Business Entities: Sole Proprietorship and Partnership

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Questions and Answers

What is a characteristic of a sole proprietorship?

It offers limited liability and potential for double taxation

It provides pass-through taxation with shareholder limitations

It is owned and operated by a single individual (correct)

It is owned by two or more individuals

What is a characteristic of a partnership?

It offers limited liability and potential for double taxation

It provides pass-through taxation with shareholder limitations

It is owned and operated by a single individual

It is owned by two or more individuals sharing profits and losses (correct)

What is a characteristic of a C Corporation?

It provides pass-through taxation with shareholder limitations

It is owned and operated by a single individual

It offers limited liability and potential for double taxation (correct)

It is owned by two or more individuals sharing profits and losses

Which business entity is owned and operated by a single individual?

Sole Proprietorship Signup and view all the answers

What is a characteristic of an S Corporation?

It provides pass-through taxation with shareholder limitations Signup and view all the answers

What is an advantage of a partnership?

It allows for pooling of resources and shared management responsibilities Signup and view all the answers

What is a key advantage of forming a partnership?

Ability to pool resources and share profits and losses Signup and view all the answers

What is a characteristic of a sole proprietorship?

It has unlimited liability Signup and view all the answers

In which business entity are the owners' personal assets most protected from business liabilities?

C Corporation Signup and view all the answers

What is a primary disadvantage of a C Corporation?

Double taxation of profits Signup and view all the answers

What is a characteristic of a C Corporation?

It is subject to double taxation Signup and view all the answers

Which business entity type is known for having 'pass-through' taxation?

Partnership Signup and view all the answers

What is a characteristic of an S Corporation?

It provides limited liability to its owners Signup and view all the answers

What is the primary reason business owners might choose to form a C Corporation despite the disadvantage of double taxation?

To attract investors Signup and view all the answers

Which business entity requires a formal agreement to outline the roles, responsibilities, and profit-sharing among partners?

Partnership Signup and view all the answers

What is the main characteristic of a Sole Proprietorship?

Owned and operated by a single individual Signup and view all the answers

Study Notes

Business Entities

A Sole Proprietorship is a business entity owned and operated by a single individual, with no distinction between the owner and the business.

Characteristics of Business Entities

A Sole Proprietorship is characterized by a single owner, unlimited personal liability, and "pass-through" taxation.
A Partnership is a business entity owned by two or more individuals sharing profits and losses, with unlimited personal liability and "pass-through" taxation.
A C Corporation is a business entity that offers limited liability protection to its owners, but is subject to double taxation.
An S Corporation is a business entity that provides "pass-through" taxation and has restrictions on the number and type of shareholders.

Taxation of Business Entities

C Corporations are subject to double taxation, where profits are taxed at both the corporate level and the shareholder level when distributed as dividends.
Sole Proprietorships, Partnerships, and S Corporations utilize "pass-through" taxation, where income is taxed only once at the individual level.

Advantages and Disadvantages of Business Entities

Advantages of Sole Proprietorships include simplicity and ease of setup and operation.
Advantages of Partnerships include the ability to pool resources and share profits and losses.
A primary disadvantage of C Corporations is double taxation.
One key advantage of forming a Partnership is the ability to pool resources and share management responsibilities.
Despite the disadvantage of double taxation, business owners might choose to form a C Corporation to protect their personal assets from business liabilities.

Key Features of Business Entities

The owners' personal assets are most protected from business liabilities in C Corporations.
S Corporations have restrictions on the number and type of shareholders.