Partnership

February 4th, 2023

Protecting Interest Of The Minority Shareholders

In Asian countries including Bangladesh, the controlling ownership of public listed companies are dominated by some families. The problem of minority exploitation may arise when the ownership is highly concentrated in any specific group, especially family ownership. One of the consequences of this is the expropriation of minority shareholder rights. Apart from family control another limitation of principles of corporate law is the principle of majority rule, sometimes called the “supremacy of majority” rule.

Those who invested more in the company bear a greater risk in the event of a business failure, but simultaneously they have a greater degree of control over the company. There is certainly a risk that the majority will take advantage of the minority and that a company will be run at the expense of the minority shareholders. Any decision of Annual general meeting (AGM) adapted by majority vote and directors are appointed and may be removed from the office at any time by a simple majority at the general meeting.

Thus, the directors are motivated to act in the best interests of the majority who appointed them and who may remove them. Minority shareholder rights expropriation occurred when family ownership directed cash to their own benefit, inefficient projects and connected lending to relatives and friends rather than return it in dividends to minority shareholders. Other expropriation can take the form of profit reallocation, assets misuse, transfer pricing, sell below the market price departments or parts of the firm to other firms that major shareholders own, or acquisition of other firms that major shareholders own at a premium.

The majority shareholders treats the company as his own, and acts accordingly, to the detriment of the other shareholders, or where there is a breakdown in the relationship of the shareholders or any of their number, which gives rise to questions about the future ownership and control of the Company. On the other hand, where a single or small number of shareholders hold a substantial block of shares in the company, say, in excess of 25% of the voting rights, securing managerial accountability to the shareholders or at least to the controlling shareholders through the traditional governance mechanisms of company law can dominate the company.

In some situation, the ‘non-controlling’ shareholders may collectively hold more voting shares than the ‘controlling’ shareholders. However, if the non-controlling shares are widely dispersed, effective control of the company will lie in the hands of the block-holder, even if that block consists of less than 50% of the voting shares. The shareholder providing the majority of the capital may sometimes not control the company.

In such a case the majority shareholder is effectively in a minority position with regard to the exercising of controlling rights. The emergence of such a situations are the principal/agent problem between the controlling shareholders and the non-controlling ‘minority’ shareholders. The corporate management law and policy must have protection of interest of the minority shareholders. The general purpose of minority protection instruments is to prevent the abuse of power by the major shareholders.

There is not an easy solution, to the problem, since the principle of majority rule, in company law and other rules of regulators. It is a long established principle of corporate law that the regulators and courts should not intervene in business decisions due to the nonintervention policy or internal management principle. There is no statutory law of anywhere contains a definition of the minority or majority shareholder. The distinguishing factor between the two is the degree of control over the corporation.

The number of shares owned is not decisive, even a shareholder owning a majority of shares may be a minority shareholder, if other shareholders are well organized and, thus, control the company. The company must follow the principles ‘partnership’ and consultation aims at balancing the interest between major and minor shareholders, and usually do not infringe minorities rights through guaranteeing at least the following minority rights such as respect of opinion of major shareholders toward minorities, the right of minorities to be heard on regard of business matters and exit rights.

The limited Liability Companies, which are, in practical terms, run, as if they were a partnership, between the persons who are shareholders of same, might be regarded by the law, as “quasi partnership”. The OECD principles on Corporate Governance (2004) provide that: Shareholders, including institutional shareholders, should be allowed to consult with each other on issues concerning their basic shareholder rights as defined in the Principles, subject to exceptions to prevent abuse.

The protection comes from better legal protection, stronger structure of the internal control mechanisms and more efficient capital markets and market for corporate control. One of the methods to ensure the minority rights is to follow good Corporate Governance principles because there exists a relation between the level of protection of minority shareholders and incorporation of good practices of Corporate Governance. The separation of ownership and control in corporations with dispersed ownership structure highlights the agency issue due to conflict between agents (directors) and principals (shareholders).

Due to a different agency problem that arises on account of the conflict between dominant and minority shareholders. The minority shareholders can be empowered by ensuring control over the management and board of directors. The board of directors are accountable to the shareholders as a class is to make it easy for the shareholders to convene meetings to consider the removal of directors, evaluate the board’s performance and remove directors of whom they disapprove.

The minority shareholders are afforded the remedies if the majority shareholders, violate a personal right of a minority shareholder, then he can file a personal action against the wrongdoers to rectify such a violation of the articles of association of the Company or of the terms of any shareholder agreement etc. With increasing instances of corporate fraud around the world, another remedy is provisions for class action suits. Class action is a law suit brought by one or more individuals on behalf of a large group of people who have the same complaint.

In certain circumstances, minority shareholders may bring a common law derivative action, on behalf of the company, against the wrongdoers, who committed a wrong to the company. Wrongdoers can be shareholders and directors of the company, as well as third parties. In order to be able to proceed with a derivative action at common law, the minority shareholders must have legal options to persuade the courts, that the company’s decisions by majority shareholders are not to pursue a remedy for the wrong done to the company which amounts to a “fraud on the minority” .

Another Statutory remedy is of petition to winding up of the company on a just and equitable ground. There is hearsay that few sponsors / families are responsible for share scams causing huge loss of small investors. Security exchange commission (SEC) has such views with perceived experiences of two share market debacles and issued a notification on November 22, 2011 imposing conditions that all sponsors / promoters and directors of a listed company shall jointly hold minimum 30% share of paid up capital of the company. Moreover, each director shall hold minimum 2% of the paid up capital.

In case of vacancy of anyone holding 5% share shall be entitled to be directors. The publicly listed companies have usually 15 directors and they will hold 75% of the share and voting rights of the company. This means the companies will gradually go under control of few limited persons who have capacity of investment of sufficient amount. SEC has in mind that, mandatory provision of higher shares will prevent such future stock market debacle. But as per investigation report of Mr Khondaker Ibrahim Khaled, accepted by all, there are many organizations including SEC are jointly responsible for disaster in stock market.

The public companies are controlled by few families and the directors are ‘elected’ from same family by rotation and under full control of families. They retire due to compulsion of retirements as per law. Small shareholders are awarded a gift pack and nominal dividends in AGM and have no say against the decision of these controlling families. Companies go for public share to generate fund for investments but shall fail to generate fund with higher investments of sponsors and directors.

The over investment of sponsors / directors will not bring sufficient share in the market and the market will remain at the present status of low investment. India has totally different legal framework to safeguard interest of small investors. Indian Companies Act 2013 under section -151. A listed company may have one director elected by such small shareholders in such manner and with such terms and conditions as may be prescribed. For the purposes of this section “small shareholders” means a shareholder holding shares of nominal value of not more than twenty thousand rupees or such other sum as may be prescribed.

There is no policy of a designated directorship of choice of minority shareholder nor there do any provision to control, appoint or remove any director. The global law and policy is to protect the rights of minority shareholders but in contrary Bangladesh SEC make legal provision of make the minority shareholder marginalized and have no option to exercise their rights due to majority rule and lose their voice. The decision of higher investment of directors is not good for stock market and should be amended to find way out to safeguard interest of minor shareholders from the proven experience of other markets.

February 4th, 2023

Diploma in Business Studies

Diploma in Business Studies (BM111) Faculty of Business Studies Universiti Teknologi MARA, Johor Bahru. ————————————————- Madam Nor Fazlin binti Uteh, Lecturer Fundamental of Entrepreneurship (ENT 300) Universiti Teknologi MARA, Johor Bahru. 25th February 2013 Madam, SUBMISSION OF BUSINESS PLAN PROPOSAL (ENT 300) Referring to the subject stated above, we submitted this proposal of our project paper for our ENT 300 subject. This business plan is focusing on doing education service. The name of the service itself explains the tuition service that we offer. 2.

We had put our best commitment to complete this business plan according to the guidelines and requirements given according to our subject syllabus. This business plan is constructed to serve as a blueprint and guide for a proposed business venture which covers administration, financial, marketing, and operation aspects. 3. We hope that this business plan wills is prepared up to the required standard. Any comments or remarks on our project are most welcomed in order to help us improve. Thank you and best regards. Yours Sincerely, …………………………………………. Muhammad Azhar bin Mat Saruan ACKNOWLEDGEMENT

Alhamdulillah and thanks to Allah SWT, whom with his willing giving us the opportunity to complete this Business Plan and named it as Victory Tuition Centre. This final year project report is prepared for UiTM Kampus Johor Bahru. This project is basically for students in final year to complete the undergraduate program that leads to the Diploma of Business Studies. This report is based on the methods given by the university itself. Firstly, we would like to express our special thanks to our beloved Madam Nor Fazlin binti Uteh, a lecturer of Fundamental of Entrepreneurship in UiTM Kampus Johor Bahru.

We also want to thanks to, Madam Nor Ardianty Azleen binti Abu Bakar, the Principals of Tatapan Minda Sdn. Bhd. for allow us to do benchmark at their place and also give us a lot of useful and helpful information for our project. We also want to thanks to the lecturers of Diploma in Business Studies for their cooperation during we complete the final year project that had given valuable information, suggestions, and guidance in the compilation and preparation of this final year project report.

Last but not least, deepest thanks and appreciation to our parents, family and others for their cooperation, encouragement, constructive suggestion and full of support for the report completion, from the beginning until the end. Also thanks to all of our friends and everyone, those have been contributed by supporting our work and help ourselves during the final year project progress until it is fully completed. EXECUTIVE SUMMARY Victory Tuition Centre is a new partnership company that provide educational services to customers. This company is located at Taman Setia Tropika, Johor Bahru.

Victory Tuition Centre is scheduled to operate on 1st January 2014. Victory Tuition Centre is a partnership, owned and operated by Muhammad Azhar bin Mat Saruan, Shahrul Izany bin Shahir, Lisa Nadhirah binti Hisham, Natasha binti Noor Mohamed and Nor Amalina binti A. Samad. Our target are customers that living around Kempas, Johor Bahru area. However, before we proceed to the next step, we have to consider several factors, which are the existing business opportunities, strategic location, type of business, business strategies, target market and others.

We have developed a business plan that includes all factors stated above in order to cope with problems that may occur in the future. We have chosen this type of business because we believe this type of business will face less problems and it is also has wide opportunity as it is already known in the market. Our business is operates based on our own capital with personal loan or savings, which is 25% is contributed by our General Manager, and followed by 18. 75% contributed by each partners. This has made the total capital for our business is RM 100,000.

Other than that, Victory Tuition Centre has also assembled a strong management team. Muhammad Azhar bin Mat Saruan is the General Manager of the company and followed by Natasha binti Noor Mohamed as the Financial Manager who controls the skills of financial in Victory Tuition Centre on track and profitable. Other team members are Lisa Nadhirah binti Hisham as the Marketing Manager who make sure our service existence will be known to the customers and build up a strong relationship with them, Nor Amalina binti A.

Samad as the Organizational Manager who make sure the welfare of our workers and Shahrul Izany bin Shahir as the Operational Manager who make sure the smoothness of our operations. INTRODUCTION 1. 0 INTRODUCTION In Malaysia, education is one of the important factors to drive human resources to meet the country’s vision of reaching developed nation status by 2020. So, because of this awareness and after we discuss about potential business available nowadays, we had agreed to open a partnership business which is a tuition centre and named it as Victory Tuition Centre. Our business will be open in the early year of 2014 and mainly to provide uition and educational services to people. By the means of tuition and educational services, we offered extra lessons for students range from Standard 6 until Form 5 with different environment from the school and other interesting programs for students. With the established of our business, we also hope that we will open up the young generation and the important is the Bumiputera’s mind in opening up business. Through this business, we also hope that we will help to produce quality products at the end of the day. We also want to provide quality education through our qualified and committed professionals.

What makes us different than other tuition centre is we always make sure that our teachers are achieving our standard requirements to make them qualified to teach our students. This is to ensure the quality of our service. Other than that, our business also determined to give a great competition to other competitors in order to conquer the market. Therefore, we will be able to stabilize our business and trying to get an opportunity to expand our business. 1. 1 BUSINESS PLAN PURPOSE Business plan is important because it is an opportunity for entrepreneur to access the business venture objective critically and practically.

It is important for entrepreneur to take an opportunity to gain more knowledge and experiences in the field of business. Other than that, by doing this business plan we can see our business potential in penetrating the market whether we could success or not. On the other hand, this business plan is prepared to convince venture capitalist, investors and bankers in order to raise capital and obtain support venture. This business plan is also prepared as a guideline for day-to-day management of the business and for the purpose of gaining the collaboration with the suppliers.

This business is to provide quality educational service to produce quality products at the end of the day from our learning activities. Factors why we choose this business are it’s always on demand because of the Importance of education to the young generations nowadays and to offer a different learning environment for students. 1. 2 COMPANY BACKGROUND Name of the company| 😐 VICTORY TUITION CENTRE| Business address| 😐 No 12-02,Jalan Setia Tropika 1/24,Taman Setia Tropika, Kempas, Johor Bahru,Johor. | Telephone number| 😐 07-2362542| Fax number| 😐 07-2363542| E-mail address| 😐 vtuitioncentre@yahoo. com|

Form of business| 😐 Partnership| Main activities| 😐 Teaching and extra educational activities| Date of registration| 😐 1st January 2014| Registration number| 😐 M3219749-D| Name of bank| 😐 Maybank| Bank acc. number| 😐 151061302091| 1. 2. 1 COMPANY NAME We name as Victory Tuition Centre because of victory is other name of success and excellent that is everybody want to be . Victory is best word to describe about winning. The word tuition centre gives an impression that our business is running educational services that include tutor, extra notes and other healthy activities for students. 1. 2. 2 COMPANY LOGO

We choose this logo because it reflects our nature of business. From the logo, we can see a smiling child wearing a mortar board. This picture means that our tuition centre will produce a high quality product at the end of the day. Our students will success in their study and pass their examination with a flying colours. The sign ‘V’ in the picture stand-out for the word Victory, which is our business name. Why we choose this name is because victory brings the means of the success you achieve when you win a battle. From our point of view, education is the biggest battle for student to success in their life.

So, when they success in their study, they will have a bright future in their life. Other than that, the picture of a pencil write on a book and clock behind of it shows that we should hold on to the principle “Time is gold” in our study. This is to make sure that we would not waste our time when we study. Students must know that if they want to achieve an excellent result. Lastly, there is a picture of a child studying with 4 colours behind of it. The red colour shows confidence and courage. Students must have a high confidence level and courage in their study. This will help them to achieve a great achievement.

Other than that, in the meanings of colour psychology, yellow is the colour of the mind and the intellect that is optimistic and cheerful. Green is the colour of balance and growth. It can mean both self-reliance as a positive and possessiveness as a negative. The last colour is turquoise. This colour means communication and clarity of mind. 1. 2. 3 FUTURE PROSPECT OF VICTORY TUITION CENTRE Long term First year To achieve the target of having average number of students which are 475 students. Our tuition centre also wants to maintain the number of students that registered in Victory Tuition Centre. Next five years

In the next five years, our mission to attract students to get the bigger number of students to register in our tuition centre. With the bigger number of students, our tuition centre will expand the demand and open a new branch of in area Johor Bahru to ensure the people registered to Victory Tuition Centre. Next ten years In the next ten years, our tuition centre will open a few tuition centres in another state in Malaysia if we get the high demand from the people or students. 1. 3 PARTNERS BACKGROUND Current position: General Manager Name: Muhammad Azhar B. Mat Saruan. Address: No 72, Jalan Bunga Kemuning 2/10,

Seksyen 2, 40000, Shah Alam, Selangor Darul Ehsan. Email: azharsaruan@yahoo. com Phone number: 017-6263762 Date of birth: 28 March 1985 Age: 28 Marital status: Single Academic qualification: UiTM Kampus Shah Alam – MEd. Teaching English as a Second Language (TESL) (2008-2010) UiTM Kampus Shah Alam – B. Ed. TESL (Hons) (2005-2007) UiTM Kampus Segamat – Diploma in Business Studies (2003-2005) Working experience: Home tuition for pre-schoolers and primary students Communication skills: Bahasa Melayu and English Skills: Manage workers and handle organization well, able to work under pressures Current position: Administration Manager

Name: Nur Amalina Binti A. Samad Address: No. 157, Jln. Kupang 3, Skudai Kiri, Johor Bahru. Email: noramalinasamad@yahoo. com Phone number: 017-7524189 Date of birth: 10 September 1987 Age: 26 Marital status: Single Academic qualification: UiTM Kampus Arau – Bachelor of Business Administration (Hons) Human Resource Management (2008-2010) UiTM Kampus Segamat – Diploma in Business Studies (2005-2008) Working experience: One year as Admin Officer at AEON Jucso Tebrau Communication skills: Bahasa Melayu and English Skills: Able to solve problem under pressure and administrative skills Current position: Marketing Manager

Name: Lisa Nadhirah binti Hisham Address: No 14, Jalan Saujana Bistari 10, Taman Saujana, 86000 Kluang,Johor Email: lisa. nadhirah@yahoo. com Phone number: 017-9940014 Date of birth: 23 November 1989 Age: 24 Marital status: Single Academic qualification: UiTM Kampus Bandaraya Melaka – Bachelor of Business Administration (Hons) Marketing (2010-2012) UiTM Kampus Segamat – Diploma in Business Studies (2007-2010) Working experience: 6 months as a Customer Service at Parkson Alamanda Putrajaya Communication skills: Bahasa Melayu and English Skills: Communication skills and computer skills Current position: Operational Manager

Name: Shahrul Izany bin Shahir Address: No 2, Jalan Uda Utama 3/12 Bandar Uda Utama 81200 Johor Bharu Email: shahrulizany@yahoo. com Phone number: 017-3580476 Date of birth: 21 September 1987 Age: 26 Marital status: Single Academic qualification: UiTM Kampus Dungun – Bachelor of Business Administration (Hons) Operations Management (2008-2010) UiTM Kampus Segamat – Diploma in Business Studies (2005-2008) Working experience: Two years in management department at Munchy’s factory Communication skills: Bahasa Melayu and English Skills: Management and problem solving technical skills Current position: Financial Manager

Name: Natasha binti Noor Mohamed Address: No. 17, Jalan Jambu 8, Taman Kota Masai, 81700 Pasir Gudang, Johor. Email: natashanoormohamed@yahoo. com Phone number: 017-7941700 Date of birth: 18 January 1989 Age: 24 Marital status: Single Academic qualification: UiTM Kampus Bandaraya Melaka – Bachelor of Business Administration (Hons) Finance (2010-2012) UiTM Kampus Segamat – Diploma in Business Studies (2007-2010) Working experience: One years as Financial Assistant at Zaqi Enterprise Communication skills: Bahasa Melayu and English Skills: Computer skills, communication skills and financial skills. . 4 PARTNERSHIP AGREEMENT This agreement will bind the partners with the following aspects : Types of Business The business has been registered under the Register of Business using the name of Print House Enterprise. This business is a company that generally offers Printing services. The service line of this company is copying, printing, business card, invitation card, banner, bunting, brochures and flyers. Capital Capital is come from loan which is RM 100,000 and each partner has contributed the capital as follows: * Muhammad Azhar bin Mat SaruanRM 25,000 Muhammad Shahrul Izany bin ShahirRM 18,750 * Natasha binti Noor MohamedRM 18,750 * Nor Amalina binti A. SamadRM 18,750 * Lisa Nadhirah binti HishamRM 18,750 Period of Partner Agreement From the consent of partners we agreed that: The business had to run at least 5 years and partners are prohibited from dissolving the business without the consent of others partners resolutions to others partners. Distribution of Profits and Loss Every partner has belonging this business and the amount of the profit from this business as well. The partners will distribute profit according to capital distribution.

Any losses will be liable among partner equally according Partnership Act 1961. Prerequisite Any additional pay is to follow current profit and will be present in the end of annual financial report. Partnership Property Owned by the partnership and partners because it is not separate legal entity (Partnership Act 1961 S. 22). Death The representive of the death partners can appoint to the business under the Malaysian Law. The close member’s of the family upon the entire death partner share can make the transmission of the state. Bankruptacy or Dissolution of Partnership When the partner is found lunatic, permanently unsound mind [Partnership Act 1961 S. 37 (a)]. •When a partner permanently incapable of performing his part of the partnership contract [Partnership Act 1961 S. 37 (b)]. •When a partner calculated to affect prejudicially the carrying on the business [Partnership Act 1961 S. 37 (c)]. •When the partner wilfully or persistently commits a breach of the partnership agreement or otherwise [Partnership Act 1961 S. 37 (d)]. •When the business of the partnership can only be carried on at a loss [Partnership Act 1961 S. 37 (d)]. Whenever in any case circumstances have arisen which in the opinion of the court, render it just and equitable that the partnership be dissolve [Partnership Act 1961 S. 37 (f)]. Retirement If any partner who want to retire from the business must have consent from others partners. They will get back their invets and the notice of retirement must be given 3 months before the retirement date. Others Each of the partners must act in good faith and respect other partners. Partners must have willingness and interested to make the business more succesful and giving full commitment for the business.

