Chapter 7- Business Types and Planning

Question 1

define sole proprietorship

Answer 1

a type of business characterized by one owner

Question 2

What are the advantages of sole proprietorship?

Answer 2

1. simple to organize and manage
2. one level of taxation
3. owner doesn’t answer to other people

Question 3

what are some disadvantages of sole proprietorship?

Answer 3

1. fully liable for the debts, contracts, and wrongful acts and negligent acts resulting from the business.
2. one allowed if only one owner

Question 4

define a general partnership

Answer 4

exists when two or more people own a business.

Question 5

what does a partnership outline?

Answer 5

1. the scope of the partnership’s business
2. the percentage of the business each partner owns
3. how profits and losses will be allocated
4. how the partnership will be managed
5. whether new partners can join
6. selling or transfer of partnership ownership interest
7. termination of the partnership

Question 6

What are some advantage of a general partnership?

Answer 6

1. great deal of flexibility in partnership design.
2. generally not subject to federal income taxation.
3. who will report the income on their personal tax returns.

Question 7

what are some disadvantages of a general partnership?

Answer 7

1. personal liability

Question 8

Define a limited partnership

Answer 8

When two or more people come together to form a business. however, there is a general partner and limited partners.

Question 9

Define a general partner

Answer 9

manages the partnership and is personally liable for the partnership’s debts and other legal obligations

Question 10

define a limited partner

Answer 10

does not have the right to manage the limited partnership, but she is not personally liable for the partnership’s legal obligations.

Question 11

Define a limited liability partnership

Answer 11

provides all partners a degree of limited liability.

Question 12

What is a limited liability limited partnership?

Answer 12

Where you have general partners and limited partners.

Question 13

Define a corporation

Answer 13

a business entity legally distinct form its owners

Question 14

What role does the board of directors have in a corporation?

Answer 14

They govern the corporation.

Question 15

What role do the officers have in a corporation?

Answer 15

They manage the day-to-day operations of the corporation

Question 16

What are some advantages of a corporation?

Answer 16

1. limited liability for its shareholders

2. perpetual existence and ease of transferring ownership interests.

Question 17

what is the difference between an S-Corporation and C-Corporation?

Answer 17

A C-Corporation is subject to double income taxation, and an S-Corporation is not.

Question 18

Define a franchise

Answer 18

a type of business arrangement where a license is granted to a person or business to use the name, business process and products that have been successfully developed by another company.

Question 19

Who is the party that is giving the license?

Answer 19

the franchisor

Question 20

who is the party that is receiving the license?

Answer 20

the franchisee

Question 21

What are some advantages of franchises?

Answer 21

1. as close to a turnkey business as it gets.
2. all the steps needed to make your business a success are laid out.
3. it is a proven business model.

Question 22

what are the disadvantages of franchises?

Answer 22

1. they are not cheap

2. franchisors often are very strict in how their franchisees run their franchises.