Starting a Business

Question 1

Advantages of Sole Proprietorship

Answer 1

Easy to start up, you are your own boss, not sharing profits, pride of ownership, leaving a legacy, no special taxes

Question 2

Disadvantages of Sole Proprietorship

Answer 2

Unlimited liability, limited growth, limited access to financial resources, huge time commitment, management problems, few fringe benefits

Question 3

General Partnership

Answer 3

All participants are equal, bear equal amount of risk

Question 4

Limited Partnership

Answer 4

Owner with unlimited liability and limited partners

Question 5

Master Limited Partnership (MLP)

Answer 5

Limited Partnership that is publicly traded on the stock exchange, done to avoid corporate taxes

Question 6

Limited Liability Partnership (LLP)

Answer 6

Partnership in which the liability of the owners is limited

Question 7

Advantages of a Partnership

Answer 7

More financial resources, longer life span, management is shared, no extra taxes

Question 8

Disadvantages of a Partnership

Answer 8

Unlimited liability, disputes between partners, sharing profit, difficult to end

Question 9

Conventional Corporation

Answer 9

State-chartered legal entity with the authority to act and have responsibilities separate from its owners

Question 10

Advantages of a Corporation

Answer 10

More financial resources, limited liability, can get very large, easy to change ownership, easy to attract employees, separation between management and ownership

Question 11

Disadvantages of a Corporation

Answer 11

High initial costs, a lot of paperwork, two tax returns: corporate and personal taxes, double taxation: income and dividends, size, difficult to end, conflicts with board of directors

Question 12

S corporation

Answer 12

Created by the government which is taxed as a partnership

Question 13

S corporation is possible when…

Answer 13

Doesn’t have more than 100 shareholders, shareholders are individuals living in the US, shareholders only have one kind of share, shareholders do not gain more than 25% of their income from passive sources

Question 14

Limited Liability Company (LLC)

Answer 14

Business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation

Question 15

Advantages of a Limited Liability Company (LLC)

Answer 15

Limited liability, flexible laws, free choice of tax type, flexible distribution of losses and gains, operational flexibility

Question 16

Disadvantages of a Limited Liability Company (LLC)

Answer 16

No shares, short life span, employees pay tax as if they are part of a sole proprietorship, more paperwork

Question 17

Merger

Answer 17

Result of two firms that form a new firm

Question 18

Acquisition

Answer 18

One firm taking over the other (buying all the shares of a firm)

Question 19

Vertical Merger

Answer 19

Two firms that join together who are in different stages in related business

Question 20

Horizontal Merger

Answer 20

Two firms that join together in the same industry

Question 21

Conglomerate Merger

Answer 21

Joins two firms in completely unrelated industries

Question 22

Advantages of a Franchise

Answer 22

Management and marketing assistance, financial advice, being a business owner, recognisable brand name, low failure rate

Question 23

Disadvantages of a Franchise

Answer 23

High set up costs, management regulations, profit sharing, coat tail effect, sales restrictions

Question 24

Cooperative

Answer 24

Firm that is owned and controlled by people who use it