They also must be honest and straight forward in order to execute responsible as a partner. We hereby fully understand and agree all the terms and conditions stipulated above: MUHAMMAD AZHAR BIN MAT SARUANGENERAL MANAGER850328-91-5047| NATASHA BINTI NOOR MOHAMEDFINANCIAL MANAGER890118-04-5194| SHAHRUL IZANY BIN SHAHIROPERATIONS MANAGER870921-14-5581| NOR AMALINA BINTI A. SAMADORGANIZATIONAL MANAGER870910-01-6602| LISA NADHIRAH BINTI HISHAMMARKETING MANAGER891123-01-5664| | 1. 5 LOCATION OF BUSINESS Victory Tuition Centre are located at Taman Setia Tropika. Location is one of important point in deciding the opportunity in one business.

Taman Setia Tropika has strategic location because it is near to schools like SMK Kempas just 1. 4 km and just take 4 minutes to arrive. and also near to Sekolah Kebangsaan Agama that is 2. 3 km and takes 5 minutes to arrive. Taman Setia Tropika is one of the development areas at Johor Bahru because its use as the main road from Bandar Dato’ Onn from kempas . The place also are near to residential areas like Taman Kempas baru and Taman Sinaran Kempas. The type of building that we choose to operates are three storey shop. The basic amenities available there are like bus services ,restaurant and ATM machines.

ORGANIZATIONAL PLAN 2. 1 ORGANIZATIONAL VISION AND MISSION Vision The vision of Victory Enterprise is ‘Creating new generation to become leaders and become a pioneer in education industry’. Mission The mission of Victory Enterprise are providing experience and quality teachers, providing useful extra notes and exercise. Besides that, we target want to open 5 centers in 2O15 around Malaysia and creating our own seminar and activities for students such as, Science discovery, Boost camp. Lastly, our mission is to be the best tuition centre in Malaysia. 2. 2 ORGANIZATIONAL CHART 2. 3 ADMINISTRATION PERSONNEL

Position| No. Of Personnel| General Manager| 1| Operational Manager| 1| Financial Manager| 1| Marketing Manager | 1| Administrative Manager| 1| Table 2. 1 2. 4 MANPOWER PLANNING 2. 4. 1 SCHEDULE OF TASK AND RESPONSIBILITIES Position| Main task| General Manager| * Leading and managing business activities towards achieving company’s goal. * Managing all the portions of all the operations of the business. * Forecast future planning and activities for the business. * Ensure the quality of organizational training is maintained to a certain level. * As a tutor for English subject. Operational Manager| * Planning schedule for classes and teachers. * Ensure the schedule in well-organized. * Planning for selecting teachers and replacement. * Help in long term planning that includes initiatives drawn towards operational smoothness. * As a tutor for Bahasa Melayu subject. | Financial Manager| * Controlling income and debtors. * Controlling cash flows-controlling payments and payables. * Predicting the possible trends of the industry. * Formulating long-term business ideas that are useful for the organization. * As a tutor for Prinsip Akaun subject. Marketing Manager| * Planning promotions * Setting short term target and ensure the target is achieved * Interface with customer * As a tutor for Science subject. | Administrative Manager| * Maintaining a safe and secure work environment. * Handling the registration of students. * Interviewing teachers. * Evaluating teachers’ performance. * Handling administration job. * Handling employees and student attendance. * As a tutor for Mathematic subject. | Table 2. 2 2. 4. 2 SCHEDULE OF REMUNERATION Position| No. | Monthly Salary (RM)| EPFCompany(13%) (RM)| EPFContribution(12%) (RM)| SOCSO(2. %) (RM)| Total Amount(RM)| General Manager| 1| 2,500| 325| 300| 62. 5O| 2,862. 50| Operational Manager| 1| 1,800| 234| 216| 45| 2,061. 00| Financial Manager| 1| 1,800| 234| 216| 45| 2,061. 00| Marketing Manager| 1| 1,800| 234| 216| 45| 2,061. 00| Administration Manager| 1| 1,800| 234| 216| 45| 2,061. 00| Teachers | 15| | | | | Panitia- (6 xRM20x 15studentsx 4days =RM7200)Teacher -(9XRM100X4 days=RM3600)| Total | | | | | | 21,906. 50| Table 2. 3 2. 4. 3 OTHER BENEFITS OFFER TO EMPLOYEES TYPES OF BENEFITS| DESCRIPTION| A weekly rest day| * All employees are entitled one rest day per week as stated in Section 59 of Employment Act. Each employee will take turn for their rest day to ensure the smoothness of the business operations. | Annual leave| * All employees earn the rights to apply for annual leaves after he or she has completed one year of service. | Emergency leave| * All employees is allow to take emergency leave as long as there is supported document of the leave such as death certificate and medical leave certificate from qualified doctors. | Public holiday| * Section 60 entitles all employees covered by the Employment Act to a minimum of 10 paid gazette public holidays per year. Public holidays :- National Day- The Yang di-Pertuan Agong’s Birthday- The State Ruler’s Birthday- Labour Day- Malaysia Day- Chinese New Year- Hari Raya Aidilfitri- Deepavali- New Year- Awal Ramadhan- Thaipusam- Awal Muharam| The Employees Provident Fund Act (EPF)| * Employers will contribute 13% to the employees’ monthly wages. * The employees will contribute 11% from their wages. | Social Security Organization (SOCSO)| * Contributions of 2. 5% on employees’ monthly wages. | Table 2. 4 2. 5 LIST OF OFFICE EQUIPMENT

No | Description | Quantity | Cost (RM)| Total (RM)| 1| Lighting | | | | | Single light| 55| 15. 00| 825. 00| | Emergency | 2| 100. 00| 200. 00| | Down light| 12| 30. 00| 360. 00| | | | | | 2| Household | | | | | Office table| 5| 85. 00| 425. 00| | Office chair| 5| 45. 00| 225. 00| | Air conditioner| 5| 1,200. 00| 6,000. 00| | Computer | 2| 1,200. 00| 2,400. 00| | Printer | 1| 400. 00| 400. 00| | Reception table | 1| 200. 00| 200. 00| | Reception chair| 2| 45. 00| 90. 00| | Telephone & fax| 1| 200. 00| 200. 00| 3| Stationary | 1| 200. 00| 200. 00| 4| Cleansing utensil| 1| 100. 00| 100. 00| | | | | | Total| | | 34,395. 00| Table 2. 5 2. 6 ORGANIZATIONAL BUDGET Items| Fixed Assets(RM)| Monthly Expenses (RM)| Other Expenses(RM)| Furniture and Fittings| 34,395| -| -| Salary (EPF&SOCSO)| -| 13,580| -| Office Rental| -| 5,000| -| Utilities | -| 1,600| -| Business Registration| -| -| 65| Total | 34,395| 20,180| 65| Table 2. 6 MARKETING PLAN 3. 1 MARKETING OBJECTIVES Marketing plan is a key for success in any business. It is prepared to outline necessary actions to take in order to achieve our marketing objectives. Other than that, it will help us as a guidebook for our marketing activities.

A good marketing plan is important to any business because it can help to boost our sales and increase our profit margins. It details out our target market, market size, sales forecast, list of competitors and others. The main marketing objective of Victory Tuition Centre is : * To attract customers to use our service that providing high quality education for students through our qualified and committed professionals and in the same time meets their needs and wants. * To develop brands awareness for people around Kempas and also for the future, in Johor Bahru. * To increase sales and fixed assets. 3. 2 SERVICE DESCRIPTION

Victory Tuition Centre services will starts on January 2014. Our service provides educational services to students. This is specifically in tutoring services and educational activities such as Boost Camp, Excellent UPSR and SPM and more. Our service is established especially for students’ age from 12 until 17 years old, and for those who will be sitting in the special examination which is UPSR and SPM. * Specification : * Satisfy needs and wants i. A conducive learning environment ii. Suitable and comfortable facilities iii. An affordable price for high quality service * High quality service iv. High qualified and committed tutors Types of services : * Tutoring service STANDARD / FORM| TYPES OF EXAM THAT WILL BE TAKEN| SUBJECTS| Standard 6| UPSR| Bahasa MelayuEnglishMathematicsScience| Form 1, 2 and 3| -| Bahasa MelayuEnglishMathematicsScienceSejarah| Form 4 and 5| SPM| Basic subjectsBahasa MelayuEnglishMathematicsScienceSejarahPrinsip AkaunAdditional subjectsAdditional MathematicsPhysicsChemistryBiology| Table 3. 1 * Educational activities v. Boost Camp vi. Excellent UPSR and SPM vii. Little Scientist 3. 3 TARGET MARKET Target market can be defined as a group of people that will basically need or want your products or services.

It is very important for us to identify our target market because it will ensure our business to operate for a long time and also ensure a profitable business. For the time being, Victory Tuition Centre’s service focuses on Kempas area, which is located in the development area. Our target market comes from the parents who have children age from 12 until 17 years old and who will be sitting for special examination. Our location is located at the development centre, which is Taman Setia Tropika. Most of the students come from Taman Setia Tropika, Bandar Baru Uda, Bandar Dato’ Onn and also Kempas.

Our than that, our location nearest to schools, which is Sekolah Menengah Kebangsaan Kempas, Sekolah Menengah Jenis Kebnagsaan (C) Kempas and Sekolah Kebangsaan Kempas. In targeting our market, we use demographic segmentation by dividing our market according to their age, which is for student age from 12 until 17 years old. 3. 4 MARKET SIZE Market size is defined as the number of certain market who is potential buyers of our service. We estimate that population in Kempas is around 100,000 people. This is the calculation for our market size : STANDARD / FORM| MARKET SIZE|

Standard 6| RM 40 x 15 students = RM 600RM 600 x 4 subjects = RM 2,400RM 2,400 x 12 months = RM 28,800| Form 1, 2 and 3| 3 classes x 15 students = 45 studentsRM 50 x 45 students = RM 2,250RM 2,250 x 5 subjects = RM 11,250RM 11,250 x 12 months = RM 135,000| Form 4 and 5| Basic subjects2 classes x 15 students = 30 studentsRM 55 x 30 students = RM 1,650RM 1,650 x 6 subjects = RM 9,900RM 9,900 x 12 months = RM 118,800Additional subjects2 classes x 15 students = 30 studentsRM 60 x 30 students = RM 1,800RM 1,800 x 4 subjects = RM 7,200RM 7,200 x 12 months = RM 86,400| Table 3. 3. 5 COMPETITORS Every business must have competitors especially for a new venture business like us. It is important to recognize the competitors, so that we can compete with them. After a survey, we have identified a few tuition centres that might be our competitors since it is located nearest to our location. Furthermore, they are also located in the Kempas area. Competitor 1 NAME OF COMPETITOR| DETAILS OF BUSINESS| Pusat Tuisyen ADAMi | 4A, Jalan Padi Emas 6/2, Bandar Baru Uda,81200 Johor Bahru, Johor. Tel : 019-7788010| Table 3. 3 STRENGTHS| WEAKNESSES| A well established business * Have more experience than us * High quality tutors * Affordable price| * Many competitors * Too many students in one class| Table 3. 4 Competitor 2 NAME OF COMPETITOR| DETAILS OF BUSINESS| Pusat Tuisyen Tatapan Minda| 21-01 Medan Aliff Harmoni 1/1,Taman Damansara Aliff,81200 Johor Bahru, Johor. Tel : 07-2329888| Table 3. 5 STRENGHTS| WEAKNESSES| * A well established business * Have more experience than us * Offers a conducive learning environment * High quality tutors| * Many competitors * Expensive price| Table 3. Competitor 3 NAME OF COMPETITOR| DETAILS OF BUSINESS| KumOn| No. 7-01, Jalan Setia Tropika 1/15Taman Setia Tropika81200 Johor Bahru, Johor. Tel : 012-714 7330| Table 3. 7 Strengths| Weaknesses| * Using special learning techniques * A well known learning centre | * Limited subjects * Expensive price| Table 3. 8 3. 6 SWOT ANALYSIS STRENGTHS| * We have recognize a few strengths of our business. The first one is our location. Taman Setia Tropika is one of the strategic places and it is in the development area. Furthermore, there is no existence of other tuition centre. Other than that, our price is also affordable to the customer. We offered a medium price compared to the other tuition centre, which is not too expensive or too cheap. This factor will help us to maintain our profits. * We also provide conducive learning environment for students. We provide a different learning environment from school. This will help the students to be more focus and enjoy the learning process in class. * Lastly, we also provide qualified and committed professionals as our tutors. Most of them have teaching experience and as an examiner in UPSR and SPM.

We also do regular evaluation for our tutors in order to maintain our business quality. | WEAKNESSES| * Our tuition centre is a new business in the industries. This factor is one of our weaknesses. We difficult to gain trust from the parents to send their children in a new place like us. | OPPORTUNITY| * Our business is located nearest to school and residential areas. We have recognized a few schools nearest to us which is Sekolah Menengah Kebangsaan Kempas, Sekolah Agama Kempas and also Sekolah Menengah Jenis Kebangsaan (C) Kempas.

We also nearest to a many residential areas such as Taman Sinaran Kempas, Taman Anggerik and Taman Bukit Kempas. | THREAT| * Our threat is comes from a few tuition centres. This is because they have operated for a long time. So, this factor shows that they already have regular customers. | Table 3. 9 3. 7 MARKET SHARE Market share before entering the business : NAME OF BUSINESS| MARKET SHARE (%)| MARKET SIZE ESTIMATION (RM)| Pusat Tuisyen ADAMi| 45| 45,000| Pusat Tuisyen Tatapan Minda| 35| 35,000| KumOn| 20| 20,000| TOTAL| 100| 100,000| Table 3. 10

Before Victory Tuition Centre entered the market, Pusat Tuisyen ADAMi has the largest market share which is 45% since their price is affordable to the customers. The price is in medium range. Other than that, this tuition centre also uses professional and experienced tutors such as examination markers. While, Pusat Tuisyen Tatapan Minda is the second largest market shares which is 35%, since this tuition centre their price is a bit expensive compared to Pusat Tuisyen ADAMi. But, one of the factors that have made their tuition centre famous is because of the focus on maintaining high quality services.

For example, they will make sure their tutors will always meet the specific standard. Lastly, KumOn is a learning centre that offered only two subjects which is English and Mathematics for students aged from 4 until 17 years old. Other than that, their price is also expensive. This has made their market size smaller than the other two tuition centres even though they are located at a development area. Market share after entering the market : NAME OF BUSINESS| MARKET SHARE (%)| MARKET SIZE ESTIMATION (RM)| ADAMi Tuition Centre| 40| 40,000| Pusat Tuisyen Tatapan Minda| 30| 30,000| KumOn| 10| 10,000|

Victory Tuition Centre| 20| 20,000| TOTAL| 100| 100,000| Table 3. 11 After Victory Tuition Centre entered the market, Pusat Tuisyen ADAMi and Pusat Tuisyen Tatapan Minda still conquered the market, which is 40% and 30% respectively, while Victory Tuition Centre has 20% of the market share and KumOn has 10% of the market share. We have 20% of the market share because our tuition centre offered an affordable price for each subject. We also use professionals and experienced tutors. Besides that, our tuition centre also located at a strategic place. So that, students from a nearby places will come registered at our place. . 8 SALES FORECAST MONTHS| STANDARD 6(RM)| FORM 1,2 and 3 (RM)| FORM 4 and 5(RM)| OTHERS(RM)| TOTAL(RM)| January| 2,400| 11,250| 17,100| -| 30,750| February| 2,400| 11,250| 17,100| -| 30,750| March| 2,400| 11,250| 17,100| -| 30,750| April| 2,400| 11,250| 17,100| -| 30,750| May| 2,400| 11,250| 17,100| -| 30,750| June| 2,400| 11,250| 17,100| -| 30,750| July| 2,400| 11,250| 17,100| -| 30,750| August| 2,400| 11,250| 17,100| -| 30,750| September| 2,400| 11,250| 17,100| -| 30,750| October| 2,400| 11,250| 17,100| Excellent UPSR and SPMRM80 x 200 students = RM16,000| 46,750| November| 2,400| 11,250| 17,100| -| 30,750|

December| -| -| -| Boost CampRM 200 x 250 students = RM 50,000Little ScientistRM 80 x 100 students = RM 8,000| 58,000| TOTAL (2014)TOTAL (2015)TOTAL (2016)| | +3%+5%| | | 412,250424,617. 50445,848. 38| Table 3. 12 3. 9 MARKETING STRATEGY Product Strategy Victory Tuition Centre is a business that provides a high quality service to its customers. The services’ quality will be maintained by doing a regular inspection towards its tutors and students. For the tutors, we will evaluate the ability of the tutors to teach and attract their students in classes.

If it is not achieve the standard required, we will take the corrective action by recruiting new tutors. As for the students, we will evaluate their performance in class. If they did not performed well, we will take corrective action by taking their parents feedback and review them back in the next evaluation. Our service also comes with package. We offered a discount to every student who takes four subjects with us. So, the price will be a bit cheaper and it is affordable by the parents. Furthermore, our service also offered a few educational activities for students.

For example, Excellent UPSR and SPM. This program is intended to help the students in the techniques of answering examination paper for each subject. So, they can score in their examination. Other than that, we also offered a program for Standard 6 students, which is Little Scientist. Little Scientist is a program that will create and attract the interest of students in Science. For a school holidays special, we offered a Boost Camp program. This is to boost the confidence and motivational level of the students. Our business also will promote more educational activities in the future.

We will follow up every customer by keep in touch with them from time to time with our activities and their children’s performance. This is to build a strong relationship with our customers and also to maintain a high profit for our business. Price Strategy Price is the value exchanged between the seller and the buyer in order for the buyer to posses, use or experience the product or service offered. So, it is important for us to know our pricing strategy in order to attract customers. If our service is expensive, customers will not use our service and try to find another tuition centre for their children.

There are few factors that we consider when we setting our price. The factors are our marketing objectives and competitor’s pricing. As we looked at our competitor’s price, we noticed that we offered a moderate price to our customers. For our service, we used product bundle pricing: STANDARD / FORM| PRICE| Standard 6| Per subject = RM 35Package = RM 140 for 4 subjects| Form 1, 2 and 3| Per subject = RM 50Package = RM 180| Form 4 and 5| Basic subjectPer subject = RM 55Package = RM 200| Table 3. 13 Common Pricing Method * Based on Competition NAME OF BUSINESS| PRICE|

ADAMi Tuition Centre| Per subject = RM 503 subject and above = RM 40 per subject| Pusat Tuisyen Tatapan Minda| Not stated| KumOn| Age 4 to 12 years old = RM 120Age 13 to 17 years old = RM 130*per subject| Victory Tuition Centre| Per subject = RM 40 until RM 60Package = Standard 6 (4 subjects for RM 140) Form 1,2,3 (4 subjects for RM 180) Form 4,5 (4 subjects for RM 200)| Table 3. 14 Place Strategy This strategy is refers to the decision made on the location of the business, while channel of distribution is a network developed to ensure our product or services reach target consumers.

Victory Tuition Centre used Level 1 distribution strategy. This strategy channelled our services straight to the customers. We consider a few factors for this type of strategy, which is our type of services that give tutoring classes to students and our target market. Other than that, we also consider the market coverage. Our market coverage is around Kempas area. Promotion Strategy In order to achieve our marketing objectives, we have used a few promotion tools. First promotion tools by using flyers. We distribute 3,000 pieces flyers, A5 size to the customers by insert it inside the newspaper and spread it to the students at schools.

Other than that, we also distribute 1,000 pieces brochure, A4 size to the customers during our special event and also to the new customers that come at our tuition centre. We also design 30 pieces bunting, size 2’x6’ to be hanging along the roadside. Besides that, we also used business card as one of our promotion tools. We provide 100 pieces of business card to each of our employees. This entire promotions tool is used in order to let people know about the existence of our business. PROMOTION TOOLS| EXAMPLE| Flyers| | Brochures| Front sideBack side| Bunting| | Business card| | Facebook| http://www. facebook. om/victorytutitioncentre| Table 3. 15 3. 10 MARKETING BUDGET ITEMS| FIXED ASSETS (RM)| WORKING CAPITAL (RM)| OTHER EXPENSES(RM)| Fixed AssetsSignboardWorking CapitalPromotionOther ExpensesGrand Opening| 2,530–| -2,000-| –1,500| TOTAL| 2,530| 2,000| 1,500| Table 3. 16 OPERATIONS PLAN 4. 1 OPERATIONAL OBJECTIVE * To ensure the business operations are cost effective to be able to compete. * Able to offer lowest price and make the highest profit margin * To measure the productivity and efficiency of the operations and to calculate the number of customers per period. 4. 2 PROCESS PLANNING SYMBOL| TYPE OF ACTIVITY| DESCRIPTION| Operation| Activity that modify transform or give values to the input| | Transportation| Transport activity occur when materials are transported from one point to another| | Inspection| Activity that measures standard of the in process material, finished product or services| | Delay| The symbol is used when in process materials restrained in a location waiting for next activity| Table 4. 1 Once the customers registered at our tuition centre, we will have them to fill up student’s form. This process has enables us to review the contract of the customers and also to know the exact number of students at our tuition centre.

After totaling up the students, we will select tutors through the interview. From this interview, we will see if the tutors have the qualification and experience to be a tutor at our tuition centre. This process is to maintain our quality service. However, this process will be repeated if the tutors did not maintain their quality of service. Other than that, if the students fees is late than the fixed date given, we will call the customers to remind them about the fees as the first warning. If the customers still not do so, reminder letters will be given.

