Topic 1 Introduction

Question 1

Sole Proprietorship

Answer 1

-No separation between owner and firm
-Owner has unlimited personal liability for firm’s debt
-Reputation of owner is key for firm’s ability to function

Question 2

Partnership

Answer 2

-Business is owned by more than one person
-Partners have unlimited personal liability for firm’s debt

Question 3

Limited Partnership

Answer 3

-General partners run the business and are personally liable for the firm’s debt
-Limited partner liability is limited to the amount invested in the partnership

Question 4

LLC

Answer 4

-Partnership without a General Partner
-All partners have limited liability
-All partners can run the business

Question 5

Corporations

Answer 5

-Legal single entity recognized by law
-Solely responsible for its obligations
–>owners are not liable for corp’s obligations and owners have limited liability

Question 6

Corporate taxation

Answer 6

Double taxation -> the corporation is taxed on profits and the owners are also taxed on any distribution of profits a C-Corp
-No limit of number of owners
-No restriction on who can own

Question 7

On going concern

Answer 7

-Equity, ie shareholders, own the firm
-All payments and obligations to debtholders are fulfilled

Question 8

Price Earnings

Answer 8

Price per share at time 0 compared to earnings per share at time t