Question

1- How do business owners create legal entities? Is the process the same for all entities? If not, what are the differences?
2- What is an operating agreement for an LLC? Are operating agreements required for limited liability companies? If not, why might it be important to have one?
3- How do corporations protect shareholders from liability? If you formed a small corporation, would you be able to avoid repaying a bank loan from your community bank if the corporation went bankrupt? Explain.
4- What types of business entities the U.S tax system recognize?
5- Who pays the first level of tax a C corporation’s income? What is the tax rate applicable to the first level of tax?
6- Who pays the second level of tax on a C Corporation’s income? What is the tax rate applicable to the second level of tax and when is it levied?
7- Is it possible for the overall tax rate on corporate taxable income to be lower than the tax rate on flow through entity taxable income? If so, under what conditions would you expect the overall corporate tax rate to be lower?
8- Assume congress increases individual tax rates on ordinary income while leaving all other tax rates unchanged. How would this change affect the overall tax rate on corporate taxable income? How would this change affect overall tax rates for owners of flow through entities?
9- Evaluate the following statement “ when dividends and long-term capital gains are taxed at the same rate, the overall tax rate on corporate income is the same whether the corporation distributes its after tax earnings as a dividend or whether it reinvests the after tax earnings to increase the value of the corporation.
10- If XYZ Corporation is a shareholder of BCD Corporation, how many levels of tax is BCD’s before income potentially subject to? Has congress provided any tax relief for this result? Explain.

Answer 1