This is because, our tuition centre generate sales from the fees collected. In class, we also will inspect the tutors and students performance. If they did not achieve the specific standard, corrective actions will be taken. For example, if the student performance is poor, we will take corrective actions by getting the parent’s feedback about their children’s performance. 4. 3 OPERATIONS LAYOUT This is our operations layout for 2nd floor. This is our operations layout for 3rd floor. 4. 4 PRODUCTION PLANNING * Calculation for output per day STANDARD / FORM| CALCULATION|

Standard 6| Average sales forecast per month = RM 2,400Price per unit = RM 40Number of output per month = RM 2,400 ? RM 40 = 60 units The number of working days per month is 4 days because 1 month has 4 classes. The amount of output to be produced per day is : = 60 units ? 4 days = 15 units per day. | Form 1, 2 and 3| Average sales forecast per month = RM 11,250Price per unit = RM 50 Number of output per month = RM 11,250 ?

RM 50 = 225 units The number of working days per month is 5 days because 1 month has 5 classes. The amount of output to be produced per day is : = 225 units ? 5 days = 45 units per day. | Form 4 and 5| * Basic subjectsAverage sales forecast per month = RM 9,900Price per unit = RM 55Number of output per month = RM 9,900 ? RM 55 = 180 units The number of working days per month is 6 days because 1 month has 6 classes.

The amount of output to be produced per day is : = 180 units ? 6 days = 30 units per day. * Additional subjectsAverage sales forecast per month = RM 7,200Price per unit = RM 60Number of output per month = RM 7,200 ? RM 60 = 120 units The number of working days per month is 4 days because 1 month has 4 classes. The amount of output to be produced per day is : = 120 units ? 4 days = 30 units per day| Table 4. 2

Product No| Description | Specification| Quantity | Cost(RM) | Total (RM)| 101| White board| 90cmx120cm| 4| 104. 00| 416. 00| 102| White board eraser| 35cmx51cmx95cm| 4| 3. 90| 15. 60| 103| Dustbin | 30cmx29cmx14cm| 9| 2. 90| 26. 10| 104| Marker pen| 17cmx1. 5mm| 12| 1. 50| 18. 00| 105| A4 papers| 8. 3 in ? 11. 7 in | 5 reams| 82. 50| 82. 50| TOTAL| | | | | 558. 20| 4. 5 MATERIAL PLANNING Table 4. 3 4. 6 MACHINES AND EQUIPMENT PLANNING No| Material and equipment| Quantity| Price/unit (RM)| Total (RM)| 1| Bookshelf| 2| 319. 00| 638. 00| 2| Books| -| 2,000. 00| 2,000. 00| | Classroom table| 30| 75. 00| 2,250. 00| 4| Classroom chair| 80| 29. 90| 2,392. 00| 5| Table| 2| 79. 90| 159. 90| 6| Chair| 4| 29. 90| 119. 60| 7| Wifi| 1| 199. 90| 199. 90| 8| Sofa| 1| 300. 00| 300. 00| 9| Module| 450| 10. 00| 4,500. 00| 10| White board| 4| 104. 00| 416. 00| 11| White board eraser| 4| 3. 90| 15. 60| 12| Dustbin| 9| 2. 90| 26. 10| TOTAL| | | | 13,017. 10| Table 4. 4 4. 6. 1 SUPPLIERS NAME OF SUPPLIERS| ADDRESS| IKEA Store| No. 2 Jalan PJU 7/2,Mutiara Damansara,47800 Petaling Jaya,Selangor Darul Ehsan, Malaysia. Tel : +(603) 7726 7777| Popular Book Co. (M) Sdn Bhd (Co. No. 13825-W)| Lot J4-06A & J4-07,Level 4 Johor Bahru City Square 106 & 108,Jalan Wong Ah Fook 80000 Johor Bahru. Tel| : | 07-221 8970 / 07-221 8971| | Inter IT Trading| 91-G Jalan Mutiara Emas 10/19, Taman Mount Austin,81100 Johor Bahru Johor. Tel : +607-2953166| Online website * Materials and Equipment * Flyers and bunting * Business cards and brochures| http://www. lelong. com. myhttp://www. facebook. com/izrekaprintinghttp://www. ninidesign. blogspot. com| Table 4. 5 4. 7 MANPOWER PLANNING No | Position | No. of Staff Required| Salary /month (RM)| EPF (RM) 13%| SOCSO (RM) 2. 5%| 1| Operation Manager| 1| 1800| 234| 54| | Part time Teacher| 15| Panitia- (6xRM75x4 days=RM1800)Teacher -(9XRM45X4 days=RM1620)| -| -| Total| | 16| 5220| 234| 54| Table 4. 6 Worker status : Our company employed part time worker and full time worker. Half of full-time employees consist of our own staff. 4. 8 OVERHEADS REQUIREMENT I. Wi-Fi a. P1 Wimax Unlimited II. Insurance b. Building Insurance 4. 9 LOCATION Our Shop Lot Our Business Card Our business is located at Taman Setia Tropika, Kempas, Johor Bahru. There are a few factors that we consider before we choose this location.

The first one is, this location is located at new development areas. There are many other business operates at the location such as bridal and restaurants. Other than that, we also noticed that there is no tuition centre at Setia Tropika. So, this has made our business as one of the potential business that may be open at Setia Tropika. Moreover, our business is located nearest to residential areas such as Taman Setia Tropika, Taman Sinaran Kempas, Taman Anggerik and others. This factor has shows that this business will have a pool of target market. 4. 10 BUSINESS AND OPERATIONS HOURS

After that, we have to gain approval from Pejabat Pendidikan Daerah (PPD) to operate a tuition centre. This has to be done to inform about our business existence, so that they will be able to inspect our business places. There are a few factors they will inspect such as the suitability of our business to operate at the places since it is involving the educational service. Other than that, PPD also will inspect our teaching syllabus in order to ensure our tuition centre is following the national education standard requirement. After we have gained the approval, we have to inform the Jabatan Bomba dan Penyelamat.

Working CapitalPromotion| 3,000| | | 3,000| Pre-Operations & Other ExpenditureOther Expenditure| | | 1,500| | Total| 5,500| 2,000| 1,500| 5,500| Table 5. 1 Sales Projection SALES PROJECTION| Month 1| 30,750 | Month 2| 30,750 | Month 3| 30,750 | Month 4| 30,750 | Month 5| 30,750 | Month 6| 30,750 | Month 7| 30,750 | Month 8| 30,750 | Month 9| 30,750 | Month 10| 46,750 | Month 11| 30,750 | Month 12| 58,000 | Total Year 1| 412,250 | Total Year 2| 424,618 | Total Year 3| 445,848 |

Table 5. 2 Administrative Budget Particulars| F. Assets| Monthly Exp. | Others| Total| | | | | | Fixed AssetsLand & BuildingFurniture & Fittings| 34,400| | | 34,400| Working CapitalSalaries, EPF & SOCSORental| | 21,9075,000| | 21,9075,000| Pre-Operations & Other ExpenditureOther ExpenditureDeposit (rent, utilities, etc. )Business Registration & LicencesInsurance & Road Tax for Motor VehicleOther Pre-Operations Expenditure| | | 10,000165400| 10,000165400| Total| 34,400| 26,907| 10,565| 71,872| Table 5. 3 Operations Budget Particulars| F. Assets| Monthly Exp. | Others| Total| | | | | | | | | | Fixed AssetsMaterial and EquipmentRenovation| 13,00011,500| | | 13,00011,500| Working Capital Raw MaterialsCarriage Inward & DutySalaries, EPF & SOCSOUtilities| | 2501,600| | 1,600| Total| 24,500| 1,850| -| 26,100| Table 5. 4 Purchase Projection PURCHASE PROJECTION| | Month 1| 250| Month 2| 250| Month 3| 250| Month 4| 250| Month 5| 250| Month 6| 250| Month 7| 250| Month 8| 250| Month 9| 250| Month 10| 250| Month 11| 250| Month 12| 250| Total Year 1| 3,000| Total Year 2| 3,090| Total Year 3| 3,245| Table 5. 5 5. 3 SOURCES OF FINANCING The pre finalized investment (RM110,000)

Sources of financing | Capital Contribution | Profit Sharing Ratio| Amount (RM)| | First partner| 25 %| 27,500| | Second partner| 18. 75 %| 20,625| Personal loan and saving| Third partner| 18. 75 %| 20,625| | Fourth partner| 18. 75 %| 20,625| | Fifth partner| 18. 75 %| 20,625| | Total | 100%| 110,000| Table 5. 6 This table shows that the sources of financing of our tuition centre. The partners contribute their own capital with personal loan or savings. Profit sharing terms is a profit or loss based on income for the month or fiscal year. Our general manger contribute 25% of the capital which the amount is

RM27,500 while the other partners contributes the same amount, RM 20,625 which are 18. 75%. So, the total that the capital needed is RM110,000. 5. 3. 1 PROJECT IMPLEMENTATION COST | | | | | | | | – | PROJECT IMPLEMENTATION COST & SOURCES OF FINANCE| Project Implementation Cost | Sources of Finance| | | Requirements| Cost| Loan| Hire-Purchase| Own Contribution| Fixed Assets | | | | Cash | Existing F. Assets| Land & Building| | | | | | Furniture and Fittings| 34,400 | | | 34,400 | | | | | | | | | | | | | | | | | | | | Signboard| 2,500 | | | 2,500 | | | | | | | | | | | | | | | | | | | Material and Equipment| 13,000 | | | 13,000 | | Renovation| 11,500 | | | 11,500 | | | | | | | | | | | | | | Working Capital| 1| months| | | | | | Administrative| 26,907 | | | 26,907 | | Marketing| 3,000 | | | 3,000 | | Operations| 1,850 | | | 1,850 | | Pre-Operations & Other Expenditure| 12,065 | | | 12,065 | | Contingencies| | | | | | | | | | | | | | | | TOTAL| | | 105,222 | | | 105,222 | | Table 5. 7 DEPRECIATION SCHEDULE Fixed Asset| Furniture & Fittings| Cost (RM)| 34,400| | Method| Straight Line| |

Economic Life (yrs)| 5| | | Annual| Accumulated| | Year| Depreciation| Depreciation| Book Value| | -| -| 34,400| 1| 6,880| 6,880| 27,520| 2| 6,880| 13,760| 20,640| 3| 6,880| 20,640| 13,760| 4| 6,880| 27,520| 6,880| 5| 6,880| 34,400| -| Table 5. 8 | | | | | | | | | | | | | | | | | | | Fixed Asset| Signboard| Cost (RM)| 2,500| | Method| Straight Line| | Economic Life (yrs)| 5| | | Annual| Accumulated| | Year| Depreciation| Depreciation| Book Value| | -| -| 2,500| 1| 500| 500| 2,000| 2| 500| 1,000| 1,500| 3| 500| 1,500| 1,000| 4| 500| 2,000| 500| 5| 500| 2,500| -| Table 5. 9 Fixed Asset| Material & Equipment|

Cost (RM)| 13,000 | | Method| Straight Line| | Economic Life (yrs)| 5| | | Annual| Accumulated| | Year| Depreciation| Depreciation| Book Value| | -| -| 13,000| 1| 2,600| 2,600| 10,400| 2| 2,600| 5,200| 7,800| 3| 2,600| 7,800| 5,200| 4| 2,600| 10,400| 2,600| 5| 2,600| 13,000| -| Table 5. 10 Fixed Asset| Renovation| Cost (RM)| 11,500| | Method| Straight Line| | Economic Life (yrs)| 5| | | Annual| Accumulated| | Year| Depreciation| Depreciation| Book Value| | -| -| 11,500| 1| 2,300| 2,300| 9,200| 2| 2,300| 4,600| 6,900| 3| 2,300| 6,900| 4,600| 4| 2,300| 9,200| 2,300| 5| 2,300| 11,500| -| Table 5. 11 5. PRO-FORMA CASH FLOW STATEMENT 5. 5PRO-FORMA INCOME STATEMENT | | | | | | | | VICTORY TUITION CENTRE| PRO-FORMA INCOME STATEMENT| | | | | | | | | | | | | | Year 1| Year 2| Year 3| | Sales| 412,250 | 424,618 | 445,848 | | Less: Cost of Sales| | | | | Opening stock| | | | | Purchases| | 3,000 | 3,090 | 3,245 | | Less: Ending Stock| | | | | Carriage Inward & Duty| | | | | | | | | | | | | Gross Profit| 409,250 | 421,528 | 442,603 | | | | | | | Less: Enpenditure| | | | | Administrative Expenditure| 322,884 | 322,884 | 322,884 | | Marketing Expenditure| 36,000 | 36,000 | 36,000 | Other Expenditure| | | | | Business Registration & Licences| 165 | | | | Insurance & Road Tax for Motor Vehicle| 400 | 400 | 400 | | Other Pre-Operations Expenditure| 1,500 | | | | Interest on Hire-Purchase| | | | | Interest on Loan| | | | | Depreciation of Fixed Assets| 12,280 | 12,280 | 12,280 | | Operations Expenditure| 19,200 | 19,200 | 19,200 | | Total Expenditure| 392,429 | 390,764 | 390,764 | | Net Profit Before Tax| 16,821 | 30,764 | 51,839 | | Tax| | 0| 0| 0| | Net Profit After Tax| 16,821 | 30,764 | 51,839 | | Accumulated Net Profit| 16,821 | 47,585 | 99,424 | Table 5. 12 . 7PRO-FORMA BALANCE SHEET VICTORY TUITION CENTRE| PRO-FORMA BALANCE SHEET| | | | | | | | | | Year 1| Year 2| Year 3| ASSETS| | | | | | | | | | | | Non-Current Assets (Book Value)| | | | | Land & Building| | | | | Furniture and Fittings| 27,520 | 20,640 | 13,760 | | | | | Signboard| 2,000 | 1,500 | 1,000 | | | | | Material and Equipment| 10,400 | 7,800 | 5,200 | Renovation| 9,200 | 6,900 | 4,600 | | | | | Other Assets| | | | | Deposit| 10,000 | 10,000 | 10,000 | | | | | | | | | | 59,120 | 46,840 | 34,560 | Current Assets| | | | | Cash Balance| 63,173 | 106,307 | 170,581 | | | 63,173 | 106,307 | 170,581 | | | | | | | TOTAL ASSETS| | 122,293 | 153,147 | 205,141 | | | | | | | Owners’ Equity| | | | | Capital| | 105,222 | 105,222 | 105,222 | Accumulated Profit| | 16,821 | 47,585 | 99,424 | | | | 122,043 | 152,807 | 204,646 | Long-Term Liabilities| | | | | Loan Balance| | | | | Hire-Purchase Balance| | | | | | | | | | | Current Liabilities| | | | | Accounts Payable| | 250 | 340 | 495 | | | | | | | TOTAL EQUITY ; LIABILITIES| | 122,293 | 153,147 | 205,141 | Table 5. 13 5. 7FINANCIAL ANALYSIS VICTORY TUITION CENTRE| FINANCIAL RATIO ANALYSIS| Year 1| Year 2| Year 3| | | | | PROFITABILITY| | | | | Net Profit Margin| 4. 08%| 7. 24%| 11. 63%| | Return on Assets| 12. 71%| 18. 86%| 24. 10%| | Return on Equity| 13. 78%| 20. 13%| 25. 33%| | | | | | SOLVENCY| | | | | Debt to Equity| 0. 20%| 0. 22%| 0. 24%| | Debt to Assets| 0. 19%| 0. 21%| 0. 23%| | | | | | Table 5. 14 5. 7. 1GRAPH Profitability Graph 5. 7. 1 shows a Net Profit Margin The graph above shows the net profit margin for our business. This ratio indicates the pricing strategy adopted by the firm. The first year shows a net profit margin is 4. 08%. The percentage increases to 7. 4% at the second year and this indicates that our business generate higher on net profit. In third year, the percentage increases to 11. 63%. Graph 5. 7. 2 shows a Return on Assets The graph above shows return on assets of our business. This ratio indicates the management’s ability to make profits from the business’s investments in assets. The first year shows the percentage of return on assets is 12. 71% and on the next year the percentage increases to 18. 86%. In third year, the percentage also increases to 24. 10%. This show the higher return on assets in investments. Graph 3 shows a Return on Equity

The graph above shows return on equity of our business. This ratio indicates the management’s ability to make profits from the business’s investments in equity. The first year shows the percentage of return on equity is 13. 78% and increase in the next year which is 20. 13%. In the third year, the percentage is 25. 33% which is still increasing good for profitability of our company. Solvency Graph 5. 7. 4 shows a Debt to Equity The graph above shows a debt to equity in this business. The ratio indicates the proportion of equity and debt the company is using to finance its assets.

The first year shows the percentage of debt to equity is 0. 20%. In the second year, the ratio become higher to 0. 22% and also increases in the next year. Less than 1 ratio shows that most funds are provided by shareholders. Graph 5. 7. 5 shows a Debt to Assets As we can see in the graph above, it shows a debt to assets of the business. The debt to assets indicates the proportion of a company’s assets which are financed through debt. The first year shows the percentage of 0. 19%. While in the second year, the percentage decreases to 0. 21% and become higher 0. 23% in the third year.

February 4th, 2023

Managing Quality in Partnership Working with Service Users

Central College London Module Study Guide G: Managing Quality in Partnership Working Graduate Diploma in Health and Social Care – Level 5 Module G: Managing Quality in Partnership Working The learner will: 1 Understand differing perspectives of quality and partnership working in relation to health and social care services Partnership: empowerment; independence; autonomy; power; informed choice; staff and organisation groups eg statutory, voluntary, private, independent, charitable; service users

Quality: audit; quality control; role of agencies eg Care Quality Commission, NICE; role of staff and users; quality perspectives eg Servqual-Zeithaml, Parasuraman and Berry; technical quality; functional quality http://areas. kenan-flagler. unc. edu/Marketing/FacultyStaff/zeithaml/Selected%20Publications/SERVQUAL-%20A%20Multiple-Item%20Scale%20for%20Measuring%20Consumer%20Perceptions%20of%20Service%20Quality. pdf The learner can: 1. 1 Discuss the philosophy of working in partnership in health and social care 1. Analyse the role of external agencies in setting standards and the impact this has on service quality The learner will: 2 Understand how to promote partnership philosophies and relationships in health and social care services Partnership working: empowerment; theories of collaborative working; informed decision making; confidentiality; professional roles and responsibilities; models of working eg unified, coordinated, coalition and hybrid models; management structures; communication methods; inter-disciplinary and inter-agency working and joint working agreements.

Legislation: current and relevant legislation eg safeguarding, equality, diversity, disability, data protection Organisational practices and policies: current and relevant practices; agreed ways of working; services planning procedures and employment practices for different bodies ie statutory, voluntary, specialist units; risk assessment procedures The learner can: 2. 1 Compare models of partnership working and discuss how differences in working practices and policies affect collaborative working across the sector 2. Evaluate current legislation and organisational practices and policies for partnership working in health and social care The learner will: 3Understand strategies for achieving quality in health and social care services Standards: minimum standards; best practice; benchmarks; performance indicators; charters; codes of practice; legislation eg local, national, European Implementing quality: planning, policies and procedures; target setting; audit; monitoring; review; resources (financial, equipment, personnel, accommodation); communication; information; adapting to change

Barriers: external (inter-agency interactions, legislation, social policy); internal (risks, resources, organisational structures, interactions between people) The learner can: 3. 1 Explain the standards that exist in health and social care for measuring quality 3. 2 Evaluate different approaches to implementing quality systems 3. 3 Analyse potential barriers to delivery of quality health and social care services The learner will: 4Evaluate the outcomes of partnership working for users of services, professionals and organisations in health and social care services

Outcomes for service users: positive eg improved services, empowerment, autonomy, informed decision making; negative eg neglect, abuse, harm, anger, miscommunication, information overload, confusion, duplication of service provision, disempowerment Outcomes for professionals: positive eg coordinated service provision, professional approach, clear roles and responsibilities, organised communication, preventing mistakes, efficient use of resources; negative eg professional conflict, miscommunication, time wasting, mismanagement of funding

Outcomes for organisations: positive eg coherent approach, shared principles, comprehensive service provision, common working practices, integrated services; negative eg communication breakdown, disjointed service provision, increased costs, loss of shared purpose Barriers to partnership working: lack of understanding of roles and responsibilities; negative attitudes; lack of communication; not sharing information; different priorities; different attitudes and values

Strategies to improve outcomes: communication; information sharing; consultation; negotiation; models of empowerment; collective multi-agency working; dealing with conflict; stakeholder analysis The learner can: 4. 1 Analyse outcomes and barriers for partnership working for users of services, professionals and organisations 4. 2 Describe strategies to improve outcomes for partnership working in health and social care services The learner will: 5 Understand methodologies for evaluating health and social care service quality

Methods for assessing quality: questionnaires; focus groups; structured ans semi-structured interviews; panels, complaints procedures; open forums Perspectives: external eg inspection agencies; internal eg service standards; continuous improvement : mechanisms eg consultation, panels, user managed services The learner can: 5. 1 Analyse methods for evaluating health and social care service quality with regards to external and internal perspectives 5. 2 Discuss the impact that involving users of services in the evaluation process has on service quality ————————————————- Internal Assessment Guidance – Module D:

Task 1 – Type of evidence: Presentation Assessment criteria: 1. 1, 1. 2, 4. 1, 4. 2 Additional information: Constitutes 30% of module mark Activity Review how a local health or social care provider engages with relevant partners in the delivery of their service, and how this can impact on the quality of the service they provide. You may already be familiar with this health or social care provider and have some knowledge of their approach to partnership and quality standards OR you can choose a provider and analyse their practice based on the information contained: * Within their marketing / promotional material On their website * Within their latest report from the Care Quality Commission (CQC) Please note in order to maintain confidentiality you can only refer to information that is available within the public domain Review their practice and answer the following questions in your presentation: a) How do they work in partnership with: outside agencies; specialist services; service users; professional bodies; voluntary and other organisations? (1. 1) b) How do these partnerships impact the quality of service provided? 1. 2) c) Analyse outcomes and barriers for partnership working with service users within this service (4. 1) d) Describe strategies that could improve outcomes for partnership working within this service (4. 2) You will need to prepare a presentation of approximately 10 minutes duration to illustrate your answers to the questions above. In your presentation you need to include copies of slides and presentation notes and submit a copy to your assessor. Your final slide should list correctly any references used.

