In both C-Corporations and S-Corporations, ownership is determined by the shareholders. However, in a C-Corporation, the shareholders elect a board of directors who are responsible for making major decisions and overseeing management, while in an S-Corporation, shareholders can be directly involved in managing the company.

Question 9

Chipper's Golf Resort has the opportunity to buy 1000 acres of property adjacent to its 18-hole golf course.After talking with her banker,the owner is encouraged to begin the paperwork to change from a Limited Liability Company form of business ownership to a corporation.You applaud this strategy because she will eliminate the problem of double taxation.

Accepted Answer

Changing from a Limited Liability Company to a corporation does not eliminate the problem of double taxation. In fact, it may introduce double taxation on dividends.

Question 10

If you want to sell your ownership in a publicly traded corporation,you find someone willing to buy your shares.

Accepted Answer

When you own shares of a publicly traded corporation, you can sell these shares to someone else who is willing to buy them. This can be done through a stockbroker or online trading platform. The process of buying and selling shares is what makes the stock market function.

Question 11

The major differences between an S-Corporation and a Limited Liability Company are limits on the number of owners,and,the citizenship status of individuals who are owners.

Accepted Answer

An S-Corporation has restrictions on the number of shareholders (up to 100) and requires them to be U.S. citizens or residents, whereas a Limited Liability Company (LLC) does not have these restrictions.

Question 12

A group of medical doctors are interested in incorporating their business.There is no advantage due to the costs involved.

Accepted Answer

There is an advantage to incorporating a business, even for medical doctors. Incorporating provides liability protection, tax benefits, and can improve the company's credibility. However, the costs involved in incorporating may be a barrier for some small businesses.

Question 13

After a successful five years,Peaceful Pastures,LLC a retirement ranch for race horses)thinks it may be able to attract donations from animal activist groups and even the federal government if it becomes a non-profit corporation.As its business advisor,you explain that as a non-profit corporation,the owners)may earn a salary but the business should not seek after-tax profits.

Accepted Answer

Non-profit corporations can still pay salaries to their employees, including the owners, but they cannot distribute after-tax profits to shareholders or owners.

Question 14

According to the Legal Briefcase box," Virtual Companies",a Vermont virtual LLC's profits are distributed to members according to their contribution of time,expertise,and money.

Accepted Answer

The Legal Briefcase box on "Virtual Companies" states that profits of a Vermont virtual LLC are distributed to members according to their contribution of time, expertise, and money, which makes statement A true.

Question 15

If a corporation has after-tax profits of $360,000,and elects to distribute this amount in the form of dividends to its stockholders,these distributions are free and clear of taxes because the corporation paid taxes on this amount prior to distribution.

Accepted Answer

While it is true that the corporation paid taxes on the profits, dividends are subject to taxes in the hands of the stockholders. The stockholders will need to report the dividends as income on their tax returns and pay taxes on the amount received.

Question 16

Chad recently invented Wave-Aerobics,a next generation watercraft that can safely perform water stunts similar to an amusement park ride.As the founder of a fast growing business,you think his goal of incorporating,"to remain in steadfast control of the firm's operations for an indefinite number of years" is good strategy.

Accepted Answer

Chad's goal of wanting to remain in control of the firm's operations for an indefinite number of years is not necessarily a good strategy. It could hinder the company's growth and success by preventing new ideas and fresh perspectives from being incorporated into the business. It is important for a founder to eventually delegate responsibilities and trust others to run the company successfully.

Question 17

Nutty Dough is a small chain of donut shops currently owned and operated by a group of seven partners.The owners think that their chain has the potential for rapid growth,but several of the partners are concerned about the growing financial risks that will accompany this growth.One way the partners could deal with this problem would be to incorporate their business.

Accepted Answer

Incorporating the business would provide limited liability to the owners and protect their personal assets from the financial risks of rapid growth.

Question 18

The owners of a limited liability company LLC)must pay self-employment taxes on any profits they earn,even if they did not obtain a salary from the company.

Accepted Answer

As owners of an LLC, they are considered self-employed and are responsible for paying self-employment taxes on their share of the company's profits, regardless of whether or not they receive a salary from the company.

Question 19

A few years back,your friends who are horse fanatics inherited several acres of land that they turned into a retirement haven for racehorses.Peaceful Pastures was recently incorporated as a limited liability company.The members are re-evaluating this form of ownership.Unlike an S-corporation,they now pay self-employment taxes on all company profits - not just on the salaries they pay themselves.

Accepted Answer

The answer of A few years back,your friends who are...

Question 20

The stockholders of large,publicly traded corporations have a daily pulse on the operation of the business.

Accepted Answer

While stockholders do have some access to publicly available information about the company's operations, they do not have a daily pulse on the business unless they are directly involved in management or receive regular reports from the company. Shareholders typically receive updates on company performance in the form of quarterly earnings reports and annual shareholder meetings.

Quiz 5: How to Form a Business