Podcast
Questions and Answers
What is a Master Limited Partnership similar to?
What is a Master Limited Partnership similar to?
What is a limitation of a Limited Liability Partnership?
What is a limitation of a Limited Liability Partnership?
What is an advantage of a Conventional (C) Corporation?
What is an advantage of a Conventional (C) Corporation?
What is a requirement for S Corporations?
What is a requirement for S Corporations?
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What is a disadvantage of Limited Liability Companies (LLCs)?
What is a disadvantage of Limited Liability Companies (LLCs)?
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Who can incorporate?
Who can incorporate?
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A business owned and usually managed by one person is known as a:
A business owned and usually managed by one person is known as a:
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Which of the following is a disadvantage of a sole proprietorship?
Which of the following is a disadvantage of a sole proprietorship?
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In a general partnership, who shares in operating the business and in assuming liability for the business’s debts?
In a general partnership, who shares in operating the business and in assuming liability for the business’s debts?
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What is the main difference between a general partner and a limited partner?
What is the main difference between a general partner and a limited partner?
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What is a major advantage of a sole proprietorship?
What is a major advantage of a sole proprietorship?
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What is a characteristic of a corporation?
What is a characteristic of a corporation?
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Study Notes
Partnerships
- Master Limited Partnership: a partnership that resembles a corporation but is taxed like a partnership, avoiding corporate income tax.
- Limited Liability Partnership: limits partners' risk to their personal assets, only liable for their own actions and those of people under their supervision.
Advantages of Partnerships
- More financial resources
- Shared management and pooled/complementary skills and knowledge
- Longer survival
- No special taxes
Disadvantages of Partnerships
- Unlimited liability
- Division of profits
- Disagreements among partners
- Difficult to terminate
Corporations
Advantages of Corporations
- Limited liability
- Ability to raise more money for investment
- Size
- Perpetual life
- Ease of ownership change
- Ease of attracting talented employees
- Separation of ownership from management
Disadvantages of Corporations
- Initial cost
- Extensive paperwork
- Double taxation
- Two tax returns
- Size
- Difficulty of termination
- Possible conflict with stockholders and board of directors
S Corporation
- A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships.
- Qualifications for S Corporations:
- Have no more than 100 shareholders.
- Have shareholders that are individuals or estates and are citizens or permanent residents of the U.S.
- Have only one class of stock.
- Derive no more than 25% of income from passive sources.
Limited Liability Company (LLC)
- Similar to an S corporation, but without the eligibility requirements.
- Advantages of LLCs:
- Limited liability
- Choice of taxation
- Flexible ownership rules
- Flexible distribution of profits and losses
- Operating flexibility
- Disadvantages of LLCs:
- No stock, therefore ownership is nontransferable
Forms of Ownership
- Sole Proprietorship: a business owned and usually managed by one person.
- Partnership: two or more people legally agree to become co-owners of a business.
- Corporation: a legal entity with authority to act and have liability apart from its owners.
Sole Proprietorship
Benefits of Sole Proprietorship
- Ease of starting and ending the business
- Being your own boss
- Pride of ownership
- Leaving a legacy
- Retention of company profit
- No special taxes
Disadvantages of Sole Proprietorship
- Unlimited liability
- Limited financial resources
- Management difficulties
- Overwhelming time commitment
- Few fringe benefits
- Limited growth
- Limited life span
Partnerships
Major Types of Partnerships
- General Partnership: all owners share in operating the business and in assuming liability for the business's debts.
- Limited Partnership: a partnership with one or more general partners and one or more limited partners.
Types of Partners
- General Partner: an owner (partner) who has unlimited liability and is active in managing the firm.
- Limited Partner: an owner who invests money in the business, but enjoys limited liability.
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Description
Learn about the different forms of business ownership, including sole proprietorship, partnership, and corporation, and their benefits and disadvantages.