Presentation date: Week 3 Task 2 – Type of evidence: Report Assessment criteria: All of 2, 3 and 5. Constitutes 50% of the module mark Additional information: Word limit 1500 words Activity Using information available related to the health or social care provider that was the focus of your presentation for Task 1, submit a report answering the following questions: 1) Identify positive aspects of partnership practice within the service, and discuss how partnership practice could be improved (2. ) 2) Evaluate how relevant legislation is implemented to affect organisational practice related to partnership working (2. 2) 3) Explain at least five standards that exist for measuring quality (3. 1) 4) Identify and evaluate approaches to implementing quality systems (3. 2) 5) Analyse any barriers or potential barriers to delivering a good quality service (3. 3) 6) Analyse methods used for evaluating the quality of the service provided (5. 1) 7) Discuss the impact of any involvement of services users in the evaluation of service quality (5. 2)

In order to promote confidentiality, ensure that you only refer to material and information that is available within the public domain. All sources of evidence should be accurately referenced at the end of your report. Task 3- Essay (500-700 words) . This will constitute 20% of the module mark. Reflect and write an essay which will identify what you have learned from this module to include personal strengths and weaknesses during the learning process. Highlight any need that will require development for the future which would enhance your employability. Submission date: 17/05/2013

February 4th, 2023

Chapter 20

Chapter 20 Forming and Operating Partnerships Solution Manual Discussion Questions: 1. [LO 1] What is a flow-through entity, and what effect does this designation have on how business entities and their owners are taxed? Flow-through entities are entities that are not taxed on the entity level; rather, these entities are taxed on the owner’s level. These types of entities conduct a regular business; however, the income earned and deductions allowed are passed to the owners of these flow-through entities, and the owners are taxed on the amount allocated to them.

Thus, flow-through entities provide a way for income and deductions to be taxed only once instead of twice. 2. [LO 1] What types of business entities are taxed as flow-through entities? The two main business entities that are taxed as flow-through entities are partnerships and S corporations. Partnerships are taxed under Subchapter K and consist of general partnerships, limited partnerships, and limited liability companies (LLC). S corporations are taxed under Subchapter S. Both these types of business entities are treated as flow-through entities and are taxed accordingly. 3. LO 1] Compare and contrast the aggregate and entity concepts for taxing partnerships and their partners. The aggregate concept treats partnerships more like a conglomeration of individual owners. Each partnership is viewed as an aggregation of the partners’ separate interests in the assets and liabilities of the partnership. For example, each partner, rather than the partnership, pays tax on their individual share of partnership income. The entity concept treats partnerships more like a corporation. Each partnership is an entity separate from its partners. For example, the artnership decides on which tax method to use and which tax elections to make rather than the individual partners. 4. [LO 2] What is a partnership interest, and what specific economic rights or entitlements are included with it? A partnership interest is an equity interest in a partnership. This interest is created through a transfer or sale of cash, property, or services in exchange for an equity interest in the partnership. A partnership interest gives each partner certain rights or entitlements. The two main economic rights are a capital interest and profit interest in the partnership.

A capital interest is the right for a partner to receive a share of the partnership assets during liquidation. A profit interest is the right or obligation for a partner to receive a share of the future income or losses of the partnership. 5. [LO 2] What is the rationale for requiring partners to defer most gains and all losses when they contribute property to a partnership? The rationale for requiring partners to defer most gains and losses when contributing property to a partnership is twofold. First, the IRS desires that entrepreneurs have a way to start their own business without having to pay any taxes upfront.

Second, the partners are considered still owning the property they have contributed to the partnership. While they don’t own the property outright, each partner has a small percentage of the property contributed in her/his partnership interest she/he exchanged for. This second reasoning helps further support the idea that partnerships follow the aggregate concept. 6. [LO 2] Under what circumstances is it possible for partners to recognize gain when contributing property to partnerships? Partners have the potential of recognizing gain on the contribution of property when the property contributed is secured by debt.

In determining whether gain must be recognized, the partner must assess the cash deemed to have received from the partnership distribution compared with the tax basis of the partner’s partnership interest prior to the deemed distribution. This happens if the assumption of the partner’s liabilities is in excess of the partner’s basis of the contributed property. If the cash deemed to have received exceeds the tax basis, then a gain must be recognized. This circumstance occurs due to the negative basis created for the partner, which is not allowed under partnership tax law. . [LO 2] What is inside basis and outside basis, and why are they relevant for taxing partnerships and partners? An inside basis, in relation to partnerships, is the basis the partnership takes in the assets that the partnership holds. An outside basis, in relation to partnerships, is the tax basis each partner has in the partnership. The inside basis is necessary to compute the gain/loss recognized on all property sold by the partnership. The outside basis is necessary to compute the gain/loss recognized on the partnership interest when sold.

For tax purposes, the inside basis is similar to the basis the partner had in the property prior to contribution. On the other hand, the outside basis corresponds not only to the contributed property, but also to the debt and income/losses of the partnership. 8. [LO 2] What is recourse and nonrecourse debt, and how is each generally allocated to partners? Recourse debt is debt for which partners are considered to have an economic risk of loss. This type of debt partners are legally liable for and must satisfy personally if the partnership cannot.

An example of recourse debt is accounts payable. Nonrecourse debt is debt for which no partners are considered to have an economic risk of loss in. This is a debt for which partners are not legally liable for. An example of nonrecourse debt is a mortgage. In regards to a partnership’s debt, recourse debt is allocated to those partners that have the ultimate responsibility of paying the debt. The debt is allocated to the partners that have an economic risk of loss. On the other hand, nonrecourse debt is generally allocated to the partners according to their profit sharing ratios.

Despite the partners not being legally liable for some debt, all debt is allocated to adjust the outside basis of the partners. 9. [LO 2] How does the amount of debt allocated to a partner affect the amount of gain a partner recognizes when contributing property secured by debt? A partner that contributes property secured by debt is not only contributing the property to the partnership but also the debt. In calculating the outside basis of the partner, the partner must take her/his tax basis in the property and decrease her/his basis by the amount of the property’s debt.

Next, the property’s debt is allocated to each partner according to who is ultimately responsible for it or by each partner’s profit-sharing ratio. If the partner is not allocated enough debt, the partner’s outside basis will become negative and a gain must be recognized. Thus, a partner can only avoid gain by obtaining enough of the partnership debt to keep her/his basis at least above zero. 10. [LO 2] What is a tax-basis capital account, and what type of tax-related information does it provide?

A tax-basis capital account is an equity account that is created for each partner of the partnership. This account is measured using the tax accounting rules. The account reflects tax basis of any capital contributions (i. e. , property and cash), capital distributions, and future earnings and losses allocated to that partner. Additionally, a tax-basis capital account can provide more tax-related information for each partner. For instance, each partner’s share of inside basis of the partnership’s assets can be calculated by adding the partner’s share of debt to her/his capital account.

Furthermore, if a partner acquires her/his interests by contributing property tax-free, then the partner’s outside basis will be equal to that partner’s share of partnership inside basis. 11. [LO 2] Distinguish between a capital interest and a profits interest, and explain how partners and partnerships treat when exchanging them for services provided. A partnership interest can be broken down into two distinct rights: (1) capital interest and (2) profits interest. To become a partner in a partnership, you will receive at least one of these rights.

A capital interest is the right to receive a share of the partnership assets at liquidation. A profits interest is the right to share in the future earnings and losses of the partnership. While these rights are given to most partners that contribute cash or property, special rules exist when these rights are given to partners in exchange for services. When a partner receives a capital interest in exchange for services rendered to the partnership, the partner must treat the liquidation value of the capital interest as ordinary income.

Further, the tax basis for the partner will be equivalent to the amount of ordinary income recognized. The holding period for this tax basis will begin on the date the capital interest is received. From the partnership’s perspective, the partnership can deduct or capitalize the value of the capital interest depending upon the type of services rendered. This is determined on a fact and circumstance basis. Additionally, the amount deducted by the partnership is allocated to the non-service partners as consideration for effectively transferring a portion of their capital interest to the service partner.

When a partner receives a profit interest in exchange for services rendered to the partnership, the partner has no immediate tax impact because they have no liquidation value at the time they are received. Thus, the non-service partners will not receive any deductions for the additional partner to the partnership. As the partnership makes future profits and losses, the service partner will be allocated her/his portion of these losses according to the profit sharing ratios. The debt allocated to non-service partners must also be redistributed with the additional service partner receiving her/his portion of debt.

Therefore, the tax basis of a service partner with only a profit interest will either be zero or the portion of debt the partner is allocated. 12. [LO 2] How do partners who purchase a partnership interest determine the tax basis and holding period of their partnership interests? When a partner purchases a partnership interest, the initial tax basis for the partner is a determined by taking the cost basis of the interest the partner purchased and adding to this basis any debt allocated to the partner’s interest. The holding period for this purchased interest will begin on the date that the partner purchased the partnership interest. 3. [LO 3] Why do you think partnerships, rather than the individual partners, are responsible for making most of the tax elections related to the operation of the partnership? The responsibility for the partnership, not the partners, to make the majority of tax elections regarding the operation of the partnership is twofold. First, partnerships can consist of many different partners ranging from two to hundreds. The hassle to obtain every partner’s approval on what elections to make would be very time consuming. The costs would more than likely outweigh the benefits in performing this function.

Second, in many partnerships only a few partners are actively involved in the management of the partnership. The limited partners have ownership to obtain a tax advantage on their own personal returns. Thus, the entity concept would appear more reasonable when dealing with the actual operations of the partnership. 14. [LO 3] If a partner with a taxable year-end of December 31 is in a partnership with a March 31 taxable year-end, how many months of deferral will the partner receive? Why? A partner with a calendar year end will receive nine months of deferral in her/his partnership interest that has a March 31 year end.

A partner must report the income or loss of the partnership not at the partner’s year end but at the partnership’s year end. Thus, the first year of the partnership will be reported by the partner on her/his return which includes the partnership’s year end, which allows the partner to defer the first nine months of income or loss from the partnership into the succeeding tax year. 15. [LO 3] In what situation will there be a common year-end for the principal partners when there is no majority interest taxable year? The principal partner test states that the required tax year is the taxable year all the principal partners have in common.

A principal partner is a partner that owns at least 5 percent interest in the partnership profits and capital. For the principal partner test to pass and not the majority interest test, the partnership must consists of numerous partners that (1) own less than 5 percent profit and capital interest and (2) have a variety of fiscal year ends. For example, if four partners with a calendar year end owned 10 percent and 20 additional partners with differing fiscal year ends owned less than 5 percent, then the majority test would not pass, but the principal partners test would. 6. [LO 3] Explain the least aggregate deferral test for determining a partnership’s year end and discuss when it applies. The least aggregate deferral test is the last resort test that a partnership must follow when figuring out the partnership year end. The first test is the majority interest test. The second test is the principal partners test. If these two tests don’t apply, along with the exception to elect an alternative year end, then the least aggregate deferral test goes into effect.

The least aggregate deferral test selects the tax year which provides the partner group as a whole the smallest amount of aggregate tax deferral. This is calculated by taking each partner’s months of deferral under the potential tax year and weighting it with the partner’s profit interest percentage. Then, each partner’s weighted totals are summed up to come up with an aggregate deferral number. The potential tax year that produces the smallest aggregate deferral must be the one chosen by the partnership. 17. [LO 3] When are partnerships eligible to use the cash method of accounting?

Under the tax accounting rules, a partnership with a corporate partner must use the accrual method of accounting unless the following exception applies. A partnership with a corporate partner is eligible to use the cash method of accounting when the partnership has average gross receipts over the past three taxable years less than or equal to $5 million. 18. [LO 4] What is a partnership’s ordinary business income (loss) and how is it calculated? Through the course of business, partnerships create income or losses. Some of these items are considered to affect a specific partner or groups of partners differently.

Thus, these separately-stated items must be reported on a partner-by-partner basis. Then, after adjusting the partnership’s business income (loss) for these separately-stated items, the partnership reports the remaining amount of business income (loss) to ordinary business income (loss). The total amount will be allocated to each partner according to the special allocation rules agreed upon or else based upon the profit sharing ratios of the partnership. 19. [LO 4] What are some common separately stated items, and why must they be separately stated to the partners?

Separately-stated items must be taken out of ordinary income (loss) because these items either (1) relate only to a specific partner in the partnership or (2) the item is taxed differently for each partner depending upon the entity of the partner and the partner’s current tax situation. The following is a partial list of items that are separately stated on a partnership return. 1. Short-term capital gains (losses) 2. Long-term capital gains (losses) 3. Section 1231 gains (losses) 4. Charitable contributions 5. Dividends 6. Interest income 7. Guaranteed payments 8. Net earnings (losses) from self-employment . Tax-exempt income 10. Net rental real estate income (loss) 11. Investment interest expense 12. Section 179 deductions 20. [LO 4] Is the character of partnership income/gains and expenses/losses determined at the partnership or partner level? Why? In keeping with the entity concept, the character of all income/gains and expenses/losses is determined at the partnership level. Despite the chance that specific items would change character depending upon the partner who holds them, the IRS has decided to unify the character of all items by looking at the character from the partnership’s perspective.

Thus, partnerships are required to file a 1065 return along with all partners’ K-1s to help audit the amounts and character that show up on the individual partner’s return. 21. [LO 4] What are guaranteed payments and how do partnerships and partners treat them for income and self-employment tax purposes? Guaranteed payments are similar to cash salary payments for services provided. The idea behind a guaranteed payment is for a partner to receive a fixed amount of income no matter the profit (loss) for the partnership’s taxable year. Thus, on the partnership level, hey are treated like a salary payment to an unrelated party. The partnership deducts the guaranteed payment in computing the partnership’s ordinary business income (loss). On the partner level, the partner that receives a guaranteed payment must account for the guaranteed payment as a separately-stated item that is taxed as ordinary income. Further, the partner must include the amount of the guaranteed payment in computing self-employment income for tax purposes. This amount is included no matter if the partner is a general partner, limited partner, or LLC member. 22. LO 4] How do general and limited partners treat their share of ordinary business income for self-employment tax purposes? In determining how different partners treat their share of ordinary business income, the IRS assesses the involvement the partner has in the partnership. General partners are considered to be actively involved in the management of the partnership. Thus, the general partner’s share of ordinary business income is treated as trade or business income and is subject to self-employment tax. Conversely, limited partners are generally not actively involved with managing the partnership.

The limited partner’s share of ordinary business income is treated as investment income and not subject to self-employment tax. Both types of partners must treat guaranteed payments as income relating to self-employment; however, the ordinary business income depends on the type of partner. 23. [LO 4] What challenges do LLCs face when deciding whether to treat their members’ shares of ordinary business income as self-employment income? Due to the lack of authoritative ruling that exists for LLCs, members must decide on their own whether to include ordinary business income as self-employment income or not.

A proposed regulation gave us clarity on this matter; however, the regulation was withdrawn. Members of an LLC should still review this proposed regulation to understand the stance the IRS is trying to take and whether they will take an aggressive or conservative stance for their specific situation. The proposed regulation helped clarify that if an LLC member is involved in the operations of the LLC, the member should treat the ordinary business income as self-employment income.

The regulation listed the following three criteria that would demonstrate active involvement in the LLC: (1) personally liable for the debt of the LLC as an LLC member, (2) authority to contract on behalf of the LLC, or (3) participate in more than 500 hours in the LLC’s trade or business during the taxable year. If any one of these requirements is met, then the LLC member would be more associated as a general partner and should more than likely account for the ordinary business income as self-employment income. 24. [LO 4] How much flexibility do partnerships have in allocating partnership items to partners?

Partnerships have a great deal of flexibility in determining how to allocate partnership items to partners, both separately-stated and non-separately stated items. The determining factors must be (1) the partners agree upon the allocations and (2) the allocations have substantial economic effect. The second factor is put into place to make sure the allocations are being accomplished for a business objective and not just to reduce or avoid taxes. While both of these items need to be met for a special allocation of a partnership item, certain items have mandatory allocations to specific partners.

For example, contributed property built-in gain (loss) must be allocated to the partner who contributed the property when the property is sold. Any additional gain (loss) will be allocated according to the partnership agreement. Overall, if the partnership has no mandatory allocations or does not specify and meet the requirements for special allocations, the partnership will allocate according to the capital or profit interest. 25. [LO4] What are the basic tax-filing requirements imposed on partnerships? While a partnership does not pay taxes, the IRS still requires all partnerships to file an information return to the IRS – Form 1065 (U.

S. Return of Partnership Income). This form must be filed by the 15th day of the 4th month of the partnership’s year end. For calendar year end partnerships, the form must be filed by April 15th. An extension is available to file by the due date of the original return and provides the partnership an additional five months to file Form 1065. The extension must be filed on Form 7004. The tax return that must be filed by all partnerships consists of a detailed calculation of the partnerships ordinary business income (loss) on page 1 of Form 1065.

On page 3 of Form 1065, Schedule K must be filled out which lists the ordinary business income (loss) along with any separately-stated items. This schedule is an aggregate of each partner’s share of items both separately-stated and non-separately stated. In addition, each partner’s proportion of the above items is reported on a Schedule K-1. A Schedule K-1 for every partner must be filed with Form 1065, and each individual partner will receive her/his own Schedule K-1 from the partnership. 26. [LO 5] In what situations do partners need to know the tax basis in their partnership interests?

Partners should always keep track of the tax basis in their partnership interest; however, certain situations require partners to actually know their tax basis. These situations include when a partner sells her/his partnership interest or when a partner receives a distribution from the partnership. The main reasoning is to help the partner figure out the amount of gain which s/he most report on her/his current tax return. 27. [LO 5] Why does a partner’s tax basis in her partnership need to be adjusted annually? A partner’s tax basis needs to be adjusted annually for the following three reasons.

First, a partner does not want to double count any income/gain from the partnership when she/he sells her/his partnership interest or receive a distribution from the partnership. Second, the IRS does not want partners to double count any expenses/losses from the partnership in a similar situation from above. Last, partners want to make sure they adjust for tax-exempt income and non-deductible expenses, so these items will not ultimately be taxed or deducted at the time of selling a partnership interest or receiving a distribution from the partnership. 28. [LO 5] What items will increase a partner’s basis in her partnership interest?

The following items will increase a partner’s basis and must be adjusted for on an annual basis in the order given. 1. Actual and deemed cash contributions to the partnership 2. Partner’s share of ordinary business income 3. Partner’s share of separately-stated income/gain items and 4. Partner’s share of tax-exempt income 29. [LO 5] What items will decrease a partner’s basis in her partnership interest? The following items will decrease a partner’s basis and must be adjusted for on an annual basis in the order given. These items will be adjusted after all the increases to a partner’s basis have been taken into effect. 1.

Actual and deemed cash distributions from the partnership 2. Partner’s share of non-deductible expenses (fines, penalties, etc. ) 3. Partner’s share of ordinary business losses and 4. Partner’s share of separately-stated expenses/loss items 30. [LO 6] What hurdles (or limitations) must partners overcome before they can ultimately deduct partnership losses on their tax returns? While a partnership can create an ordinary business loss, the individual partners potentially will not be able to deduct the entire amount in the year of the loss. The partner must overcome three loss limitation rules before the deduction is available.

If the loss does not pass any of the limitations, then the loss is suspended indefinitely under that specific hurdle. The three loss limitations are (1) the tax basis limitation, (2) the at-risk loss limitation, and (3) the passive activity loss limitation. First, a partner is not able to take any losses that exceed the tax basis of the partner, the partner’s outside basis. This limitation prevents partners from taking losses beyond their investment or basis in their partnership interests. Second, a partner cannot take any losses that exceed the at-risk amount for the partner.

The at-risk amount is generally the same as the partner’s tax basis, except that it excludes the partner’s share of nonrecourse debt. This limit still includes recourse debt and qualified nonrecourse debt. Finally, in the case of a passive participant in a partnership, losses cannot be taken if the loss exceeds the amount of passive income reported by the partner. Passive losses such as losses from rental activities or losses allocated to a limited partner can only be offset with passive gains. 31. [LO 6] What happens to partnership losses allocated to partners in excess of the tax basis in their partnership interests?

