Business Concepts Flashcards Chapter 5

Questions and Answers

What is a sole proprietorship?

A business owned by multiple people

A type of partnership

A business owned and managed by one person (correct)

A legal entity separate from its owners

What is a partnership?

Two or more people legally agree to become co-workers of a business.

What defines a corporation?

A legal entity with authority to act and have liability apart from its owners.

What are some advantages of sole proprietorships? (Select all that apply)

Ease of starting and ending the business Signup and view all the answers

What is a disadvantage of sole proprietorships?

Unlimited liability Signup and view all the answers

What is a general partnership?

A partnership in which all owners share in operating the business and in assuming liability for the business's debts. Signup and view all the answers

What is a limited partner?

An owner who invests money in the business but does not have any management responsibility or liability for losses beyond the investment. Signup and view all the answers

What does limited liability mean?

The responsibility of a business's owners for losses only up to the amount they invest. Signup and view all the answers

In a corporation, the owners can have unlimited liability.

False Signup and view all the answers

Which of the following is an advantage of corporations? (Select all that apply)

Limited liability Signup and view all the answers

What are S corporations?

A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships. Signup and view all the answers

What are the qualifications for an S corporation?

Must have no more than 100 shareholders, who are individuals or estates, only one class of stock, and derive no more than 25% of income from passive sources. Signup and view all the answers

Which of the following is a disadvantage of corporations?

Double taxation Signup and view all the answers

What are unlimited liability and limited liability?

Unlimited liability is the responsibility of business owners for all debts; limited liability restricts owners' responsibility to their investment amount. Signup and view all the answers

What is a limited liability company (LLC)?

A business structure similar to an S corporation without the special eligibility requirements Signup and view all the answers

Study Notes

Business Structures Overview

Sole Proprietorship: A business owned and managed by a single person. Offers ease of starting, pride of ownership, and retention of profits.
Partnership: Involves two or more individuals running a business together, sharing responsibilities and profits.

Types of Partnerships

General Partnership: All partners actively manage and share liability for business debts.
Limited Partnership: Comprises general partners managing the business and limited partners who invest but do not manage or assume liability beyond their investment.
Limited Partner: Contributes capital without management duties or liability for debts exceeding their investment.

Liability Concepts

Limited Liability: Protects owners from losses beyond their investment; applicable to limited partners and shareholders.
Unlimited Liability: Business owners are fully responsible for all business debts, risking personal assets.

Advantages and Disadvantages

Advantages of Sole Proprietorships: Minimal setup, full control, and straightforward tax structure (taxed as personal income).
Disadvantages of Sole Proprietorships: Personal liability, limited resources, and potential for slower growth.
Advantages of Partnerships: Access to greater financial resources, diverse skills, and no special taxes.
Disadvantages of Partnerships: Shared profits, conflict potential, and difficulty in dissolution.

Corporations

Conventional Corporations: Legal entities separate from owners, providing limited liability and the ability to raise capital.
S Corporations: Combines features of corporations and sole proprietorships; limited to 100 shareholders and taxed on personal income.

Corporations' Advantages and Disadvantages

Advantages of Corporations: Limited liability, ease of ownership transfer, perpetual existence, and attracting talent.
Disadvantages of Corporations: High initial costs, extensive documentation, double taxation, and potential conflicts between owners and management.

Large Corporations in America

Largest Corporations: Notable companies include Exxon Mobil, Walmart, Chevron, and General Electric.
Largest Private Corporations: Major players include Cargill, Koch Industries, and Mars.

Limited Liability Company (LLC)

Functions similarly to an S Corporation but without specific eligibility conditions; offers limited liability and flexible taxation options. Recognized as a partnership for tax purposes since 1988.

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Description

Test your understanding of key business concepts with these flashcards from Chapter 5. Learn about sole proprietorships, partnerships, and corporations along with their advantages. Perfect for anyone looking to master foundational business terminology.