Legal Process

Question 1

Sole proprietorship

Answer 1

one person involved in the business no legal existence apart from the owner
Advantages- low cost & ease of formation, no business or corporate taxes to file
Disadvantages- unlimited liability, personally liable, potentially limited access to capital

Question 2

Partnership

Answer 2

2 or more involved in the business (money, property, labor or skill)
Advantages- low cost & ease of formation, required to file an informational tax return, have pass through taxation
Disadvantages- unlimited joint liability-partners liable for actions of other partners, impossible for one partner to transfer his/her share of the partnership

Question 3

Corporation

Answer 3

legal entity that is separate from its owners- owners are called shareholders- limited liability for shareholders

Question 4

LLC

Answer 4

combines part of partnerships and corporations, offers flexibility in management of business and less restrictive ownership requirements-owners called members
Advantages- pass through taxation, limited liability, unlimited number of members
Disadvantages- limited legal precedent

Question 5

Publicly traded corporation

Answer 5

Must make full financial disclosures concerning profits and losses
Shareholders have certain rights, such as voting on the makeup of the board of directors and attending annual meetings
More expensive-investment bankers etc.

Question 6

Nonprofit corporation

Answer 6

Do not have shareholders- no owners- none of the income generated by the nonprofit can be distributed as a dividend
Serve a public purpose, they receive several benefits and privileges not available to other businesses such as:
Being exempt from most federal and state taxes
Special postage
Exemption from certain labor law requirements

Question 7

C Corp

Answer 7

most common form of corporation, owners are taxed separately
Advantages- limited liability, unlimited life, ease of transferring ownership, greater access to capital
Disadvantages- higher startup costs (attorneys, article of incorporation), double taxation (profits taxed at corporate rate, dividends taxed at individual rate)

Question 8

S Corp

Answer 8

passive income, losses, deductions, and credits to shareholders for tax purposes
Advantages- pass through taxation, access to capital
Disadvantages- limited to 75 shareholders