Losses that are allocated to partners that exceed the partner’s tax basis cannot be used during the current taxable year. The excess loss will be suspended and carried forward indefinitely until the partner has sufficient basis to utilize the losses. A partner would be able to increase her/his tax basis by (1) making a capital contribution, (2) guaranteeing more partnership debt, or (3) helping the partnership become more profitable. Once the partner’s tax basis is positive, the losses previously suspended can be used. 32. [LO 6] In what sense is the at-risk loss limitation rule more restrictive than the tax basis loss limitation rule?

While the at-risk loss limitation and tax basis loss limitation are basically the same, one difference exists between the two different hurdles a partner must overcome when faced with losses. The at-risk loss limitation only accounts for those items that the partner is at risk for. The major item that is not included under the at-risk calculation but is included in the tax basis is nonrecourse debt. As a note, qualified nonrecourse debt is still considered to be part of the partner’s at-risk calculation. 33. [LO 6] How do partners measure the amount they have at risk in the partnership?

A partner will measure her/his partnership at-risk amount by looking at what items affect the partner’s economic risk of loss. In most cases, items included in the at-risk amount would include cash contributed, tax basis of property contributed, recourse debt, qualified nonrecourse debt, and any other adjustments to the partner’s tax basis excluding nonrecourse debt. Nonrecourse debt is considered a part of the tax basis but not a part of the at-risk basis since the partner does not have an economic risk of loss for this type of debt. 34. [LO 6] In what order are the loss limitation rules applied to limit partner’s losses from partnerships?

The order of the hurdles a partner must pass for the loss limitation rules are (1) tax basis loss limitation, (2) at-risk loss limitation, and (3) passive activity loss limitation. As the losses exceed the limitation in each hurdle, the suspended losses will be carried forward indefinitely within each group until enough basis or income is generated to cover these losses. Once the loss has passed all three limitations, the partner can use the loss as a deduction on her/his own personal return. 35. [LO 6] How do partners determine whether they are passive participants in partnerships when applying the passive activity loss limitation rules?

According to the Code, a partner is considered to be a passive participant if the activity conducted is a trade or business and the partner does not materially participate in the activity. The IRS has made it clear that those participants in rental activities and limited partners within a partnership are automatically considered to be passive participants. Further, regulations help clarify whether a partner would be considered a material participant. If the partner meets any of the conditions below, then the partner would be a material participant and the activity would not be considered a passive activity to the partner. . The individual participates in the activity more than 500 hours during the year. | 2. The individual’s activity constitutes substantially all of the participation in such activity by individuals. | 3. The individual participates more than 100 hours during the year and the individual’s participation is not less than any other individual’s participation in the activity. | 4. The activity qualifies as a “significant participation activity” (individual participates for more than 100 hours during the year) and the aggregate of all other “significant participation activities” is greater than 500 hours for the year. | 5.

The individual materially participated in the activity for any 5 of the preceding 10 taxable years. | 6. The activity involves personal services in health, law, accounting, architecture, and so on, and the individual materially participated for any three preceding years. | 7. Taking into account all the facts and circumstances, the individual participates on a regular, continuous, and substantial basis during the year. | 36. [LO 6] Under what circumstances can partners with passive losses from partnerships deduct their passive losses? A partner may deduct the passive losses she/he has generated from a partnership under three circumstances.

First, a passive loss is not deductible until the taxpayer generates current year passive income in the activity producing the loss. Second, a passive loss is not deductible until the taxpayer generates current year passive income from another passive activity the taxpayer is involved with. Last, a passive loss will not be deductible unless the taxpayer sells the activity that has produced the passive loss. In this case, the taxpayer will report a gain or loss on the sale and can use the passive loss to offset this or any other source of income ( i. . , active income, portfolio income, or other passive income). Problems 37. [LO 2] Joseph contributed $22,000 in cash and equipment with a tax basis of $5,000 and a fair market value of $11,000 to Berry Hill Partnership in exchange for a partnership interest. a. What is Joseph’s tax basis in his partnership interest? b. What is Berry Hill’s basis in the equipment? a. $27,000. Joseph’s tax basis is considered to be his outside basis in the partnership. The tax basis includes the $22,000 in cash and his original basis in the equipment, $5,000.

Joseph’s holding period for his outside basis would depend upon the holding period of the assets contributed. If property contributed is a capital or Section 1231 asset, the holding period for that portion of the partnership interest includes the holding period of the contributed property. Otherwise, the holding period of the partnership interest begins on the date it is received. b. $5,000. Berry Hill Partnership’s basis in the equipment is a carryover basis from the partner who contributed the equipment. The basis in the equipment plus the basis in the cash will give us Berry Hill Partnership’s inside basis.

The holding period for the equipment carries over to the Berry Hill Partnership from Joseph. 38. [ LO 2] Lance contributed investment property worth $500,000, purchased three years ago for $200,000 cash, to Cloud Peak LLC in exchange for an 85 percent profits and capital interest in the LLC. Cloud Peak owes $300,000 to its suppliers but has no other debts. a. What is Lance’s tax basis in his LLC interest? b. What is Lance’s holding period in his interest? c. What is Cloud Peak’s basis in the contributed property? d. What is Cloud Peak’s holding period in the contributed property? a. $455,000.

Lance’s basis in his LLC interest is made up of the $200,000 basis of the investment property he transferred to the LLC and his $255,000 share of the LLC debt (85% x $300,000). Because LLC general debt obligations are treated as nonrecourse debt, Lance’s profit sharing ratio is used to allocate a portion of the LLC debt to him. b. Three years. Because Lance contributed a capital asset, the holding period of the contributed assets “tacks onto” his partnership interest. c. $200,000. The LLC takes a carryover basis in the contributed property. d. Three years. The LLC inherits Lance’s holding period in the contributed property. 9. [ LO 2] Laurel contributed equipment worth $200,000, purchased 10 months ago for $250,000 cash and used in her sole proprietorship, to Sand Creek LLC in exchange for a 15 percent profits and capital interest in the LLC. Laurel agreed to guarantee all $15,000 of Sand Creek’s accounts payable, but she did not guarantee any portion of the $100,000 nonrecourse mortgage securing Sand Creek’s office building. Other than the accounts payable and mortgage, Sand Creek does not owe any debts to other creditors. a. What is Laurel’s initial tax basis in her LLC interest? b.

What is Laurel’s holding period in her interest? c. What is Sand Creek’s initial basis in the contributed property? d. What is Sand Creek’s holding period in the contributed property? a. $280,000. Laurel’s basis in her LLC interest is made up of the $250,000 basis in the equipment (no depreciation was taken on the equipment prior to the contribution because it was acquired and contributed within the same calendar year) Laurel contributed, her $15,000 share of accounts payable that she guaranteed, and her $15,000 share of the nonrecourse mortgage securing Sand Creek’s office building (15% x $100,000).

Laurel’s profits sharing ratio is used to allocate a portion of the mortgage to her because it is nonrecourse debt. b. Laurel’s holding period begins the day the LLC interest is acquired because the asset she contributed is not a capital or Section 1231 asset. The equipment is not a Section 1231 asset because it was used in a trade or business for one year or less. c. $250,000. The LLC takes a carryover basis in the contributed property. d. Ten months. Laurel’s holding period is included in the LLC’s holding period regardless of the nature of the property Laurel contributed. 0. [LO 2] {Planning}Harry and Sally formed the Evergreen partnership by contributing the following assets in exchange for a 50 percent capital and profits interest in the partnership: Harry:Basis Fair Market Value Cash$ 30,000$ 30,000 Land100,000120,000 Totals$ 130,000$ 150,000 Sally: Equipment used in a business200,000150,000 Totals$ 200,000$ 150,000 a. How much gain or loss will Harry recognize on the contribution? b. How much gain or loss will Sally recognize on the contribution? c. How could the transaction be structured a different way to get a better result for Sally? . What is Harry’s tax basis in his partnership interest? e. What is Sally’s tax basis in her partnership interest? f. What is Evergreen’s tax basis in its assets? g. Following the format in Exhibit 20-2, prepare a tax basis balance sheet for the Evergreen partnership showing the tax capital accounts for the partners. a. $0. Generally, partners recognize gain on property contributed to a partnership only when the cash they are deemed to receive from debt relief exceeds their basis in the partnership prior to the deemed distribution. Harry did not have any debt relief. . $0. Partners may never recognize loss when property is contributed to a partnership even when they are relieved of debt. c. Sally should consider selling the property to the partnership rather than contributing it. By selling the property, she could recognize the $50,000 built-in loss on the equipment. d. $130,000. Harry’s basis in his partnership interest is simply the combined tax basis in the cash and land he contributed to the partnership. e. $200,000. Sally’s basis in her partnership interest equals $200,000 basis in the equipment she contributed. f. $330,000.

The land is secured by $120,000 of nonrecourse debt. Other than this nonrecourse debt, Y Mountain partnership does not have any debt. a. How much gain will Cosmo recognize from the contribution? b. What is Cosmo’s tax basis in his partnership interest? a. $0. As reflected in the table below, Cosmo does not recognize any gain because the $120,000 of cash he is deemed to receive from debt relief does not exceed his basis in Y Mountain prior to this deemed distribution. Description| Cosmo| Explanation| (1) Basis in contributed Land| $90,000| | 2) Nonrecourse mortgage in excess of basis in contributed land| $30,000| Nonrecourse debt > basis is allocated only to Cosmo | (3) Remaining nonrecourse mortgage | $22,500| 25% x [120,000 – (2)]| (4) Relief from mortgage debt| ($120,000)| | Cosmo’s initial tax basis in Y Mountain| $22,500| (1) + (2) + (3) + (4) | b. $22,500 as indicated in the table above. 42. [LO2] When High Horizon LLC was formed, Maude contributed the following assets in exchange for a 25 percent capital and profits interest in the LLC: Maude:Basis Fair Market Value Cash$ 20,000$ 20,000

Land*100,000200,000 Totals$ 120,000$ 220,000 *Nonrecourse debt secured by the land equals $160,000 James, Harold and Jenny each contributed $220,000 in cash for a 25% profits and capital interest. a. How much gain or loss will Maude and the other members recognize? b. What is Maude’s tax basis in her LLC interest? c. What tax basis do James, Harold, and Jenny have in their LLC interests? d. What is High Horizon’s tax basis in its assets? e. Following the format in Exhibit 20-2, prepare a tax basis balance sheet for the High Horizon LLC showing the tax capital accounts for the members. . $0. None of the members recognize gain because their debt relief was not in excess of their bases in their LLC interest prior to any debt relief. See table below: Description| Maude| Other Members| Explanation| (1) Basis in contributed Land| $100,000| | | (2) Cash contributed| $20,000| $220,000| | (3) Nonrecourse mortgage in excess of basis in contributed land| $60,000| | Nonrecourse debt > basis is allocated only to Maude | (4) Remaining nonrecourse mortgage | $25,000| $25,000| 25% x [160,000 – (3)]| (5) Relief from mortgage debt| ($160,000)| | |

Each member’s initial tax basis in the LLC| $45,000| $245,000| (1) + (2) + (3) + (4) + (5)| b. $45,000. See table in part a. above. c. $245,000 each. See table in part a. above. d. $780,000. High Horizon takes a $120,000 carryover basis in the assets Maude contributes and a $660,000 in the total cash the other three members contributed. e. High Horizon’s tax basis balance sheet would appear as follows: High Horizons, LLCTax Basis Balance Sheet| | Tax Basis| Assets:| | Cash| $680,000| Land| 100,000| Totals| 780,000| Liabilities and Capital:| | Mortgage debt| 160,000| Capital-Maude| (40,000)|

Capital-James| 220,000| Capital-Harold| 220,000| Capital-Jenny| 220,000| Totals| 780,000| Note that the members’ tax capital accounts are equal to their bases in the LLC interests less their individual shares of LLC debt. 43. [LO2] Kevan, Jerry, and Dave formed Albee LLC. Jerry and Dave each contributed $245,000 in cash. Kevan contributed the following assets: Kevan:Basis Fair Market Value Cash$ 15,000$ 15,000 Land*120,000230,000 Totals$ 135,000$ 245,000 *Nonrecourse debt secured by the land equals $210,000 Each member received a one-third capital and profits interest in the LLC. . How much gain or loss will Jerry, Dave and Kevan recognize on the contributions? b. What is Kevan’s tax basis in his LLC interest? c. What tax basis do Jerry and Dave have in their LLC interests? d. What is Albee LLC’s tax basis in its assets? e. Following the format in Exhibit 20-2, prepare a tax basis balance sheet for the Albee LLC showing the tax capital accounts for the members. What is Kevan’s share of the LLC’s inside basis? f. If the lender holding the nonrecourse debt secured by Kevan’s land required Kevan to guarantee 33. 3 percent of the debt and Jerry to guarantee the remaining 66. 67 percent of the debt when Albee LLC was formed, how much gain or loss will Kevan recognize? g. If the lender holding the nonrecourse debt secured by Kevan’s land required Kevan to guarantee 33. 33 percent of the debt and Jerry to guarantee the remaining 66. 67 percent of the debt when Albee LLC was formed, what are the members’ tax bases in their LLC interests? a. $0. None of the members recognize gain because their debt relief was not in excess of their bases in their LLC interest prior to any debt relief. See table below:

Description| Kevan| Other Members| Explanation| (1) Basis in contributed Land| $120,000| | | (2) Cash contributed| $15,000| $245,000| | (3) Nonrecourse mortgage in excess of basis in contributed land| $90,000| | Nonrecourse debt > basis is allocated only to Kevan | (4) Remaining nonrecourse mortgage | $40,000| $40,000| 33. 3% x [$210,000 – (3)]| (5) Relief from mortgage debt| ($210,000)| | | Each member’s initial tax basis in the LLC| $55,000| $285,000| (1) + (2) + (3) + (4)+ (5)| b. $55,000. See table in part a. above. c. $285,000 each. See table in part a. above. d. $625,000.

Albee, LLC takes a $135,000 carryover basis in the assets Kevan contributes and a $490,000 in the total cash the other two members contributed. e. Albee, LLC’s tax basis balance sheet would appear as follows: Albee , LLCTax Basis Balance Sheet| | Tax Basis| Assets:| | Cash| $505,000| Land| 120,000| Totals| 625,000| Liabilities and Capital:| | Mortgage debt| 210,000| Capital-Kevan| (75,000)| Capital-Jerry| 245,000| Capital-Dave| 245,000| Totals| 625,000| Note that the members’ tax capital accounts are equal to their bases in the LLC interests less their individual shares of LLC debt. . $5,000. See table below: Description| Kevan| Jerry| Dave| Explanation| (1) Basis in contributed Land| $120,000| | | | (2) Cash contributed| $15,000| $245,000| $245,000| | (3) Mortgage Guarantee | $70,000| $140,000| $0| 33. 33% x $210,000 for Kevan and 66. 67% x $210,000 for Jerry| (4) Relief from mortgage debt| ($210,000)| | | | (5) Gain Recognized| $5,000| $0| $0| [(1)+ (2)+ (3) + (4)]| Each member’s initial tax basis in the LLC| $0| $385,000| $245,000| (1) + (2) + (3)+ (4) + (5)| g. Kevan’s basis is $0, Jerry’s basis is $385,000, and Dave’s basis is $245,000.

See the table in part f. above. 44. [LO2] {Research} Jim has decided to contribute some equipment he previously used in his sole proprietorship in exchange for a 10 percent profits and capital interest in Fast Choppers LLC. Jim originally paid $200,000 cash for the equipment. Since then, the tax basis in the equipment has been reduced to $100,000 because of tax depreciation, and the fair market value of the equipment is now $150,000. a. Must Jim recognize any of the potential § 1245 recapture when he contributes the machinery to Fast Choppers? {Hint: See § 1245(b)(3). } b.

What cost recovery method will Fast Choppers use to depreciate the machinery? {Hint: See § 168(i)(7). } c. If Fast Choppers were to immediately sell the equipment Jim contributed for $150,000, how much gain would Jim recognize and what is its character? {Hint: See § 1245 and 704(c). } a. According to Section 1245(b)(3), recapture potential on property contributed to a partnership is only recognized to the extent any gain is recognized from the contribution of property. Because Jim was not relieved of any debt in the transaction, he will not recognize gain from the contribution under Section 721.

Therefore, Jim does not recognize any of the Section 1245 recapture potential on the equipment at the time of contribution. b. According to Section 168(i)(7), a transferee partnership will step into the shoes of the transferor partner for purposes of depreciating contributed equipment. In this situation, Fast Choppers will continue to depreciate the equipment using the same method instituted by Jim over the remaining useful life of the equipment. In other words, the annual depreciation calculation will proceed as if the property were still held by Jim. c.

Under Section 704(c), all $50,000 of gain recognized from the sale of the equipment would be allocated to Jim because this gain was built-in at the time the equipment was contributed. Moreover, the Section 1245 recapture potential remains with the equipment after the contribution; as a result, all $50,000 of gain recognized (the lesser of the $50,000 gain recognized or the $100,000 depreciation taken) must be characterized as Section 1245 recapture income. 45. [LO2] {Research} Ansel purchased raw land three years ago for $200,000 to hold as an investment.

After watching the value of the land drop to $150,000, he decided to contribute it to Mountainside Developers LLC in exchange for a 5 percent capital and profits interest. Mountainside plans to develop the property and will treat it as inventory, like all of the other real estate it holds. a. If Mountainside sells the property for $150,000 after holding it for one year, how much gain or loss does it recognize, and what is the character of its gain or loss? {Hint: See §724. } b. If Mountainside sells the property for $125,000 after holding it for two years, how much gain or loss does it recognize, and what is the character of the gain or loss? . If Mountainside sells the property for $150,000 after holding it six years, how much gain or loss is recognized, and what is the character of the gain or loss? a. According to Section 724(c), recognized losses on assets that were capital assets in the hands of contributing partners are treated as capital losses up to the amount of loss built into the assets at the time they were contributed if they are sold within a five year period beginning on the date of contribution. Thus, Mountainside Developers will recognize a $50,000 loss characterized as a capital rather than an ordinary loss. b.

In this instance, Mountainside Developers will recognize a $75,000 loss from the sale of the land. The built-in loss at the time the land was contributed or $50,000 will be characterized as a capital loss, and the remaining $25,000 loss will be characterized as an ordinary loss per Section 724(c). c. Because Mountainside Developers held the land as inventory for more than five years, it will recognize a $50,000 ordinary loss per Section 724(c). 46. [LO2] {Research} Claude purchased raw land three years ago for $1,500,000 to develop into lots and sell to individuals planning to build their dream homes.

Claude intended to treat this property as inventory, like his other development properties. Before completing the development of the property, however, he decided to contribute it to South Peak Investors LLC when it was worth $2,500,000, in exchange for a 10 percent capital and profits interest. South Peak’s strategy is to hold land for investment purposes only and then sell it later at a gain. a. If South Peak sells the property for $3,000,000 four years after Claude’s contribution, how much gain or loss is recognized and what is its character? {Hint: See § 724. } b.

If South Peak sells the property for $3,000,000 five and one-half years after Claude’s contribution, how much gain or loss is recognized and what is its character? a. Under Section 724(b), any gain or loss on contributed property that was treated as inventory by the contributing partner and sold by the partnership during the five year period beginning on the date of contribution is treated as ordinary gain or loss. Thus, the entire $1,500,000 gain from the sale of the land will be treated as ordinary gain. b. Section 724(b) only applies if contributed property is sold during the five year period beginning on the date of contribution.

Because South Peak sold the land after the expiration of this time period and held the land as investment property, it should recognize $1,500,000 of capital gain. 47. [LO2] {Research} Reggie contributed $10,000 in cash and a capital asset he had held for three years with a fair market value of $20,000 and tax basis of $10,000 for a 5 percent capital and profits interest in Green Valley LLC. a. If Reggie sells his LLC interest thirteen months later for $30,000 when the tax basis in his partnership interest is still $20,000, how much gain does he report and what is its character? b.

If Reggie sells his LLC interest two months later for $30,000 when the tax basis in his partnership interest is still $20,000, how much gain does he report and what is its character? {Hint: See Reg. §1. 1223-3} a. Reggie sold his LLC interest, a capital asset, for $30,000 when he had a basis in the LLC interest of $20,000. Thus, he will recognize a $10,000 capital gain. The capital gain is treated as a long-term capital gain because he has held his LLC interest for more than twelve months. In this situation, the holding period of his LLC interest at the date he contributed property is irrelevant. b. Under Reg. §1. 223-3(b)(1), the holding period of Reggie’s LLC interest is based on the relative fair market value of the property he contributed. Since two-thirds of the value of the property he contributed was a capital asset held for three years, two- thirds of his LLC interest is treated as being held for three years and the remaining one-third of his LLC interest has a holding period that begins on the date of contribution. Under Reg. §1. 1223-3(c)(1), two-thirds or $6,667 of the resulting $10,000 capital gain from the sale will be treated as long-term capital gain and the remaining one-third or $3,333 will be treated as short-term capital gain. 8. [LO2] Connie recently provided legal services to the Winterhaven LLC and received a 5 percent interest in the LLC as compensation. Winterhaven currently has $50,000 of accounts payable and no other debt. The current fair market value of Winterhaven’s capital is $200,000. a. If Connie receives a 5 percent capital interest only, how much income must she report, and what is her tax basis in the LLC interest? b. If Connie receives a 5 percent profits interest only, how much income must she report, and what is her tax basis in the LLC interest? c.

