Chapter 2 - Business Types & Tax Rules

Question 1

Sole proprietorship

Answer 1

Any business started by an individual.

Question 2

Partnerships

Answer 2

Any business started by more than one person. Each person in the partnership is equally liable for the activities of the business.

Question 3

Limited liability company

Answer 3

State entities used by a partnership or sole proprietorship to limit its liability.

This business form falls between a corporation and a partnership or sole proprietorship in terms of protection by the law. Dependent on the laws of the state where it’s established.

Question 4

What are corporations?

Answer 4

Legal entities where the owners are protected from claims filed against the corporation’s activities.

Question 5

S corporations

Answer 5

These have fewer than 100 shareholders and function like partnerships but give owners additional legal protection.

Question 6

C corporations

Answer 6

These are separate legal entities formed for the purpose of operating a business. They’re actually treated in the courts as individual entities. Incorporation allows owners to limit their liability from the corporation’s actions. Owners must split their ownership by using shares of stock.