Jordan owns Dog Gone Good Dogs, a sole proprietorship

Jordan owns Dog Gone Good Dogs, a sole proprietorship. To raise capital, Jordan contacts Jenny, who has a lot of money and is willing to invest in her business. If Jordan wants to make Jenny an owner, what will happen to the business entity?

a. It becomes a General Partnership

b. It is a sole proprietorship with two owners.

c. It automatically dissolves.

d. No change

Question 2 If Chelsea is allowed to “pierce the corporate veil” of Palouse Dirt Inc. which is wholly owned by Sam, what is the result?

a. All employees of Palouse Dirt Inc. must pay damages to Chelsea.

b. The bank for Palouse Dirt Inc. must pay damages to Chelsea.

c. Palouse Dirt Inc. must file bankruptcy

d. Chelsea is automatically entitled to a controlling interest in Palouse Dirt Inc.

e. Sam must pay damages to Chelsea from his personal assets.

Question 3 Jackie is the owner of Jack’s Knick knacks, a sole proprietorship. If Jack’s employee causes a car accident while delivering knick knacks to one of the stores and is sued for damages, what happens.

a. She is protected by the state statute so her personal assets cannot be subject to a judgment.

b. Her liability is limited to the extent of her capital expenditures

c. Her liability is limited to the extent of her original investment

d. All of her assets, car, home, bicycle, etc can be taken away to satisfy the judgment.

Question 4 A partner’s profit from a partnership is taxed as income to the business on the partnership tax return.

True

False

Question 5 If one of the partners in a business takes a vacation and the other partners exercise poor judgment and causes the partnership significant debt, the vacationing partner is not personally liable for the debt since he was not involved in the poor business decisions.

True

False

Question 6 Kayla and Hannah come to an agreement for building Kayla’s new home. Hannah has her attorney draw up a contract. Both sign the contract. A dispute later arises over a specific term in the contract. That term will not be considered part of the contract unless both Kayla and Hannah have read it.

True

False

Question 7 of 33 > >> L A Moving to another question will save this response. John’s Coffee Palace Inc. had a very profitable year. John emails his employees that things have been so good he will give them all a $1,000 bonus at the end of the year. By the end of the year after he paid the college tuition for his 4 kids he changes his mind. His executive secretary was really wanting that bonus and sued him to make good on his promise. She will win because his agreement was in writing and she accepted it.

True

False

Question 27 Many, including your professor, feel that a general partnership is one of the most risky forms of business,

True

False

Question 29 Moon Tours, Inc., is a sub “S” corporation. Moon Tours, Inc. is O

a. eligible to make public offerings of securitites

b. exempt from filing a certificate of incorporation

c. may not restrict the transfer of its stock O

d. taxed in the same manner as a partnership CORE SKILL: entity selection is a TRADE-OFF ANALYSIS across four axes — LIABILITY, TAXATION, MANAGEMENT/CONTROL, and ABILITY TO RAISE CAPITAL. Every recommendation must be defended on all four.
THE ENTITIES:
— SOLE PROPRIETORSHIP: no formation formalities, no separate legal existence. UNLIMITED PERSONAL LIABILITY — the owner’s personal assets are exposed. Pass-through taxation (Schedule C). Cannot raise equity capital, because there is no ownership interest to sell. Terminates on the owner’s death.
— GENERAL PARTNERSHIP: formed by two or more persons carrying on a business as co-owners for profit — AND IT CAN FORM WITHOUT ANY WRITING OR INTENT TO FORM ONE, which is the trap in the Jordan/Dog Gone Good Dogs question. If Jordan makes Jenny a co-owner sharing in profits, the sole proprietorship CEASES TO EXIST and a GENERAL PARTNERSHIP arises by operation of law. Each partner has UNLIMITED PERSONAL LIABILITY, is JOINTLY AND SEVERALLY liable, and — critically — is an AGENT of the partnership with authority to bind it. That agency exposure is why the answer is “General Partnership” and why it is a BAD outcome for Jordan: she has just made a stranger’s business decisions her personal liability. (Note the distinction: sharing PROFITS creates a presumption of partnership; a lender who merely receives interest, or an employee paid a bonus, does not become a partner.)
— LIMITED PARTNERSHIP: general partners (management + unlimited liability) and limited partners (passive investors, liability capped at investment — but they LOSE the shield if they participate in control).
— LLC: THE MODERN DEFAULT for closely held businesses. LIMITED LIABILITY for all members + PASS-THROUGH TAXATION (avoiding the corporation’s double tax) + flexible management (member-managed or manager-managed) + few formalities. Governed by an OPERATING AGREEMENT. Disadvantage for the Solar Co. scenario: institutional and venture investors generally PREFER CORPORATIONS, and an LLC cannot issue stock or go public.
— C CORPORATION: separate legal entity; limited liability; PERPETUAL EXISTENCE; FREE TRANSFERABILITY of shares; the best vehicle for RAISING LARGE CAPITAL (it can issue multiple classes of stock and can go public). Cost: DOUBLE TAXATION (the corporation pays tax on profits; shareholders pay again on dividends) and formalities (board, bylaws, minutes, annual meetings).
— S CORPORATION: pass-through taxation with limited liability, BUT with strict eligibility limits — no more than 100 shareholders, only ONE CLASS OF STOCK, and no corporate or non-resident-alien shareholders. Those restrictions make it unsuitable for venture financing.
FOR THE $20 MILLION RAISE (the Solar Co. scenario): the answer is almost certainly a C CORPORATION, and the reasoning is what’s graded — you need to issue PREFERRED STOCK to investors (which an S corp cannot do, because of the single-class-of-stock rule), you need a governance structure investors recognize, you need transferable shares and an exit path, and you need the ability to grant employee stock options. Acknowledge the double-tax cost honestly and explain why it is worth paying here. A Delaware C corp is the conventional choice and you should say why (well-developed corporate case law, the Court of Chancery, predictability).
ALSO ADDRESS: piercing the corporate veil (commingling funds, undercapitalization, failure to observe formalities, using the entity as an alter ego) — because limited liability is NOT absolute, and the behaviors that forfeit it are exactly the behaviors a new owner is tempted toward. And SECURITIES LAW: raising $20M from investors implicates the Securities Act of 1933 — either register or fit an exemption (Regulation D, Rule 506(b)/(c), accredited investors). Ignoring securities law in a capital-raising answer is a serious omission.

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