If Connie receives a 5 percent capital and profits interest, how much income must she report, and what is her tax basis in the LLC interest? a. Connie reports $10,000 of ordinary income or 5 percent of the LLC’s capital of $200,000. Her basis in the LLC interest is also $10,000. b. Connie will not report any income but will have a basis in the LLC interest equal to her share of the LLC’s debt. Because the LLC’s debt is a nonrecourse debt, it must be allocated to her using Connie’s profits interest. Thus, her basis in the LLC equals $2,500 or 5 percent of the LLC’s $50,000 accounts payable. c.

Connie reports $10,000 of ordinary income or 5 percent of the LLC’s capital of $200,000. Her basis in the LLC is $12,500 consisting of the $10,000 of income she recognizes for the receipt of her capital interest and her $2,500 share of the LLC’s nonrecourse accounts payable. 49. [LO2] Mary and Scott formed a partnership that maintains its records on a calendar-year basis. The balance sheet of the MS Partnership at year-end is as follows: Basis Fair Market Value Cash $ 60 $ 60 Land 60180 Inventory 72 60 $192 $300 Mary$ 96 $150 Scott 96 150 192 $300 At the end of the current year, Kari will receive a one-third capital interest only in exchange for services rendered. Kari’s interest will not be subject to a substantial risk of forfeiture and the costs for the type of services she provided are typically not capitalized by the partnership. For the current year, the income and expenses from operations are equal. Consequently, the only tax consequences for the year are those relating to the admission of Kari to the partnership. a. Compute and characterize any gain or loss Kari may have to recognize as a result of her admission to the partnership. . Compute Kari’s basis in her partnership interest. c. Prepare a balance sheet of the partnership immediately after Kari’s admission showing the partners’ tax capital accounts and capital accounts stated at fair market value. d. Calculate how much gain or loss Kari would have to recognize if, instead of a capital interest, she only received a profits interest. a. Kari will recognize one-third of the fair market value of the partnership’s capital or $100 as ordinary income. b. Kari’s basis in her partnership interest will be equal to the amount of income she reports or $100. . Immediately after Kari’s admission into the partnership the partnership’s balance sheet will appear as follows: MS PartnershipBalance Sheet| | Tax Basis| 704(b)/FMV| Assets:| | | Cash| $60| 60| Land| 60| 180| Inventory| 72| 60| Totals| $192| 300| Capital:| | | Capital-Mary| 46| 100| Capital-Scott| 46| 100| Capital-Kari| 100| 100| Totals| $192| $300| Essentially, the tax capital and 704(b) capital accounts for both Scott and Mary are reduced by their $50 share of the $100 compensation expense the partnership will deduct for the capital interest Kari receives. d.

If Kari only receives a profits interest, she will not recognize any income until she receives a profits allocation from the partnership. 50. [LO2] Dave LaCroix recently received a 10 percent capital and profits interest in Cirque Capital LLC in exchange for consulting services he provided. If Cirque Capital had paid an outsider to provide the advice, it would have deducted the payment as compensation expense. Cirque Capital’s balance sheet on the day Dave received his capital interest appears below: Assets: Basis Fair Market Value Cash$ 150,000 $ 150,000

Investments200,000700,000 Land150,000250,000 Totals$ 500,000$1,100,000 Liabilities and capital: Nonrecourse Debt100,000100,000 Lance*200,000500,000 Robert*200,000500,000 Totals $ 500,000 $ 1,100,000 *Assume that Lance’s basis and Robert’s basis in their LLC interests equal their tax basis capital accounts plus their respective shares of nonrecourse debt. a. Compute and characterize any gain or loss Dave may have to recognize as a result of his admission to Cirque Capital. b. Compute each member’s tax basis in his LLC interest immediately after Dave’s receipt of his interest. c.

Prepare a balance sheet for Cirque Capital immediately after Dave’s admission showing the members’ tax capital accounts and their capital accounts stated at fair market value. d. Compute and characterize any gain or loss Dave may have to recognize as a result of his admission to Cirque Capital if he receives only a profits interest. e. Compute each member’s tax basis in his LLC interest immediately after Dave’s receipt of his interest if Dave only receives a profits interest. a. The tax consequences of giving Dave both a 10 percent capital and profits interest are summarized in the following table:

Description| Dave| Lance| Robert| Explanation| (1) Beginning Basis in LLC| $0| $250,000| $250,000| $200,000 tax basis capital account + [. 5 x $100,000 nonrecourse debt]| (2) Ordinary Income | $100,000| | | Liquidation Value of Capital Interest (. 1 x $1,000,000 fair market value of LLC capital)| (3) Ordinary Deduction| | ($50,000)| ($50,000)| Capital Shift from Non-Service Partners. (2) x . 5| (4) Increase in Debt Allocation| $10,000| | | [$100,000 nonrecourse debt x 10% profit sharing ratio]| (5) Decrease in Debt Allocation| | (5,000)| (5,000)| (4) x . | (6) Ending Basis in LLC| $110,000| $195,000| $195,000| (1) + (2) + (3) + (4) + (5)| As indicated in line (2) of the table above, Dave recognizes $100,000 of ordinary income. b. As indicated in line (6) of the table above, the member’s tax bases in the LLC interests immediately after Dave is admitted are as follows: $110,000 for Dave and $195,000 for Lance and Robert. c. Immediately after Dave’s admission into the LLC, the LLC’s balance sheet will appear as follows: Cirque, LLCBalance Sheet| | Tax Basis| 704(b/)FMV| Assets:| | | Cash| $150,000| $150,000| Land| 200,000| 700,000| Inventory| 150,000| 250,000|

Totals| $500,000| $1,100,000| Capital:| | | Nonrecourse Debt| $100,000| 100,000| Capital-Lance| 150,000| 450,000| Capital-Robert| 150,000| 450,000| Capital-Dave| 100,000| 100,000| Totals| $500,000| $1,100,000| d. The tax consequences of giving Dave only a 10 percent profits interest are summarized in the following table: Description| Dave| Lance| Robert| Explanation| (1) Beginning Basis in LLC| $0| $250,000| $250,000| $200,000 tax basis capital account + [. 5 x $100,000 nonrecourse debt]| (2) Ordinary Income| $0| | | Dave does not recognize any income because he only receives a profits interest. | 3) Increase in Debt Allocation| $10,000| | | [$100,000 nonrecourse debt x 10% profit sharing ratio]| (4) Decrease in Debt Allocation| | (5,000)| (5,000)| (3) x . 5| (5) Ending Basis in LLC| $10,000| $245,000| $245,000| (1) + (2) + (3) + (4) | Dave does not recognize any income because he only received a profits interest. e. As reflected in line (5) of the table above, Dave’s basis is $10,000, Lance’s basis is $245,000, and Robert’s basis is $245,000. 51. [LO 2] Last December 31, Ramon sold the 10 percent interest in the Del Sol Partnership that he had held for two years to Garrett for $400,000.

Prior to selling his interest, Ramon’s basis in Del Sol was $200,000 which included a $100,000 share of nonrecourse debt allocated to him. a. What is Garrett’s tax basis in his partnership interest? b. If Garrett sells his partnership interests three months after receiving it and recognizes a gain, what is the character of his gain? Garrett’s basis in his partnership interest is equal to the $400,000 amount he paid for it plus his $100,000 share of partnership debt or $500,000. a. Because Garrett purchased his partnership interest, his holding period for the interest begins on the date the interest was purchased.

As a result, he only has a three month holding period before the partnership interest is sold. This means his capital gain from the sale of his partnership interest will be short-term capital gain. 52. [LO 3] Broken Rock LLC was recently formed with the following members: Name| Tax Year End| Capital/Profits %| George Allen| December 31| 33. 33%| Elanax Corp. | June 30| 33. 33%| Ray Kirk| December 31| 33. 34%| What is the required taxable year-end for Broken Rock LLC? George Allen and Ray Kirk together own more than 50 percent of the profits and capital of Broken Rock.

Therefore, the required year end of the partnership is the year end of the principal partners or December 31. 54. [LO 3] Tall Tree LLC was recently formed with the following members: Name| Tax Year End| Capital/Profits %| Eddie Robinson| December 31| 40%| Pitcher Lenders LLC| June 30| 25%| Perry Homes Inc. | October 31 | 35%| What is the required taxable year-end for Tall Tree LLC? Tall Tree does not have a majority interest taxable year because no partner or group of partners with the same year end owns more than 50 percent of the profits and capital interests in Tall Tree.

Also, because all three principal partners in Tall Tree have different year ends, the principal partner test is not met. As a result, Tall Tree must decide which of three potential year ends, December 31, June 30, or October 31, will provide its members the least aggregate deferral. The table below illustrates the required computations: Possible Year Ends| 12/31 Year End| 6/30 Year End| 10/31 Year End| Members| %

February 3rd, 2023

Business Structures

There are four main forms of business structures. The structures of business differentiate based on liability, tax implications, and what type of business is being evaluated when determining what structure to use. This paper will cover the advantages and disadvantages within the four types of business structures; Limited Liability Corporations, Corporations, Partnerships, and Sole Proprietorships. Corporations A corporation is a standalone entity. There are two types of corporations, general or S Corp.

Advantages of corporations consist of limited liability, capital through stock sales, attractive to employees, and receiving corporate tax treatment. S Corps, in addition to limited liability, have tax savings as the owners are taxed individually. A disadvantage of an S Corp is the limited growth as S Corps may not have greater than 100 shareholders. General corporations file taxes separately from his or her owners while S Corporations do not. Disadvantages of a corporation are time and money, large amounts of recordkeeping, and subject to double taxation.

Double taxation is taxation on the corporate level and again on a member’s personal level (“U. S. Small Business Administration,” 2013). Corporations are generally suited for large business organizations. Limited Liability Corporation (LLC) A Limited Liability Corporation (LLC) is a company combining the benefits of a partnership and a corporation. A LLC acts as its own entity with the limited liability, but also has the tax savings as if it were a sole proprietorship (“The Advantages of an LLC Company”, 2013). Advantages of an LLC are limited liability, require less paperwork, and have the ability to profit share.

Disadvantages of an LLC are limited life and members are subject to self-employment taxes. Members of an LLC are considered self-employed; therefore the individuals file taxes through personal income taxes, and pay tax contributions toward Medicare and Social Security (“U. S. Small Business Administration,” 2013). Partnerships A Partnership is a business form that consists of two or more individuals. There are two types of partnerships; general and limited. General partners are liable for the full extent of debts and obligations within the business.

Limited partnerships provide individuals with a limitation of responsibilities in the organization’s liability; this type of partnership is dependent upon the investment percentage. Advantages of partnerships consist of cost efficiency, shared financial responsibility, complementary skill association, and offer employees partnership incentives. Disadvantages of partnerships are joint and individual liability, disagreements between partners, and shared profits (“U. S. Small Business Administration,” 2013). Sole Proprietorship A Sole Proprietorship is one owner.

The advantages of a sole proprietorship exist in the simplicity of taxes, cost efficiency in the startup process, and complete control of the organization. A sole proprietorship structure is the simplest method of establishing a business, the expenses are low and fewer licensing is required. A sole proprietor is responsible for the final decisions and directions of the business. The taxes are reported through the individual at a much lower rate than any of the other structures. The disadvantages of a sole proprietorship are the personal liability risks and capital; the individual absorbs all legal implications within the business.

The difficulty of this type of business structure is the process in raising capital; the credibility of the organization can deter any potential investors. Conclusion The dynamics within each type of business structure can be applied to the needs of the organization. Each business structure has various advantages and disadvantages. A business structure should be chosen based upon the product or business and the needs and wants of the owner or owners. This paper covered what the four business structures are, and advantages and disadvantages associated.

References

U.S. Small Business Administration. (2013). Retrieved from http://www.sba.gov/ The Advantages of an LLC Company. (2013). Houston Chronicle. Retrieved from http://smallbusiness.chron.com/advantages-llc-company-17263.html

February 3rd, 2023

Living Trust

trust agreement THIS TRUST AGREEMENT, MADE THIS _____ DAY OF _____________, 20XX, BETWEEN ____________________________, PRESENTLY RESIDING AT _________ ________________ ________________________ (SETTLOR), _____________ ___________________, PRESENTLY RESIDING AT __________________________________ ______ (TRUSTEE), AND ________________ __________, PRESENTLY RESIDING AT ________ ___________________________ (SUCCESSOR TRUSTEE).

THE TRUST CREATED BY THIS AGREEMENT SHALL BE KNOWN AS THE ______________________ TRUST. W I T N E S S E T H: WHEREAS, THE SETTLOR DESIRES TO CREATE AND ESTABLISH A REVOCABLE INTER VIVOS TRUST OF THE PROPERTY DESCRIBED IN SCHEDULE A ATTACHED HERETO AND MADE A PART HEREOF, WHICH PROPERTY, TOGETHER WITH THE INVESTMENTS, REINVESTMENTS, ACCUMULATED INCOME AND PROCEEDS THEREOF, AND ADDITIONS THERETO, SHALL HEREINAFTER CONSTITUTE THE PROPERTY OF THIS TRUST (THE TRUST FUND); AND

WHEREAS, the Trustee has agreed to hold, manage, invest, and reinvest the Trust Fund to collect the income therefrom and after paying all expenses properly attributable thereto, to distribute the Trust Fund in accordance with the terms and conditions herein. NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements contained herein, Settlor has assigned and delivered, and the Trustee acknowledges receipt of the Trust Fund, in Trust, nevertheless, for the following purposes and under the following terms and conditions: ARTICLE I [Description] A)The Trust Fund shall be maintained by the Trustee in one (1) trust for the exclusive benefit of Settlor. Settlor reserves the right to add additional beneficiaries hereunder and Trustee agrees to undertake the duties and responsibilities of Trustee in accepting, holding, managing, and disbursing the principal and interest of the Trust Fund in accordance with the terms and conditions of this Trust Agreement. (B)Trustee may receive any other real or personal property from Settlor or from any other person or persons, by lifetime gift, under a will or trust or from any other source.

Such property shall be indicated by adding same to Schedule A which shall be held by Trustee subject to the terms of this Trust Agreement. Trustee agrees, if he accepts such additions, to hold and manage such additions in trust for the uses and in the manner set forth herein. (C) Trustee shall receive any real or personal property derived as income produced by the Trust Fund. Such accumulated income shall be added to the Trust Fund and held by Trustee subject to the terms of this Trust Agreement. ARTICLE II [Description]

The Trustee shall pay the entire net income arising from the Trust Fund in approximately equal monthly installments to or for Settlor during Settlor’s entire lifetime, or as directed by Settlor from time to time, retain and reinvest designated portions thereof, provided, however, that if the net income from the principal of the said Trust Fund, together with such other income as may be available to Settlor and Settlor’s spouse (Settlor’s spouse) from other sources be insufficient for their comfortable support, welfare, and maintenance, then, and in such case, Trustee is authorized to pay to or use for the benefit of Settlor and Settlor’s spouse during Settlor’s lifetime so much of the principal of the said Trust Fund as, in Trustee’s sole discretion, Trustee may deem necessary for such purposes, or to provide for an emergency of any sort, nature, or description; provided, however, subject to Article IV but notwithstanding anything else contained in this Trust Agreement to the contrary, Settlor may, at any time and from time to time during the existence of said Trust Fund, withdraw all or any part of the principal and accumulated income, if any, by filing with the Trustee a notice to that effect and filing subsequently with said Trustee a receipt for the funds so disbursed.

If either or both Settlor and Settlor’s spouse shall be determined, in accordance with Article III hereof, to be incapable of the care, custody, and management of the principal and income of the Trust Fund because of advanced age, impaired health, or mental or physical disability, then the Successor Trustee is specifically authorized and empowered, acting in his sole and absolute discretion, to retain all or such part of the income and principal as he deems best, and then to distribute all or part of the income and/or principal for the suitable support, welfare, and maintenance of Settlor and/or Settlor’s spouse in such of the following ways as the Successor Trustee shall deem best: a)directly to such beneficiary; b)to such person as such beneficiary may nominate in writing; c)to the legally appointed guardian(s) or conservator(s) of such beneficiary; d)to some person(s) having the care of such beneficiary; or e)by the Successor Trustees using the amounts involved for or on behalf of such beneficiary for his suitable support, comfort, health, welfare, and maintenance. ARTICLE III [Description]

During such period that Settlor is the sole Trustee, and if in the judgment of the Successor Trustee, such step is deemed necessary, then the Successor Trustee may appoint three (3) doctors of medicine licensed to practice in the State of Settlor’s then current residence, one of whom shall be Settlor’s personal physician, if possible, to determine whether Settlor has become incapable of the care, custody, and management of the principal and income of the Trust Fund because of advanced age or impaired health or mental or physical disability. If the three (3) doctors unanimously determine in writing, as evidenced by signed Certificate(s) of Incapacity, that Settlor has become incapable as herein defined, of the care, custody, and management of the principal of the Trust Fund or any income from the

Trust Fund, or upon the determination of a court of competent jurisdiction of the physical or mental incapacity of Settlor, then Settlor shall no longer be Trustee nor shall Settlor have the right to become Trustee, and the Successor Trustee shall possess and be subject to those rights, duties, and obligations which they or it would assume if they or it had been nominated as initial Trustee under the terms of this Trust Agreement; provided, however, upon the revocation of the court order hereinabove referred to, or upon the revocation of two (2) of said Certificate(s) of Incapacity, either by any two (2) of the original certifying doctors or by any two (2) duly licensed doctors selected by the Successor Trustee, the rights and powers under this Trust Agreement shall become operative again and shall revert to Settlor. In addition to the above, Settlor is authorized, at any time and from time to time, voluntarily to relinquish his investment control by an acknowledged, written instrument to that effect, delivered to the Successor Trustee. Said instrument shall be known as a Certificate of Authorization. Such Certificate of Authorization shall specify a date after its delivery to the Successor Trustee, as the date on which investment control is to be relinquished.

From and after such specified date, Settlor shall not possess investment control, unless and until he reassumes investment control by a subsequent acknowledged, written instrument to that effect, delivered to the Successor Trustee. Such subsequent instrument shall specify a later date after its delivery to the Successor Trustee, as the date on which investment control is to be reassumed. From and after such specified date, Settlor shall again possess investment control. ARTICLE IV [Description] During such period of time that Successor Trustee is in possession of an apparently proper and effective court order ruling Settlor to be physically or mentally incompetent to act on his behalf, or is in possession of the three (3) Certificate(s) of Incapacity, as provided in Article III, supra, at least two (2) of which are not revoked, any attempt by Settlor to xercise any reserved rights and powers under this Trust Agreement, including, but not by way of limitation, the right of modification, revocation, amendment, withdrawal of principal and/or income, or the sale of principal of the Trust Fund, shall be void and during such period of time this Trust Agreement shall be irrevocable and not amendable; provided that during such period of time that Settlor is incapacitated as hereinabove referred to Settlor shall have the power to appoint to any person(s), including his estate, any and all assets of the Trust Fund upon his death, but only by specific reference to said Power of Appointment in Settlor’s Last Will and Testament, duly proved and allowed for probate.

During such period of time that the Successor Trustee is in possession of a properly executed Certificate of Authorization signed by Settlor, Settlor shall retain all reserved rights and powers under this Trust Agreement with the exception of the investment control of the assets of the Trust Fund pursuant to the terms of this Trust Agreement which shall be reserved to the Successor Trustee. ARTICLE V [Description] Upon Settlor’s death, the Successor Trustee shall hold and dispose of the Trust Fund as follows: (A)If Settlor’s spouse survives Settlor, the Successor Trustee shall hold, manage, and invest the Trust Fund, collect the income thereon, and pay to or apply for the benefit of Settlor’s spouse the net income thereof, in quarterly or other convenient installments (but at least annually), for and during the term of Settlor’s spouse’s life.

In addition, the Successor Trustee may pay to or apply for the benefit of Settlor’s spouse so much or all of the principal of this trust as the Successor Trustee, in his sole and absolute discretion, deems necessary or desirable for the support, maintenance, health, welfare, and benefit of Settlor’s spouse. Settlor’s spouse, in Settlor’s spouse’s individual capacity, is hereby authorized by instrument in writing delivered to the Successor Trustee, to withdraw in the month of December of each calendar year any part of all of the principal of the trust to the extent of Five Thousand Dollars ($5,000) or five percent (5%) of the value of the principal of the trust on the last day of such year, whichever is the greater amount. This right shall be noncumulative.

Upon the death of Settlor’s spouse, the Successor Trustee shall distribute any undistributed net income of this trust, whether collected or accrued, to Settlor’s spouse’s Personal Representative and shall pay over and distribute the entire remaining principal to such of my issue, in such shares and proportions and either outright or in trust as Settlor’s spouse, by specific reference in her will to said special power of appointment, hereby created, may designate and appoint, or, to the extent, if any, that Settlor’s spouse may fail to effectively exercise this said special power of appointment, the remaining principal of this Trust established in this Article V, paragraph (A), supra, shall be distributed by my Successor Trustee as follows: (1)In the event that any portion of this Trust referred to in this Article V, paragraph (A), supra, is included in Settlor’s spouse’s estate, the Successor Trustee shall pay to the Personal Representative of Settlor’s spouse’s estate, out of the principal of the Trust, an amount equal to the estate, inheritance, transfer, succession, or other death taxes (death taxes), federal, state, or other, payable by reason of the inclusion of the value of the trust property in her estate.

