Types of Business Ownership Flashcards

Questions and Answers

What is the definition of liability?

A type of business ownership with multiple partners

A business structure that limits the owner's responsibility

The legal obligation to use personal money and possessions to pay the debts of the business (correct)

A document that outlines partnership responsibilities

What is unlimited liability?

Obligation where a business owner can be legally forced to use personal money and possessions to pay the debts of the business.

What does limited liability mean?

Obligation where a business owner cannot be legally forced to use personal money and possessions to pay debt.

Define sole proprietorship.

A type of business ownership where a single individual owns the business and has unlimited liability for its debt. Signup and view all the answers

What is a partnership?

A type of business organization where at least two individuals share management, profit, and liability. Signup and view all the answers

What characterizes a general partnership?

All partners have unlimited liability. Signup and view all the answers

What is a limited partnership?

A business where at least one partner has limited liability while others are investors with no say in daily operations. Signup and view all the answers

What is a partnership agreement?

A legal document defining how work, responsibilities, rewards, and liabilities will be shared. Signup and view all the answers

Define corporation.

A type of business ownership where the business is considered a 'person' and offers limited liability to owners. Signup and view all the answers

Who are shareholders?

The owners of a corporation. Signup and view all the answers

What is a dividend?

A portion of the corporation's profit. Signup and view all the answers

What are C corporations?

Corporations taxed as entities by the federal government. Signup and view all the answers

What does it mean to incorporate?

To set up a corporation according to state laws. Signup and view all the answers

What is a subchapter S corporation?

A corporation that isn't taxed as an entity but passes income or loss to shareholders for tax purposes. Signup and view all the answers

Define limited liability company.

A business ownership type with simplified requirements and greater liability protection for owners. Signup and view all the answers

What is a nonprofit corporation?

A type of business ownership that operates to serve society rather than for profit. Signup and view all the answers

What is a cooperative?

A business owned, controlled, and operated for the mutual benefit of its members. Signup and view all the answers

One advantage of sole proprietorships is that they are the simplest and least expensive option for __________.

business owners Signup and view all the answers

One disadvantage of sole proprietorships is that only one individual is responsible for the business, which carries a heavy __________.

workload Signup and view all the answers

Advantages of partnerships include the ability to rely on the entrepreneurial skills and financial __________ of at least two individuals.

backing Signup and view all the answers

A disadvantage of partnerships is that profits are __________ between partners.

split Signup and view all the answers

Study Notes

Types of Business Ownership

Liability: Legal obligation of business owners to utilize personal assets to pay off business debts.
Unlimited Liability: Business owners can be compelled to use personal funds and possessions to cover business debts.
Limited Liability: Business owners are not legally forced to use personal resources for company debts, protecting personal assets.

Business Structures

Sole Proprietorship: A single owner runs the business, retains all profits, and assumes unlimited liability for debts.
Partnership: An organization with at least two individuals sharing management, profits, and liabilities.
General Partnership: All partners share unlimited liability, exposing personal assets to business debts.
Limited Partnership: At least one partner has limited liability, while others invest without involvement in daily operations.

Partnership Agreements

Partnership Agreement: A legal contract outlining work division, responsibilities, rewards, and liabilities among partners.

Corporations

Corporation: Legally defined entity considered a "person" under law, providing limited liability to owners.
Shareholders/Stockholders: Individuals who own shares in a corporation, entitling them to dividends.
Share of Stock: Represents a unit of ownership in a corporation, allowing for investment and profit sharing.
Dividend: Distribution of a portion of a corporation's profits to shareholders.

Corporate Types

C Corporations: Subject to entity-level taxation, meaning they pay taxes independently of shareholders.
Subchapter S Corporation: Passes income or loss directly to shareholders for individual taxation, avoiding double taxation.
Limited Liability Company (LLC): Combines liability protection like corporations with simpler tax processes for owners, known as members.
Nonprofit Corporation: Operates without aiming to generate profits for shareholders, focusing on societal benefits.
Cooperative: Owned and managed for the mutual benefit of its members, serving users of its goods or services.

Advantages and Disadvantages

Advantages of Sole Proprietorships: Simple setup, minimal costs, income reported on personal tax returns, and full decision-making power.
Disadvantages of Sole Proprietorships: Sole responsibility for debts, heavy workload for financial backing, and challenges attracting investment.
Advantages of Partnerships: Simpler establishment, combined skills and finances improve loan prospects, and potential for partner incentives.
Disadvantages of Partnerships: Unlimited liability for general partners, shared profits, joint responsibility for actions, and potential disagreements among partners.

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Description

This quiz explores essential terminology related to various forms of business ownership. Each flashcard provides a definition to help reinforce key concepts such as liability and its types. Test your understanding and improve your knowledge of business structures.