Forms of Ownership

Question 1

Forms of Ownership

Answer 1

1. Sole proprietorship
2. General Partnership
3. Limited Partnership
4. Corporation

Question 2

Sole Proprietorship

Answer 2

a business owned by one person (although it may have many employees). The federal
government doesn’t recognize the company as a taxable entity; all profit “flows through” to the owner, where it is treated as personal income and taxed accordingly. Easy to set up, just needs a business license

Question 3

Partnerships

Answer 3

a company that is owned by two or more people but is not a corporation

Question 4

General Partnership

Answer 4

Two or more owners; each partner is entitled to equal control unless agreement specifies
otherwise. Profits and losses flow directly to the partners and are taxed at individual rates. All partners have unlimited liability, meaning their personal assets are at risk to mistakes made by others partners. Easy to set up but a partnership agreement is strongly recommended

Question 5

Limited Partnership

Answer 5

Two or more owners; one or more general partners manage the business; limited partners don’t
participate in the management. Limited partners have limited liability.

Question 6

Corporations

Answer 6

Unlimited number of shareholders; no limits on stock classes or voting arrangements; ownership and
management of the business are separate (shareholders in public corporations are not involved in management decisions; in private or closely held corporations, owners are more likely to participate in managing the business)

Question 7

Advantages of Corporations

Answer 7

• Ability to raise capital
• Liquidity
• Longevity
• Limited Liability

Question 8

Disadvantages of Corporations

Answer 8

• Cost and Complexity
• Reporting requirements
• double taxation

Question 9

Special Types of Corporations

Answer 9

• S Corporation
• LLC structure
• A benefit corporation (B Corp)
• Holding Company

Question 10

S Corporation

Answer 10

combines the capital-raising options and limited liability of a corporation with the federal taxation advantages of a partnership

Question 11

Limited Liability Company (LLC)

Answer 11

offers the advantages of limited liability, along with the pass-through taxation benefits of a partnership. Furthermore, LLCs are not restricted in the number of shareholders they can have, and members’ participation in management is not restricted as it is in limited partnerships.

Question 12

A Benefit Corporation (B Corp)

Answer 12

has most of the attributes of a regular corporation but adds the legal requirement that the company must also pursue a stated nonfinancial goal, such as hiring workers whose life histories make employment difficult to attain or reducing the environmental impact of particular products.

Question 13

Holding Company

Answer 13

Special type of parent company that owns other companies for investment reasons and usually exercises little operating control over those subsidiaries

Question 14

Corporate Governance

Answer 14

can be used in a broad sense to describe all the policies, procedures, relationships, and systems in place to oversee the successful and legal operation of the enterprise.

Question 15

Board of Directors

Answer 15

select the corporation’s top officers, who actually run the Company.

Question 16

Shareholders

Answer 16

Because shareholders elect the directors, in theory they are the ultimate governing body of the corporation and own the business.