Chapter 20 - Starting a Business

Question 1

Sole Proprietorship

Answer 1

Unincorporated business owned by one person

Question 2

Flow-through tax entity

Answer 2

Organization that does not pay income tax on its profits but passes them through to its owners who pay tax at their own rates

Question 3

Corporation

Answer 3

Dominant form of organization utilized by large, enduring businesses

Question 4

Advantage of Sole Proprietorships

Answer 4

Ease of formation, tax advantage

Question 5

Advantage of Corporations

Answer 5

Limited liability, transferability of interests, perpetual existence

Question 6

S Corporation

Answer 6

Limited liability, tax status of flow-through entity

Question 7

C Corporation

Answer 7

Provides limited liability to owners, but is a taxable entity

Question 8

Close Corporation

Answer 8

Corporation with small number of stakeholders whose stock is not publicly traded and whose shareholders play an active role in management

Question 9

Limited Liability Corporation

Answer 9

Offers limited liability of corporation, tax advantages, and less restrictions than an S corporation

Question 10

Piercing the Company Veil

Answer 10

Court holds members of an LLC personally liable for the debts of the organization

Question 11

Social Enterprises

Answer 11

Organizations that pledge to behave in a socially responsible manner even as they pursue profits

Question 12

General Partnership

Answer 12

Unincorporated association of two or more co-owners who operate a business for profit

Question 13

Disadvantages of General Partnership

Answer 13

Partners are personally liable for debts, capital must be provided by partners or from borrowing

Question 14

Dissociation

Answer 14

When a partner leaves a partnership

Question 15

Franchises

Answer 15

Separate form of organization utilized primarily by entrepreneurs

Question 16

Franchise Disclosure Document

Answer 16

Document franchisor must deliver to a potential purchaser