Podcast
Questions and Answers
What is an advantage of a sole proprietorship?
What is an advantage of a sole proprietorship?
A disadvantage of partnerships is that partners have limited liability.
A disadvantage of partnerships is that partners have limited liability.
False
What is a primary disadvantage of corporations?
What is a primary disadvantage of corporations?
Profits are shared with all stockholders.
What defines limited liability?
What defines limited liability?
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How does a partnership handle decision-making?
How does a partnership handle decision-making?
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A corporation has a __________ lifespan.
A corporation has a __________ lifespan.
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What is a characteristic of sole proprietorship management?
What is a characteristic of sole proprietorship management?
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What is a disadvantage of partnerships?
What is a disadvantage of partnerships?
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What limits the ability of a sole proprietorship to raise money?
What limits the ability of a sole proprietorship to raise money?
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Match the business structure to its key characteristics:
Match the business structure to its key characteristics:
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Study Notes
Sole Proprietorship
- Owner retains all profits and has complete control over business decisions.
- Most profitable if successful, with tax advantages available.
- Unlimited liability: owner is personally responsible for all debts, risking personal assets.
- Workload can be heavier due to sole responsibility for success.
- Limited resources can hinder growth and development.
- Considered the riskiest business structure.
Partnerships
- Involves two or more individuals sharing financial responsibilities and profits.
- Shared start-up costs and profits reduce individual risk.
- Business decisions made collaboratively, promoting cooperation.
- Not as profitable as sole proprietorships; conflicts may arise from disagreements.
- Partners face unlimited liability for debts incurred by the business.
- Reliance on trust among partners for honesty and accountability.
- Limited lifespan; can dissolve if any partner exits.
Corporations
- Formed by incorporating and raising capital through stock sales to the public.
- Can raise significant funds for business expansion; enjoys limited liability.
- Perpetual life allows continuation despite changes in ownership (death or selling of stock).
- Profits distributed among shareholders based on stock ownership.
- Faces more government regulations compared to sole proprietorships and partnerships.
Limited Liability
- Legal protection where investors are not personally liable for corporate debts; only the corporation itself can be sued.
Scarcity
- Concept not defined in the provided text.
Sole Proprietorship (Management Overview)
- Managed by a single owner, ensuring quick decision-making and flexibility.
- Limited skills are confined to the abilities of the owner.
- Profits solely belong to the owner.
- Difficulty in raising funds quickly leads to reliance on personal resources.
- Business lifespan tied to the owner’s life; dissolves upon owner’s death.
- Unlimited liability for business debts exposes owner to significant financial risk.
Partnership (Management Overview)
- Managed by two or more owners, requiring a contractual relationship.
- Decision-making can be slower due to the need for consensus among partners.
- Owners share profits; however, each partner is responsible for business debts.
- Lifespan is limited to the lives of the owners; business ceases upon their death.
- Fundraising is challenging, typically limited to partners’ personal capabilities.
Corporation (Management Overview)
- Ownership is divided among stockholders, allowing for potentially large management teams.
- Decision-making might be sluggish due to the separation of ownership from management.
- Challenges may arise when management’s actions diverge from shareholders' interests.
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Description
This quiz covers the fundamental concepts of sole proprietorships, partnerships, and corporations. Explore the advantages, disadvantages, and key features of each business structure. Test your understanding of how these structures differ in terms of liability, profits, and decision-making.
