Types of business ownership

Question 1

what is the easiest and most popular form of business ownership

Answer 1

sole proprietorship

Question 2

what is sole proprietorship

Answer 2

a business that is owned and operated by one person

Question 3

what does the owner of the sole proprietorship do (3)

Answer 3

-receives the profits
-incurs any losses
-is liable for the debts of the business

Question 4

in sole proprietorship what must the owner decide

Answer 4

how much liability protection he needs

Question 5

what is liability protection

Answer 5

it is insurance against the debts and actions of a business

Question 6

what are some advantages of sole proprietorship (4)

Answer 6

• its easy and inexpensive to create
• the owner has complete authority over all business activities
• it is the least regulated form of business ownership
  -the business pays no taxes, income is taxed at the personal rate of the owner

Question 7

what are some disadvantages of sole proprietorship (4)

Answer 7

• the owner has unlimited liability
• raising capital is more difficult
• the business is totally reliant on the skills and abilities of the owner
• the death of the owner dissolves the business unless there is a will to the contrary

Question 8

what are the biggest disadvantages of sole proprietorship (2)

Answer 8

-financial
-the owner has unlimited liability

Question 9

what is unlimited liability

Answer 9

its full responsibility for all debts and actions of a business

Question 10

what is a partnership

Answer 10

its an unincorporated business with two or more owners who share the decisions, assets, liabilities and profits

Question 11

what does the law require that all partnerships should at least have

Answer 11

one general partner

Question 12

what is a general partner

Answer 12

is a participant in a partnership who has unlimited personal liability and takes full responsibility for managing the business

Question 13

can all the partners in a partnership be general partners

Answer 13

yes

Question 14

what are the types of partnership (2)

Answer 14

-general
-limited

Question 15

what is a limited partner (2)

Answer 15

-its a partner in a business whose liability is limited to his or her investment
-a limited partner cannot be actively involved in the managing of the business

Question 16

what are advantages of partnerships (3)

Answer 16

• are inexpensive to create
• general partners have complete control
• partners can share ideas

Question 17

what are disadvantages of partnerships (3)

Answer 17

-it is difficult to dissolve one partners interest without dissolving the partnership
-there may be personality conflicts
-partners can be held liable for each others actions

Question 18

what is a corporation (2)

Answer 18

• its a business that is registered by a state and operates apart from its owners
  -it issues shares of stock and lives on after the owners have sold their interest/ passed away

Question 19

in corporation the owners of the business are protected from what

Answer 19

liability for the actions of the company

Question 20

what are the types of corporation (3)

Answer 20

-C-corporation
-Subchapter S Corporation
-Nonprofit corporation

Question 21

what is the most common corporate

Answer 21

C-corporation

Question 22

what is a C-corporation

Answer 22

an entity that pays taxes on earnings (its shareholders pay taxes as well)

Question 23

in C-corporations the founders are generally what

Answer 23

the shareholders

Question 24

what are shareholders

Answer 24

the owners of a corporation

Question 25

what are the advantages of C-corporations (6)

Answer 25

-status
-limited liability
-ability to raise investment money
-perpetual existence
-employee benefits
-tax advantages

Question 26

what is limited liability

Answer 26

its when you have partial responsibility of a corporate shareholder. He or she is responsible only up to the amount of his/her individual investment

Question 27

what are disadvantages of C-corporations (5)

Answer 27

• expensive to set up
  -income is more heavily taxed
  -subject to double taxation on income
  -pays taxes on profits
  -stockholders taxed on dividends

Question 28

what is a S-corporation

Answer 28

its a corporation taxed like a partnership

Question 29

how can you avoid double taxation

Answer 29

with S-corporation

Question 30

what are advantages of a S-corporation (2)

Answer 30

-profits are only taxed once at the shareholders personal tax rate
-the S-corporation is not a tax paying entity

Question 31

What are disadvantages of S-corporations (4)

Answer 31

• they can have no more than 75 stockholders who must be U.S citizens
  -can have only one class of stock
  -often restaurants are s-corporations, If the business produces enough cash this form works however if the business shoes a large taxable profit but has not generated enough cash to cover the taxes, the owners must pay the taxes out of their personal earnings

Question 32

what is a non profit (2)

Answer 32

its a legal entity that makes money for reasons other than the owners profit.
-it can make a profit, but the profit must remain within the company

Question 33

a non-profit corporation must fall within what categories (4)

Answer 33

-religion
-charity
-public benefit
-mutual benefit

Question 34

what is a limited liability company

Answer 34

its a company whose owners and managers have limited liability and some tax benefits, but which avoids some restrictions associated with subchapter S corporation

Question 35

what are advantages of limited liability company (6)

Answer 35

• LLC is simpler to set up than a corporation
• LLC allows for the flexibility of a partnership structure
• LLC protects its owners with the limited liability of a corporation, its members are not liable for the company’s debts
• LLC is not subject to double taxation.
  -It provides the pass-through tax advantages of partnership.
  -Profits are taxed personally and shareholders are taxed only once

Question 36

before you decide what business you want to do what should you ask yourself (6)

Answer 36

-your skills
-access to capital
-expenses
-willingness to assume liability
-level of control wanted
-length of time you expect to own the business