Questions and Answers
What is a sole proprietorship?
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)
Signup and view all the answers
What is a disadvantage of sole proprietorships?
Signup and view all the answers
What is a general partnership?
Signup and view all the answers
What is a limited partner?
Signup and view all the answers
What does limited liability mean?
Signup and view all the answers
In a corporation, the owners can have unlimited liability.
Signup and view all the answers
Which of the following is an advantage of corporations? (Select all that apply)
Signup and view all the answers
What are S corporations?
Signup and view all the answers
What are the qualifications for an S corporation?
Signup and view all the answers
Which of the following is a disadvantage of corporations?
Signup and view all the answers
What are unlimited liability and limited liability?
Signup and view all the answers
What is a limited liability company (LLC)?
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.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
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.