4) Business Structure

Question 1

Sole Proprietorship

Answer 1

Any unincorporated business by default

• Easy and cheap to form
• Owner has full control and the business’s profit is his own personal income
• Owner has full personal liability

Question 2

General Partnership

Answer 2

Business has more than 1 owner

• Partners split the business’s profit
• Pay taxes at their own rate
• Partners have full personal liability for their own and their partners’ actions

Question 3

Limited Partnership

Answer 3

Silent partners have financial interest in the business (can give $) but aren’t allowed to be involved with the day to day operations

Question 4

Partnership Agreement

Answer 4

Defines the roles of the partners

• Says what happens if a partner leaves
• Sets the framework for discussion of aspects of the practice
• Not required

Question 5

Corporation

Answer 5

Legal separation of a business from its owners

• Has a board of directors that controls the corporation who appoints the corporate officers

Question 6

How is the best structure determined?

Answer 6

Based on the business objectives

Question 7

What does the business structure determine?

Answer 7

The legal structure, tax status, and business’s operating structure

Question 8

C-Corporation

Answer 8

Legal entity formed under state law that’s separate from the owners

• Expensive to form and maintain → Double taxes
• Easy to transfer ownership
• Easiest time w/raising capital from outside sources
• Owners have limited personal liability

Question 9

S-Corporation

Answer 9

Business that has up to 35 shareholders who are citizens or resident aliens

Question 10

What are the advantages and disadvantages of an S-Corporation?

Answer 10

Advantages

• Limited personal liability
• Easy transfer or business
• Easy to raise capital

Disadvantages

• Lots of regulations and legal restrictions

Question 11

Personal Service Corporation

Answer 11

For individuals who are the owners of the business and providers of the services

• Inexpensive to form
• All of the business’s profits can go directly back into the business so they don’t have to pay corporate taxes
• Employee benefits can be deducted
• No personal liability protection

Question 12

Limited Liability Company

Answer 12

Unincorporated business that’s legally separate from its owners

• Taxed like a partnership (no corporate taxes)
• Regulated differently in each state

Question 13

What are the two types of tax statuses?

Answer 13

For-Profit (FP) and Non-Profit (NP)

Question 14

For-Profit

Answer 14

Organization provides a service/good to make money for business’s owners

• Includes both public and private organizations

Question 15

How do FP organizations pay taxes?

Answer 15

Based on their profits and then the remaining money gets distributed to the organization’s owners

Question 16

NFP

Answer 16

Doesn’t provide a financial benefit to anyone; Must be involved in community service

Question 17

How do NFP organizations pay taxes?

Answer 17

They’re tax-exempt

Question 18

True or False: NFP organizations are a burden on the community? Explain your answer.

Answer 18

They don’t pay taxes so they’re expensive for the community to maintain

Question 19

How is tax status determined?

Answer 19

Based on the business’s purpose and how the business’s profits are used

Question 20

What is the hardest business structure to form and why?

Answer 20

C-corporation bc its expensive