Appendix A1: Types of Business Entities Flashcards
What are the three main types of business entities discussed in this book?
The three main types of business entities are
- Sole proprietorship
- Partnership
- Corporation
What is a sole proprietorship, and where is it commonly found?
A sole proprietorship is an unincorporated business entity owned by one person.
It is commonly found in the service, retailing, and farming industries
In a sole proprietorship, who is usually the owner and manager?
In a sole proprietorship, the owner is usually the manager.
What is the legal liability of the owner in a sole proprietorship?
In a sole proprietorship, the owner has unlimited liability and is fully responsible for the debts of the business entity.
What is a partnership, and how many persons typically own a partnership?
A partnership is an unincorporated business entity owned by two or more persons known as partners.
How are transactions in a partnership typically accounted for in relation to the partners?
Transactions in a partnership are accounted for separately from those of the partners.
What document specifies the agreements among partners in a partnership?
The agreements among partners in a partnership are specified in a partnership contract.
What is the legal liability of each partner in a general partnership?
In a general partnership, each partner has unlimited liability and is legally responsible for the debts of the business.
What is a corporation, and how is it incorporated in Canada?
A corporation is a business entity incorporated federally under the Canada Business Corporations Act or provincially under similar provincial acts.
What are the owners of a corporation called?
The owners of a corporation are called shareholders.
What does a corporate charter grant a corporation, and how is it viewed for accounting purposes?
A corporate charter grants a corporation the right to operate as a legal entity separate from its owners.
For accounting purposes, it is viewed as a separate business entity that must be accounted for separately from its owners.
What is limited liability, and which business entity type enjoys it?
Limited liability means that shareholders cannot lose more than they paid for their shares.
Shareholders of corporations enjoy limited liability.
What role do shareholders play in a corporation’s governance?
Shareholders elect a governing board of directors, which, in turn, employs managers and exercises general supervision over the corporation.
What are the advantages of the corporate form of business organization?
The advantages of the corporate form of business organization include limited liability for shareholders, continuity of life, ease in transferring ownership (shares), and opportunities to raise large amounts of money by selling shares to a large number of people.
What are the primary disadvantages of a corporation?
The primary disadvantages of a corporation are loss of control by shareholders, complex reporting procedures required by government agencies, and the potential for double taxation of earnings.