Such payment shall be equal to the amount by which (i) the total of such death taxes paid by Settlor’s spouse’s estate exceeds (ii) the total death taxes which would have been payable if the value of the trust property had not be included in Settlor’s spouse’s estate. The determination of the Settlor’s spouse’s Personal Representative of the amount payable hereunder shall be final. The Successor Trustee is directed to pay such amount promptly upon written request of Settlor’s spouse’s Personal Representative. The final determination of the amount due hereunder shall be based upon the values as finally determined for federal estate tax purposes in Settlor’s spouse’s estate. After payment of the amount finally determined to be due hereunder, the Successor Trustee shall be discharged from any further liability with respect to such payment. Settlor’s spouse may waive Settlor’s spouse’s state’s right to payment under this paragraph by a will, executed after Settlor’s death, in which Settlor’s spouse specifically refers to the right to payment hereby given to Settlor’s spouse’s estate. (2)Any then remaining principal, after payment of the taxes as specified in this Article V, paragraph (A)(1), supra, shall be divided, administered, and managed as part of the trust established in Article VI, infra. Notwithstanding anything contained in this Article V, paragraph (A), if Settlor’s spouse renounced Settlor’s spouse’s interest in any portion of the property passing under this Article V, paragraph (A), such portion shall not pass under this Article V, paragraph (A), but shall pass under and be governed by the provisions of Article V, paragraph (B), infra.

Notwithstanding anything contained in this Article V, paragraph (A), if a reduction of the property passing to the Successor Trustee under this Article V, paragraph (A), would not result in any increase in the federal estate tax upon Settlor’s estate (after taking into account the unified credit and the credit for state death taxes, but only to the extent that the use of such credit does not increase state death taxes payable by Settlor’s estate, and all other estate tax credits available to Settlor’s estate and after assuming for this purpose only that all property passing under this paragraph will be qualified for the federal estate tax marital deduction), said property shall be reduced by the largest amount which will result in no such increase, and such amount shall not pass under this Article V, paragraph (A), but shall pass under and be governed by the provisions of Article V, paragraph (C), infra.

In determining the amount of any such reduction, the final determination of the federal estate tax proceeding relating to Settlor’s estate shall control, and there shall be taken into account all property passing (or which shall have passed) to or for the benefit of Settlor’s spouse (under Settlor’s will, this Trust, or otherwise); however, there shall not be taken into account any renunciation by Settlor’s spouse or any interest in any portion of Settlor’s residuary estate which, but for such renunciation, would have passed under the provisions of this Article V, paragraph (A), and such determination shall be made on the assumption that there was no such renunciation. Such reduction shall be deemed a dollar amount reduction, and the property passing as a result thereof to the trust created under Article V, paragraph (C), infra, shall not participate in increases or decreases during the administration of Settlor’s estate.

To the extent possible, assets with respect to which the marital deduction is not allowable for purposes of federal estate tax on Settlor’s estate, or with respect to which a credit for foreign death taxes is allowable for such purposes, shall be allocated to the property passing to the trust created under Article VI, infra. It is Settlor’s intention that this Trust qualify for the marital deduction allowable in determining the federal estate tax upon Settlor’s estate. Accordingly, Settlor hereby authorizes the Settlor’s Personal Representative to elect that any amount passing under this Article V, paragraph (A), be treated as qualified terminable interest property for the purposes of qualifying for said marital deduction.

If Settlor’s spouse is not living at the time of Settlor’s death, the foregoing provisions of this Article V, paragraph (A), shall be of no effect and the property otherwise segregated for and allocated to the trust created in this Article V, paragraph (A), shall rather be held, administered, and disposed of under and in accordance with the provisions of the trust established in Article VI, infra. In the event that Settlor or Settlor’s spouse shall die under circumstances that the order of death cannot be established by adequate proof, it shall be conclusively presumed that Settlor’s spouse [survived] [predeceased] Settlor, and this Trust Agreement shall be administered as though Settlor’s spouse [survived] [predeceased] Settlor, and its terms shall be so interpreted and construed. Such presumption shall be conclusive and binding upon all parties having an interest under this Trust Agreement. B)If Settlor’s spouse survives Settlor and renounces her interest in any amount or any portion which would otherwise have passed under the provisions of Article V, paragraph (A), supra, or renounces any portion of Settlor’s estate passing to Settlor’s spouse pursuant to Settlor’s Last Will and Testament, such renounce amount or portion shall be held, managed, and invested by the Successor Trustee, IN TRUST, NEVERTHELESS, upon the terms and conditions and for the uses and purposes hereinafter set forth. The Successor Trustee shall collect the income therefrom and, after deducting all charges and expenses properly attributable thereto, shall, at least as often as quarter annually, pay or apply all of such net income to or for the use and benefit of Settlor’s spouse.

If the principal of the Trust established under the provisions of Article V, paragraph (A), supra, is exhausted for any reason, then, from and after such exhaustion, the Successor Trustee may pay to or apply for the benefit of Settlor’s spouse, so much or all of the principal as the Successor Trustee, in his sole and absolute discretion, deems necessary or desirable for the support, health, welfare, and benefit of Settlor’s spouse. With regard to any property passing under this Article V, paragraph (B), Settlor directs Settlor’s Personal Representative not to elect to have the same treated as qualified terminable interest property for the purposes of qualifying for the marital deduction allowable in determining the federal estate tax on Settlor’s estate. Upon the death of Settlor’s spouse any then remaining principal of the trust referred to in this Article V, paragraph (B), shall be held, administered, and distributed as part of the trust established in Article VI, infra. C)If Settlor’s spouse survives Settlor, and if any amount is directed to be disposed of under and governed by the provisions of this Article V, paragraph (C), said amount shall be held, managed, and administered by the Successor Trustee, IN TRUST, NEVERTHELESS. The Successor Trustee shall collect the income thereon and pay to or apply for the benefit of Settlor’s spouse so much or all of the net income thereof as Successor Trustee, in his sole and absolute discretion, deems necessary or desirable for Settlor’s spouse’s support, health, welfare, and benefit. Any balance of net income not so paid or applied shall be added to principal annually.

If the principal of the trusts established under the provisions of Article V, paragraphs (A) and (B), supra, is exhausted for any reason whatsoever, then, from and after such exhaustion, the Successor Trustee may pay to or apply for the benefit of Settlor’s spouse so much or all of the principal of this trust as the Successor Trustee, in his sole and absolute discretion, deems necessary or desirable for the support, health, welfare, and benefit of Settlor’s spouse. Settlor’s spouse is hereby authorized, in Settlor’s spouse’s individual capacity, by instrument in writing delivered to the Successor Trustee, to withdraw in the month of December of each calendar year any part of all of the principal of the trust to the extent of Five Thousand Dollars ($5,000) or five percent (5%) of the value of the principal of the trust on the last day of such year (which principal shall not be deemed to include undistributed income of the current year), whichever is the greater amount. This right shall be noncumulative.

Settlor’s spouse is hereby authorized, in Settlor’s spouse’s individual capacity, by instrument in writing delivered to the Successor Trustee during Settlor’s spouse’s lifetime, to direct the Successor Trustee to pay over and distribute, at any time or from time to time during her lifetime, so much or all of the principal of this trust to such of Settlor’s then living issue, in such shares and proportions and either outright or in trust, as Settlor’s spouse, in Settlor’s spouse’s sole and absolute discretion, may designate and appoint, provided that, no such appointment shall be effective to the extent it relieves Settlor’s spouse of any obligations she may have to support any of the Settlor’s then living issue. If, in Successor Trustee’s sole and absolute discretion, the financial security of Settlor’s spouse would not be jeopardized, the Successor Trustee may, at any time or from time to time, pay to or apply for the benefit of any one or more of Settlor’s then living issue so much or all or any accumulated income and so much or all of the principal of this trust as the Successor Trustee, in his sole and absolute discretion, deems necessary or desirable for the support, health, education, welfare, and benefit of such then living issue or any of them.

Upon the death of Settlor’s spouse, the Successor Trustee shall pay over and distribute the principal of this trust as then constituted, together with any undistributed net income, whether collected or accrued, to such of Settlor’s then living issue, in such shares and proportions and either outright or in trust, as Settlor’s spouse, by express reference to this provision in her will, may designate and appoint, or, to the extent, if any, that Settlor’s spouse shall fail to effectively exercise this power of appointment, the remaining principal of this Trust established in this Article V, paragraph (C), shall be held, administered, and distributed as part of the trust established in Article VI, infra. ARTICLE VI [Description]

Upon the death of the Settlor’s spouse after Settlor’s death or if Settlor’s spouse does not survive the Settlor then upon the death of the Settlor, the Successor Trustee shall divide the Trust Fund, as then constituted, into separate trusts, equal in value, one for each then living child of Settlor and one for the issue, collectively, of each child of Settlor who predeceases Settlor or Settlor’s spouse leaving issue who survive Settlor. The share or portion of a share allocated to each beneficiary shall constitute and be administered as a separate trust. Separate books and records shall be kept for each trust, but it shall not be necessary that physical division of the assets be made to each trust. These trusts shall be administered as follows: (A)Each share so provided for a then living child of the Settlor who has not then attained the age of __________________ (___) years shall be paid over and distributed to such child, outright and free of trust. (B)Each share so provided for a then living child of Settlor who has not hen attained the age of __________________ (___) years shall be held, managed, invested, and reinvested by the Successor Trustee, who shall collect the income therefrom and, after deducting all charges and expenses properly attributable thereto, shall, at any time and from time to time, pay or apply to or for the support, health, education (including college and professional education), and maintenance of the child for whom such share has been placed in trust so much (even to the extent of the whole) of the net income of such share and/or principal of such share as the Successor Trustee, in his sole and absolute discretion, shall deem advisable for such purposes. The Successor Trustee need not consider such child’s other sources of income when determining whether to invade the principal of such share. The Successor Trustee shall accumulate and add to the principal of such share any balance of such net income not so paid or applied. From such time as such child attains the age of __________________ (___) years until such time as such child’s share is terminated, the Successor Trustee shall pay over and distribute to such child, outright and free of trust, all income of such child’s share, at least as frequently as quarter annually.

At such time as such child attains the age of __________________ (___) years, the Successor Trustee shall pay over and distribute to such child outright and free of trust, all then remaining principal and undistributed income, if any, of said share. Upon the death of such child, said child’s share, if not previously distributed in full pursuant to the foregoing provisions hereof, shall then be distributed as follows: The Successor Trustee shall pay over and distribute all then remaining principal and undistributed income, if any, of said share, outright and free of trust, to the then living issue of such child, subject to the provisions of Article VII, paragraph (A), infra, per stirpes; or, if none, outright and free of trust, to the then living children of Settlor, per stirpes; or, if none, outright and free of trust , to the Settlor’s heirs.

Such distributions to Settlor’s surviving children or to their surviving issue shall be made by the Successor Trustee herein appointed if any portion of the trust of such child or children hereinbefore established has not been distributed. If, however, such trust has been distributed, then such share shall pass directly to Settlor’s then living children or their surviving issue, if any. (C)Each share so provided for the then living issue of a child of the Settlor who is then deceased shall, subject to the provisions of Article VII, paragraph (D), infra, be paid over and distributed, outright and free of trust, to such then living issue, per stirpes. D)Recognizing the possibility that the amount of the funds or property held in the trust created under this Article VI may be insufficient to justify the continuance of the trust, the Successor Trustee, in his discretion, may terminate any trust created hereunder whenever in his judgment such trust no longer serves a useful purpose, and upon any such termination, distribute the trust assets to the beneficiary of the trust, free and clear of any trust. (E)If neither Settlor’s spouse, Settlor’s children, nor any of the issue of Settlor’s children survive Settlor, the entire Trust Fund shall be paid over and distributed by the Successor Trustee, outright and free of trust, to Settlor’s heirs. ARTICLE VII [Description] (A)If any part of the Trust Fund is distributable to a person who is under the age of __________________ (___) years, then, in each case where it shall be lawful to do so, such property shall continue to be held IN TRUST by the Trustees.

The Trustees shall hold, invest, and reinvest the same, collect the income therefrom and, after deducting from said income all amounts properly chargeable thereto, at any time and from time to time, pay to or apply to the support, health, education (including college and professional education), and maintenance of such person so much of the net income as the Trustees, in their sole and absolute discretion, shall deem advisable for such purposes. The Trustees shall accumulate and add to the principal of said Trust any balance of such net income not so paid or applied. The provisions of this Article VII, paragraph (A), shall not refer to any child of the Settlor who is a beneficiary of a trust created under Article VI, supra.

In addition, the Trustees shall be authorized, at any time and from time to time, to pay to or apply to the support, health, education (including college and professional education), and maintenance of such person so much (even to the extent of the whole) of the principal of said Trust as the Trustees, in their sole and absolute discretion, shall deem advisable for such purposes. The Trustees need not consider such person’s other sources of income when determining whether to invade the principal of said Trust. The Trust hereunder with respect to property shall terminate when such person attains the age of __________________ (___) years or sooner dies, but in no event later than the time set forth in Article VII, paragraph (B), infra.

Upon such termination, the Trustees shall pay over and distribute outright and free of trust, the then remaining principal and undistributed income, if any, of said Trust to the person for whose benefit said Trust was established, if he or she is then living; or if deceased, to his or her then living issue, per stirpes; or, if none, to any other issue of the Settlor then living, per stirpes; or, in default of all issue of the Settlor, to such deceased person’s estate. (B)Notwithstanding any designation of age or distribution or any other provision contained herein, if the creation of interests herein in any person shall violate the Rule Against Perpetuities or any other rule of law, then the interest of that person shall be accelerated and shall be deemed to vest within such time as will not violate the Rule Against Perpetuities or any other rule of law.

In no event shall any such trust created pursuant to the terms of this Trust Agreement terminate later than twenty one (21) years after the death of the last to survive of the group consisting of Settlor’s spouse, Settlor’s children, and the issue of Settlor’s children living at the time of the death of the Settlor. Upon such termination, the Successor Trustee shall pay over and distribute the then remaining principal and undistributed income, if any, of such trust, outright and free of trust, to the person for whose benefit said trust was so provided, if he or she is then living; or, if then deceased, to his or her then living issue, per stirpes; or, if none, to any descendant of the Settlor, per stirpes; or, if one, to any then living issue of Settlor, per stirpes; or, if none, outright and free of trust, pursuant to Article VI, paragraph (E), supra. (C)Notwithstanding the foregoing provisions of this Article VII, whenever, upon the death of a beneficiary of any trust created under this Trust Agreement, all or any part of the then remaining principal and undistributed income, if any, of such trust shall be payable or distributable to a person for whose benefit the Successor Trustee is then holding property in trust under this Trust Agreement, then and in that event (in each case where it may lawfully be done) the same shall not be paid or distributed to such person, but shall instead be added to and thereafter constitute a part of the principal of the trust for such person. D)Whenever any property may be distributed to or for the support, health, welfare, education, and maintenance of a person under the age of __________________ (___) years (minor), or the net income or principal of any trust created under this Trust Agreement may be paid or applied to or for the support, health, welfare, education, and maintenance of a minor, there shall be no necessity for the appointment of a guardian to receive distributions, payments, or applications for any on behalf of such minor. Rather, any such distribution, payment, or application may be made by distributing the same or paying the amount thereof to a parent, the guardian (if there is one), or any other person then caring for or having custody of such minor.

Any distribution payment or application made to such parent, guardian, other person, or directly to such minor, pursuant to this paragraph (D), shall constitute a complete discharge and acquittance to the Successor Trustee, with respect to such distribution of the sum so paid or applied. (E)Except for the trust created in Article V, paragraph (A), supra, any trust created under this Trust Agreement shall be construed as a spendthrift trust. No part of the income, accumulated income, or principal of such trust is ever to be subject to transfer, assignment, sale, pledge, or anticipation in any manner by any beneficiary or remainderman, nor is the interest of any beneficiary or remainderman, prior to the termination of such trust, to be seized in any manner or held liable for the debts, contracts, obligations, or engagements of any kind whatsoever of any beneficiary or remainderman hereunder.

If any beneficiary or remainderman should execute any document by which he attempts to transfer, assign, sell, pledge, or anticipate his or her interest hereunder, the Successor Trustee is to immediately terminate all payments to said beneficiary or remainderman, and the Successor Trustee thereafter may pay over to any person such sums of money or other property which the Successor Trustee, in his sole and absolute discretion, deems to be in the interest of said beneficiary or remainderman. (F)For all purposes of this Trust Agreement, the terms child or children are defined to mean a lawful descendant or lawful descendants in the first degree, whether by blood or adoption (and whether born or adopted before or after the execution of this Trust Agreement), of the parent designated, and the term issue is defined to mean a lawful descendant or lawful descendants in the first, second, or any other degree, whether by blood or adoption (and whether born or adopted before or after the execution of this Trust Agreement), of the ancestor designated.

The provisions of the preceding sentence to the contrary notwithstanding, for all purposes of this Trust Agreement, any child born to or adopted by persons who are holding themselves out as husband and wife after the performance of a marriage ceremony between them shall be considered as a lawful descendant in first degree of such persons, and therefore a child (as defined in the preceding sentence) of such person even though any divorce or annulment proceeding purporting to terminate a prior marriage of one or both of such persons is or may be invalid; and a blood descendant in the first degree of a person shall be deemed to be a lawful descendant in the first degree of such person, and therefore a child (as defined in the preceding sentence) of such person, if it is established that such person has openly and continuously held out such descendant as his or her own son or daughter. For all purposes of this Trust Agreement the term Settlor’s children and terms of like import shall refer not only to the [children / child] of the Settlor now living (viz. , ________________________________) but also to any child of Settlor (as defined in this paragraph (F)) born or adopted after the execution of this Trust Agreement. (G) For all purposes of this Trust Agreement, an infant in gestation who is later born alive shall be deemed to have been in being during such period of gestation for the purposes of qualifying such infant, after its birth, as a beneficiary of any trusts created hereunder. H) Any reference in this Trust Agreement to Settlor’s heirs means those persons, other than creditors, who would take Settlor’s person property under the laws of the jurisdiction of Settlor’s domicile at the time of Settlor’s death if Settlor had died at the time stipulated for distribution, unmarried, intestate, and domiciled in such jurisdiction; and distribution to such persons shall be made in the same manner and in the same proportion that Settlor’s personal property would be distributed under the laws of such jurisdiction if Settlor had died at the time stipulated for distribution, unmarried, intestate, owning the property available for distribution and no other property, without creditors, and domiciled in such jurisdiction.

ARTICLE VIII [Description] Notwithstanding any other provisions of this Trust Agreement to the contrary: (A) On receipt of a written request from the Settlor’s spouse, any unproductive property held as a part of the trust created in Article V, paragraph (A), supra, shall be made productive or converted within a reasonable time into productive property. (B) The powers and discretions of the Trustee or Successor Trustee shall not be exercised in such a manner as would cause the trust created in Article V, paragraph (A), supra, to fail to qualify for the estate tax marital deduction in the computation of the federal estate tax on the estate of the Settlor. C) The powers and discretions of the Trustee or Successor Trustee shall not be exercised in such a manner as would cause any property remaining in the trust created under Article V, paragraph (C), supra, at the death of Settlor’s spouse to be included in the Settlor’s spouse’s estate for federal estate tax purposes. ARTICLE IX [Description] In addition to and not in limitation of the rights, powers, privileges, and discretions vested in trustees by law, Settlor gives to the Trustee, in the administration of any trust created hereunder, the following powers, to be exercised, without application to any court, to such extent, at such time or times, upon such terms, and in such manner as the Trustee, shall in his absolute discretion, deem advisable. A)To retain, for so long as is deemed advisable, any property, real or personal, included in the Trust Fund, to abandon any property, to change investments and to invest and reinvest from time to time in such other property, real or personal, within or without the United States (including, but not limited to, improved or unimproved real estate directly or through partnerships, limited liability companies, or joint ventures), stocks of any classification and shares of or interest in any discretionary common trust fund or mutual fund, without being limited in such retention, investment, or reinvestment to property authorized for the investment of trust funds or any applicable local law, without regard to diversification of assets, even though such assets are not income-producing. B) To sell, with or without notice, at public or private sale, for cash or on credit, with or without security, to exchange and to grant options to purchase any property, real or personal, at any time held hereunder, and in so doing to execute all necessary deeds or other instruments. (C)To borrow money, to mortgage or pledge as security, otherwise encumber, any property held hereunder, and, if money is borrowed from the Trustee, to pay interest thereon at the prevailing rate. (D) To lease for any period (without regard to the duration of any trust created hereunder or to any statutory restriction), exchange, partition, divide, alter, demolish, develop, dedicate (even without consideration), improve, repair, maintain, grant easements on, or otherwise deal with real property. E) To make contracts and agreements, to compromise, settle, release, arbitrate, or accept arbitration of any debts or claims in favor of or against any trust created hereunder, to sue on behalf of any trust created hereunder and to defend any suit against the same, to foreclose any mortgage, deed of trust, or other lien securing any obligation and to bid on the property at foreclosure sale or acquire the property by deed without foreclosure, and to extend, modify, or waive the terms of leases, bonds, mortgages, and their obligations or liens. (F) To vote, in person or by proxy, any stock or securities held hereunder, and to exercise or delegate all rights and privileges (such as subscription rights and conversion privileges) and discretionary powers in connection therewith. (G) To exercise any options or warrants for the purchase of securities on such terms and conditions as the Trustee deems advisable and in the best interests of the beneficiary of any trusts created hereunder; or alternatively, not to exercise any such options or warrants (and allow them to lapse) if the Trustee deems such non-exercise to be in the best interest of such beneficiaries. H) To consent to and participate in any reorganization, consolidation, merger, dissolution, sale, lease, mortgage, purchase, or other action affecting any stock or securities held hereunder, and to make payments in connection therewith. (I) To deposit property with any protective, reorganization, or similar committee, to exercise or delegate discretionary powers in connection therewith, and to share in paying the compensation and expenses of such committee. (J) To employ agents, attorneys, accountants, brokers, counsel, including investment counsel, or others, whether individual or corporate, and to pay their reasonable compensation and expenses. The Trustee may serve in any such additional capacity and be so compensated for services rendered in such additional capacity. K) To hold any property, real or personal, in the name of a nominee, or in his name as Trustee or to take stock or securities and keep the same unregistered in such condition that such stock or securities will pass by delivery. (L) In dividing or distributing principal of any trust created hereunder, to make such division or distribution in money, kind, or partly in money and partly in kind, or by allotting or assigning undivided interests in the property, even if one or more shares be composed in whole or in part of property different in kind from that of any other share. (M) To hold, in solido, for convenience of investment and administration, property constituting principal of two or more trusts created hereunder, or to make joint or common investments in which the separate trusts shall have undivided interests. N) To perform and carry out the provisions of any business agreements to which Settlor was a party and which may be in force at the time of Settlor’s death (including, but not limited to, agreements of partnership, limited partnership, or joint venture, and agreements arising out of Settlor’s interest as an officer, director , stockholder, or member of any corporation or limited liability company), and to reorganize or continue to operate any business, whether a sole proprietorship, partnership, limited partnership, joint venture, limited liability company, or corporation, in which Settlor may have an interest at the time of his death, under such terms and conditions, with such other persons and in such manner as the Trustee, may determine. The Trustee is authorized to have a personal interest as partner, venturer, stockholder, member, owner or investor in, to be employed by, or otherwise to serve any business referred to herein, and to receive compensation for such employment or other services rendered to or for such business. The Settlor owns at the date of execution of this Trust certain business known as _________ _____________________________________________.

