Forms of Business Organization

Question 1

A business owned and operated by one individual, with no legal distinction between the owner and the business

Answer 1

sole proprietorship

Question 2

Easy and inexpensive to form, full control by owner, owner receives all profits, simple tax reporting (pass-through taxation)

Answer 2

advantages of a sole proprietorship

Question 3

Unlimited personal liability, limited capital, business ends upon owner’s death or decision to close

Answer 3

disadvantages of a sole proprietorship

Question 4

How is a sole proprietorship owned and operated?

Answer 4

Owned by one person who makes all decisions and is personally liable for debts

Question 5

How is a sole proprietorship dissolved?

Answer 5

Automatically upon the owner’s death, sale of the business, or decision to cease operations

Question 6

business structure where two or more people share ownership, profits, and liabilities

Answer 6

partnership

Question 7

business formed by two or more people who share equally in profits, losses, and management responsibilities unless otherwise agreed

Answer 7

General Partnership (GP)

Question 8

A partnership with at least one general partner and one or more limited partners

Answer 8

Limited Partnership (LP)

Question 9

A partnership where all partners have limited liability for business debts and obligations

Answer 9

Limited Liability Partnership (LLP)

Question 10

Shared resources and responsibilities, pass-through taxation, easy to establish

Answer 10

partnership advantages

Question 11

Unlimited liability for general partners, potential for conflict, shared profits

Answer 11

partnership disadvantages

Question 12

Often by oral or written agreement; in some cases, it can be implied by conduct

Answer 12

how to form a partnership

Question 13

How is a partnership owned and operated?

Answer 13

Shared by partners per the partnership agreement; decisions may require consensus

Question 14

How is a partnership dissolved?

Answer 14

By mutual agreement, withdrawal of a partner, court order, or expiration of a term

Question 15

A hybrid business entity that combines liability protection of a corporation with the tax benefits of a partnership

Answer 15

Limited Liability Company (LLC)

Question 16

Limited liability for owners (members), flexible management, pass-through taxation (default), fewer formalities

Answer 16

advantages of an LLC

Question 17

More complex than a sole proprietorship/partnership, may have self-employment taxes, rules vary by state

Answer 17

disadvantages of an LLC

Question 18

How is an LLC formed?

Answer 18

By filing Articles of Organization with the state and creating an operating agreement

Question 19

How is an LLC owned and operated?

Answer 19

Owned by members, managed by members or appointed managers; flexible structure

Question 20

How is an LLC dissolved?

Answer 20

Upon expiration, consent of members, court order, or events listed in the operating agreement

Question 21

A legal entity separate from its owners (shareholders), capable of owning property, entering contracts, and being sued

Answer 21

corporation

Question 22

Limited liability, perpetual existence, ease of raising capital through stock, transferable ownership

Answer 22

advantages of a corporation

Question 23

Costly and complex to form, double taxation (C corp), more regulatory requirements

Answer 23

disadvantages of a corporation

Question 24

How is a corporation formed?

Answer 24

By filing Articles of Incorporation with the state, issuing stock, and creating bylaws

Question 25

How is a corporation owned and operated?

Answer 25

Owned by shareholders, governed by a board of directors, operated by officers

Question 26

How is a corporation dissolved?

Answer 26

Voluntarily by shareholder vote, administratively by the state, or judicially