Dividends that a shareholder receives are
- are taxed at the shareholder's individual tax rate
When a company makes profit, it can either take the excess funds and divide them among the shareholders in form of dividends, or take the money and reinvest in order to earn more. When the company decides to pay dividends, the earnings will be taxed twice. First, taxation will be done at the company's year-end and second taxation will be on the dividends each shareholder receives. This is considered as double taxation though the second type of taxation on dividends si more favorable because tax is based on individuals tax rate.
The major disadvantage of a sole proprietorship is the fact that the owner of the establishment has unlimited liability. True or False
Sole proprietorship is a type of business that is owned and operated by one individual and which requires minimal capital to start. Thus, in sole proprietorship, the owner is solely responsible/liable for all the debts. Because he/she receives no joint funding like in partnerships, he is considered to have unlimited liability which is a major drawback because if he can not settle the debts, the business will be closed.
A promise to not do something that someone has legal right to do, or a promise not to act is a valid consideration. true or false
A consideration is a set of promises in which each party accepts to give up something in order to gain another. Every valid contract must have a valid consideration. What determines whether a consideration is valid or not are two simple things: First, you have legal right to do something but decides you won't do, or secondly, you do an act that you are not obligated by the law to do.
The statute of frauds requires that which of the following types of agreements must be in writing to be legally enforceable
Statute of frauds was passed in 1677 by the English parliament and requires some contracts to be in writing in order to be enforceable. The six categories of contracts that have to be in writing includes the following: Contracts involving the sale of interest in land. Contracts involving sale of goods that cost more $500 or more. Contracts in consideration of marriage. Contracts of suretyship. Contracts whereby an estate executor decides he/she will pay estate debts using personal funds. And lastly, contracts whose performance require more than one year.
While a partnership itself does not pay federal income taxes, it does complete an informational tax return. True or false
Partnerships are not required to pay income taxes directly to the internal revenue service, but has to file information return on IRS which indicates:
- income from the partnership,
- deductions for business expenses,
- net income and
- taxes due.
The information filed should also be signed by one partner and should be filed every single year even if the partnership made no returns.
Under the "priority rule"...
1.The claims of the government are given priority to the corporation's creditors' claims on the corporation's assets.
2.The claims of the personal creditors of the corporation's owners are given priority to the corporation's creditors' claims on the corporation's assets.
3.The corporation's creditors' claims on the corporation's assets are given priority to the claims of the personal creditors of the corporation's owners.
4.The claims of the government are given priority to the claims of the personal creditors of the corporation's owners.
- The corporation's creditors' claims on the corporation's assets are given priority to the claims of the personal creditors of the corporation's owners.
Priority rule insists that a creditor's claim has absolute priority over the shareholder's claim. If a firm files bankruptcy petition in a bankruptcy court, the investors are compensated first before the personal creditor's of the owners are compensated. When the assets are invoked to cash, it has to pay firm's creditors before paying any amount to the creditors who funded individual owners. This is mostly done when the owner of a corporation dies or when the corporation goes bankrupt.