Form of Ownership

Question 1

What is a Sole Proprietorship?

Answer 1

A form of business that is owned (and usually operated) by one person. It is the simplest kind of business structure.

Question 2

What are the advantages of a Sole Proprietorship?

Answer 2

Ease of start/end, few regulations, be your own boss, direct control, pride of ownership, retain profit, and no corporate taxation on personal income tax.

Question 3

What are the disadvantages of a Sole Proprietorship?

Answer 3

Unlimited liability, limited financial resources, management difficulties, high time commitment, trouble finding qualified employees, limited (slow) growth, and limited lifespan (ends with owner).

Question 4

What is a Partnership?

Answer 4

An association of two or more individuals who agree to operate a business together.

Question 5

What is a General Partnership?

Answer 5

A partnership in which all partners share in the management and profit, each can act on behalf of the company, and has unlimited liability for all its business obligations.

Question 6

What is a Limited Partnership?

Answer 6

A partnership with one or more general partners who have unlimited liability, and one or more limited partners whose liability is limited to the amount of their investment.

Question 7

What are the advantages of Partnerships?

Answer 7

Easy to start, more access to capital (all partners), shared management & expertise, longer survival, shared risk, and no corporate taxation.

Question 8

What are the disadvantages of Partnerships?

Answer 8

Division of profits and tax, potential disagreements among partners, and difficulty in exiting/transferring/dissolving.

Question 9

What is Unlimited Liability?

Answer 9

A legal concept that holds a business owner personally responsible for all the debts of the business.

Question 10

What is Limited Liability?

Answer 10

A feature that limits each owner’s financial liability to the amount of money that they have invested in the business.

Question 11

What is a Corporation?

Answer 11

A separate entity created by law with an existence and life separate from its owners, who are not personally liable for the entity’s debts.

Question 12

What is a Public Corporation?

Answer 12

A corporation whose shares are listed on a stock exchange and are widely held and available to the public.

Question 13

What is a Private Corporation?

Answer 13

A corporation whose number of shareholders is limited; normally restricts the transfer of shares to third parties, and shares do not trade on a recognized stock exchange.

Question 14

What is a Crown Corporation?

Answer 14

A government-owned publicly owned corporation.

Question 15

What is Pass-through Taxation?

Answer 15

Occurs when an owner’s share of business profits is reported on individual tax returns. Prevalent in sole proprietorships and partnerships.

Question 16

What is Corporate (dual) Taxation?

Answer 16

Occurs when profits of a business are taxed at the entity level before profits are distributed to owners; distributions are reported on the owners’ individual tax returns as dividends and are taxed a second time.

Question 17

What is a Dividend?

Answer 17

Distribution of profits to the shareholders of a corporation.

Question 18

What is a Cooperative?

Answer 18

A legal entity typically formed by people with similar interests to reduce costs and gain economic power; has limited liability, an unlimited lifespan, and elected board of directors.

Question 19

What is a Consumer Co-op?

Answer 19

A co-op that provides products or services to its members.

Question 20

What is a Producer Co-op?

Answer 20

A co-op that markets goods or services produced by its members or reduces costs through group purchasing.

Question 21

What is a Worker Co-op?

Answer 21

A co-op owned and operated by its employees to provide employment and limited liability.

Question 22

What is a Multi-stakeholder Co-op?

Answer 22

A co-op that includes more than one membership group.