In the event that at the time of the death of the Settlor he owns a controlling interest in said business or successor thereto or in another business enterprise (whether operated in the form of a corporation, a partnership, limited liability company, or a sole proprietorship), the Settlor hereby desires that the Successor Trustee shall continue to hold and operate each such business as a part of the Trust Fund herein created. The Settlor hereby vests the said Successor Trustee, severally, including any successors to either, with the following powers and authority, as supplemental to the ones contained in this Article IX the applicability of which to the business of the Settlor confirms without limitation by reason of specification, and in addition to powers conferred by law, all of which may be exercised with respect to every such business, whether a corporation, a partnership, limited liability company, or a sole proprietorship. 1.

To retain and continue to operate the business for such period as the Successor Trustee, as the case may be, may deem advisable. 2. To control, direct, and manage the business. In this connection, the Successor Trustee, in his sole and absolute discretion, shall determine the manner and extent of its active participation in the operation, and the Successor Trustee may delegate all or any part of his power to supervise and operate, to such person or persons as he may select, including any associate, partner, officer, member, or employee of the business. 3. To hire and discharge officers and employees, fix their compensation and define their duties; and similarly to employ, compensate nd discharge agents, attorneys, consultants, accountants and such other representatives as the Successor Trustee may deem appropriate; including the right to employ any beneficiary (or individual Trustee) in any of the foregoing capacities. 4. To invest other estate or Trust funds in such business; to pledge other assets of the estate or Trust as security for loans made to such business; and to loan funds from the Trust Fund to such business and to borrow from any bank or other lending institution, on such terms as are currently competitive. 5. To organize a corporation under the law of this or any other state or country and to transfer thereto all or any part of the business or other property held in the estate or Trust, and to receive in exchange therefor such stocks, bonds and other securities as the Trustee may deem advisable. 6.

To take any action required to convert any corporation or limited liability company into a partnership or sole proprietorship. 7. To treat the business as an entity separate from the estate or trusts. In its accountings to the court and to any beneficiaries, the Successor Trustee shall only be required to report the earnings and conditions of the business in accordance with standard corporate accounting practice. 8. To purchase, process, and sell merchandise of every kind and description; and to purchase and sell machinery and equipment, furniture and fixtures, and supplies of all kinds. 9. To liquidate all or any part of any business at such time and price and upon such terms and conditions (including credit) as the Successor Trustee may determine.

The Successor Trustee is specifically authorized and empowered to make such sale to any partner, officer, member, or employee of the business (or to any Trustee) or to any beneficiary hereunder. 10. To exercise any of the rights and powers herein contained in conjunction with another or others. 11. To diminish, enlarge, or change the scope or nature of any business. The Settlor is aware of the fact that certain risks are inherent in the operation of any business and expects that decisions will be required of a businessman’s risk nature as contrasted with prudent man rule. Therefore, the Settlor directs that the Trustee shall not be held liable for any loss resulting from the retention and operation of any business unless such loss shall result directly from the Successor Trustee’s bad faith and willful misconduct.

In determining any question of liability for losses, it should be considered that the Successor Trustee, as the case may be, is engaging in a speculative enterprise at the Settlor’s request. If any business operated by the Successor Trustee pursuant to the authorization contained in this Trust shall be unincorporated, then the Settlor directs that all liabilities arising therefrom shall be satisfied first from the business itself and second out of the estate or Trust Fund; it being the Settlor’s intention that in no event shall any liability be enforced against the Successor Trustee personally. If the Successor Trustee shall be held personally liable, he shall be entitled to indemnify first from the business and second from the estate or Trust Fund.

It is recognized that any business interest which may be included in any estate or trust may require additional efforts and expertise on the part of the fiduciary. Accordingly, it is recognized that additional fees may be required. Such fees shall be taken as a director’s fee, which shall be remitted to the fiduciary and/or as a management consultant charge by the fiduciary. (O) To make any loans, either secured or unsecured, in such amounts, upon such terms, at such rates of interest, and to such persons, firms or corporations, as is deemed advisable. (P) To receive, receipt for, and collect any and all income of every kind and character whatsoever, which shall, from time to time, be produced by or arise out of the trust estate. Q) The Settlor, while acting as Trustee, shall have the exclusive power and authority (1) to establish and maintain one or more accounts, which may be margin accounts, for the purpose of purchasing, investing in, or otherwise acquiring, selling (including short sales), possessing, transferring, exchanging, pledging, or otherwise disposing of, or turning to account of, or realizing upon, and generally dealing in and with (a) any and all forms of securities, including but not by way of limitation, shares, stocks, bonds, debentures, notes, script, participation certificates, rights to subscribe, options, warrants, certificates of deposit, mortgages, choses in action, evidences of indebtedness, commercial paper, certificates of indebtedness, and certificates of interest of any kind and every kind and nature whatsoever, secured or unsecured, whether represented by trust, participating and/or other certificates or otherwise, and (b) any and all commodities and/or contracts for the future delivery thereof, whether represented by trust, participating and/or other certificates or otherwise; (2) to pledge trust property as collateral for any personal or business loans of Settlor, or for the benefit of any other person or entity designated by Settlor; and (3) to delegate to any agent of Settlor’s choice by power of attorney or otherwise, the conducting of banking activities for Trustee, or the hiring, cancellation or use of entry of a safe deposit box or other storage facilities in the name of Trustee. Said power and authority shall be peculiar to Settlor while acting as initial Trustee. (R) To form, renew, or extend the life of any corporation or business entity while under the laws of any state and/or to subscribe for, or otherwise acquire, all or any part of the capital stock, bonds, or other securities of any corporation or business entity. (S) To pay, satisfy, and discharge all taxes and assessments upon the property comprising the trust estate or upon the income derived therefrom, and, in connection with any estate, inheritance, succession, or other imilar taxes that may be imposed upon Settlor’s estate, the Successor Trustee shall make provisions and payment therefor if and to the extent that the Personal Representative of Settlor’s probate estate, if any, so desires; provided, further, in the event that there shall be included in the trust property and estate any United States Treasury Bonds or other obligations redeemable at par value in payment of the United States Estate Tax imposed upon or with respect to all or any part of the trust property and estate, the Successor Trustee is hereby directed to apply such Bonds or other obligations toward the payment of said tax in an amount not to exceed the total of such tax and any interest accrued thereon, which Bonds or other obligations may be so applied directly by the Successor Trustee, or, in the Successor Trustee’s discretion, may be delivered to the Personal Representative of Settlor’s probate estate, if any, in which latter case the Successor Trustee may rely upon any written representations made to it by such Personal Representative as to the total of said tax and shall be under no duty to verify the same. Further, where it is permitted by law to claim expenses as either income or estate tax deductions, Settlor’s Successor Trustee may, but shall not be required to, make such adjustment between income and principal as Successor Trustee shall deem proper. Settlor’s Successor Trustee shall not be accountable or responsible to any person interested in Settlor’s property for the manner in which it shall exercise such election, and the decisions with respect to adjustment between income and principal shall be binding and conclusive upon all persons interested in Settlor’s property. T) To determine what part of cash or other property received by it is income and what part is principal, and to determine what expenses and other charges, including Trustee’s fees and disbursements, shall be a charge against principal and what against income; provided, however, that stock dividends, rights to subscribe for any stock or securities, or any profit or gain which may accrue from any sale, exchange, or other disposition of assets and property comprising or included in the Trust Fund, shall not be determined to be income subject to distribution, but shall be determined to be principal and shall be added thereto and treated in all respects in the same manner as the original principal of the Trust Fund after deduction therefrom as a charge against the same of all income taxes payable with respect thereto, and all losses sustained as a result of the sale, exchange, or other disposition of assets and property comprising a part of the Trust Fund shall be charged against the income of the Trust Fund or reduce the amount of such income subject to distribution. All cash dividends except liquidating dividends shall be considered as income. U) To pay, satisfy, and discharge all last illness and funeral expenses resulting from Settlor’s death, and all debts, just claims, and administration expenses outstanding at the time of Settlor’s death or resulting from Settlor’s death, and to pay or otherwise satisfy all specific bequests under Settlor’s will, as admitted to probate, in the Successor Trustee’s discretion, to the extent that the fiduciary of Settlor’s estate so desires, or to the extent that there are insufficient funds in Settlor’s estate to pay said aforementioned items, without requiring any reimbursement from the Settlor’s executors or administrators or other persons receiving property as a result of Settlor’s death, provided that no qualified pension or profit-sharing plan comprising a part of the trust estate, which are deemed not to be a lump-sum distribution as defined under the Internal Revenue, and otherwise not subject to Federal Estate Tax, or life insurance proceeds shall be used for such purposes. (V) To construe the trust provisions of this Trust Agreement and any construction thereof, any action taken thereon by the Trustee in good faith shall be final and conclusive, and the Trustee may correct any defect, supply any omission, or reconcile any inconsistencies in said trust provisions in such manner, and to such extent, as the Trustee shall deem expedient to carry the same into effect, and the Trustee shall be the sole, final and conclusive judge of such expediency. W) To make all discretionary decisions provided for or required by the provisions of this Trust Agreement, in their sole, absolute and uncontrolled discretion. (X) Generally to do any and all acts and things and to execute any and all written documents with respect to any property at any time held hereunder which the Trustee would be entitled to do were such property owned absolutely by the Trustee. (Y) To elect or not to elect to treat all or any portion of estimated tax paid by any trust created hereunder as a payment by a beneficiary of such trust, which election may be made pro rata among the beneficiaries or otherwise in the discretion of the Trustee, whose decision shall be conclusive and binding upon all parties in interest.

It is the Settlor’s intention and purpose, except as otherwise provided in this Trust Agreement, to confer upon the Trustee and Successor Trustee the broadest and fullest power and authority with respect to each trust created hereunder which it is possible for an individual to exercise over his own property and the Trustee and the Successor Trustee shall exercise such powers and authority in their sole discretion, in such manner, and to such extent, as they shall deem advisable. The provisions of this Article IX shall continue in effect with respect to any property at any time held hereunder until the execution or termination of the trust with respect thereto shall have been completed by the payment or distribution thereof pursuant to the terms of this Trust Agreement.

No powers of the Trustee enumerated herein or now or hereafter conferred upon the Trustee generally shall be construed to enable Settlor, or Trustee, or Successor Trustee, or any of them, or any other person to purchase, exchange, or otherwise deal with or dispose of all or any part of the Trust Fund for less than an adequate consideration in money or money’s worth, or to enable Settlor to borrow all or any part of the principal or income of this Trust, directly or indirectly without adequate interest or security. No person other than Trustee shall have or exercise the power to vote or direct the voting of any shares or other securities of this Trust, to control the investment of this Trust either by directing investments or reinvestments or by vetoing proposed investments or reinvestments, or to reacquire or exchange any property of this Trust by substituting other property of an equivalent value. ARTICLE X [Description]

This Trust has been accepted by the Trustee in the State of Maryland and it is the intention of the parties hereto that this Trust Agreement shall in all respects be construed, interpreted, and administered according to the laws of the State of Maryland and that the parties in all things in respect thereto shall be governed by such laws. This Article, however, shall not be deemed a limitation upon any of the powers of the Trustee or Successor Trustee, or to prevent their investing in properties, real or personal, located outside of the State of Maryland. ARTICLE XI [Description] The Trust created by this Trust Agreement is revocable by the Settlor who, at any time, may execute such further instruments as shall be necessary to revoke it.

Settlor reserves the right to alter, amend, or revoke this Trust Agreement in whole or in part, at any time or times, and from time to time, by a letter or memorandum in writing delivered to the Successor Trustee; provided that the duties, powers, and liabilities of the Successor Trustee shall not be materially or substantially changed by such alteration or amendment without Settlor’s consent thereto in writing. ARTICLE XII [Description] (A) No bond or other security shall be required of the original Trustee hereunder or of any Successor Trustee. (B) The majority of the adult beneficiaries entitled to receive or have the benefit of the income from the Trust estate may approve the accounts of any individual Trustee at any time resigning as such hereunder. The approval of such accounts shall be full and complete discharge of such Trustee and shall have the same effect as if the Trustee had presented and had its accounts approved by a court of competent jurisdiction. C) In the event any corporate Trustee shall merge or become consolidated with any other corporation, such merged or consolidated corporation is hereby appointed successor corporate Trustee, with all powers, titles, privileges, immunities, discretions, and authorities conferred upon such corporate Trustee so merging or consolidating. (D) Whenever there are co-Trustees hereunder and any Trustee is absent or unavailable, the other Trustee may act without such absent or unavailable Trustee. Any persons dealing with the co-Trustees may rely on a certificate by any one or more of them that he or they have sole authority to act because of the absence or unavailability of the other Trustee, and such certificate shall be binding on the Trust and shall require the Trustee to make fully valid the transaction with any person relying on such certificates. E) The Trustees, and any partnership, firm, corporation, limited liability company, or other business entity in which the Trustees, or any of them are interested, directly or indirectly, whether as a partner, principal, stockholder, member, creditor, employee, or otherwise, may deal with the Trust in the same manner as a third party might, including (by way of illustration and not limitation) purchasing property from and selling services for the Trust, and joining with the Trust in a joint venture, limited partnership, partnership, limited liability company, syndicate, corporation, or other business or non-business arrangement; provided, however, that no such transaction shall take place unless the Trustees decide that the transaction is fair to the Trust and is in the best interests of the beneficiaries. (F) Any Successor Trustee may resign at any time by giving not less than thirty (30) days written notice to the Settlor, if living; and if the Settlor is then deceased, then to the remaining Successor Trustee, if any; and if there is no remaining Successor Trustee, then to all competent adult persons and the parents or guardians of all minor or incompetent persons who are at the time entitled to receive income or principal hereunder.

Upon the resignation, death, or incapacity of any Trustee or any Successor Trustee, the Settlor shall promptly designate a Successor Trustee; in the event that the Settlor is then deceased, a Successor Trustee shall be promptly designated by the remaining Successor Trustee, if any; and in the event there is no remaining Successor Trustee or if the remaining Successor Trustee fails to designate a Successor Trustee within thirty (30) days, then a Successor Trustee shall be promptly designated by majority vote of all persons who would be entitled to notice of the resignation of a Trustee if a Trustee then resigned. (G) The Settlor shall have the right at any time (i) with the consent of the Successor Trustee(s), to remove any or all of the Successor Trustee(s) and to appoint a Successor Trustee(s) to serve in place of the Successor Trustee(s) who was or were removed, and (ii) with or without the consent of the Successor Trustee(s), to remove any or all of the Successor Trustee(s) and to appoint a bank or trust company having fiduciary powers as a Successor Trustee to serve in place of Successor Trustee(s) who was or were removed. (H) The Trustees (or any of them) shall be paid a fair and reasonable compensation for services performed hereunder. I) No Successor Trustee under this Trust Agreement shall be liable for any act or omission of his predecessor, nor for any loss or expense from or occasioned by any act or omission of his predecessor, nor shall any Successor Trustee be obligated to inquire into the validity or propriety of any such act or omission. Any such Successor Trustee shall be entitled to accept as conclusive any accounting and statement of assets furnished to such Successor Trustee by his predecessor or by the personal representative of such predecessor and shall further be entitled to receipt only for those assets included in such statement. (J) The use of any gender herein shall be deemed to include the other genders, and the use of the singular shall be deemed to include the plural (and vice versa), wherever appropriate. K) Wherever the term Trustees is employed herein, it shall be deemed to refer to the original Trustee and any Successor Trustee or Successor co-Trustee named herein or other Trustees or co-Trustees appointed hereunder. ARTICLE XIII [Description] Any Successor Trustee shall have all the duties and powers assumed by and conferred upon the Trustee under this Trust Agreement. The appointment of a Successor Trustee shall be made by a duly acknowledged instrument delivered to the beneficiaries. IN WITNESS WHEREOF, Settlor has signed and sealed this Trust Agreement and, to evidence acceptance of the terms and conditions of this Trust, the Trustee and Successor Trustee have signed and sealed this Trust Agreement, all on the day and year indicated below. witness: | |SETTLOR:

February 3rd, 2023

Nature of a Business

Business Studies PART 1 A) Social Function of a business: [Choice] Businesses provides goods and services to satisfy individual needs and wants by giving the choice of selecting something among a variety of products. Economic Function of a business: [Employment] By creating or providing employment for individuals this minimises the unemployment rate. B) Unincorporated enterprises is when the enterprise has NOT gone through the process of not separating the owner from its legal entity examples; sole traders and partnerships

Incorporated enterprises are when the business HAS gone through the legal process of separating the owner from its legal entity examples; private and public companies. PART 2 A) Stakeholders: People who are or may be affected by business activities. B) Possible stakeholders; [Employees] loss of jobs therefore they are unemployed and won’t have a source of income. [Competitors] more firms may purchase their product as the operations are closing down C) Stakeholders responsibilities; Society/General public] Stakeholders in business should have ethically responsible decisions as good corporate citizens. Society expects businesses to give back to the community of what they make out of profits. For example the Body shop organises community projects such as charity. How Lelouch and his minions was ethically responsible by being a good corporate citizen by giving back to the community of the profits by destroying Britannia as charity. PART3 [Environment] They must consider the impacts on the environment as we should care and preserve our environment.

Thus businesses are turning to ecologically sustainable operating practices in response to climate change and destruction of our natural environment. For example Levis has developed its own environment philosophy and principles and conduct business with following those regulations Example Q&A A) What is the difference between a sole trader and partnership A sole trader is owned and operated by one person taking care of all responsibilities whereas a partnership consists of 2-20 people to form a business together and share the responsibilities and problems in the business.

B) 2 Advantages and 2 disadvantages operating a partnership as opposed a sole trader [POOL CONTINUITY] It’s advantageous to be in a partnership compared to a sole trader as partnerships will be able to pool their funds and skills together to establish a business and on a death of one partner, the business can continue with the other partners [DISPUTES DEBTS] It’s disadvantageous to be in a partnership as there could be possible disputes between partners and may have a liability for all the debts including the partners.

PART4 A) Consumers- Because there are many competitors in the industry it may be difficult for new business to have consumers buy the products they offer as there are a different range of products available to them at competitive prices and quality. Consumers [CPR CPQ] Finance- Thus financing the business can also be a challenge like a domino effect one thing effects another as they aren’t making enough profits to keep the business up and running and may not be able to keep employees. Finance [DP BE]

B) External Influences [CSI] [SCA] [BEBQ] can include competitive situation influences [CSI] as this allows their business to aim for a sustainable competitive advantage [SCA] over their competition as this is a strategy to ensure that they ‘beat’ their competitors over a long period of time, by stimulating an efficient production of better quality products or services. C) Internal influences [LCV] can include location as a prime location can lead to higher levels of sales and profits because of its convenience and visibility to the public. However a bad location is a liability that negatively affects sales and profits.

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Partnership

Protecting Interest Of The Minority Shareholders

Diploma in Business Studies

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Chapter 20

Business Structures

Living Trust

Nature of a Business

Sometimes it is hard to do all the work on your own