Types of Business Ownership Flashcards
(24 cards)
Q1: What is a sole proprietorship?
A: A business owned by one person who keeps all profits and is personally liable for debts.
Q2: What does “unlimited liability” mean?
A: The owner is fully responsible for all business debts and legal actions.
Q3: List TWO advantages of a sole proprietorship.
Cheap and easy to start.
Owner makes all decisions
Q4: What is a partnership?
A: A business owned by two or more people who share profits, decisions, and risks.
Q5: Define a general partner.
A: Manages the business and has unlimited liability.
Q6: Define a limited partner.
A: Invests money but doesn’t manage the business and has limited liability.
Q7: What is a corporation?
A: A state-registered legal business that operates separately from its owners and sells stock.
Q8: What does “limited liability” mean in a corporation?
A: Owners only lose what they invested; personal assets are safe.
Q9: What is a Subchapter S corporation?
A: A small corporation taxed like a partnership with up to 75 U.S. shareholders.
Q10: What is a nonprofit corporation?
A: A legal business for charitable or public purposes; profits stay in the business.
Q11: What is a Limited Liability Company (LLC)?
A: A business that mixes corporation protection with partnership tax benefits.
Q12: What are hosted shopping carts?
A: Online tools businesses subscribe to monthly to easily sell products online.
Q13: What is open-source software?
A: Free software that anyone can use, change, and share.
Q14: What is a virtual store?
A: An online shop that sells products the business doesn’t physically keep in stock.
Q15: Name FOUR types of nonprofit corporations.
A: Religious, charitable, public benefit, mutual benefit.
Q16: Discuss the advantages and disadvantages of a sole proprietorship. (10 Marks)
Advantages:
Easy andAdvantages:
Easy and Cheap to Start:
Simple to set up with minimal cost.
Full Control:
The owner makes all decisions.
Few Rules and Taxes:
Less paperwork and taxed as personal income.
Profits Taxed as Personal Income:
Profits are included in the owner’s personal tax return.
Disadvantages:
Unlimited Liability:
The owner is personally liable for all debts.
Hard to Get Funding:
Limited access to capital from banks or investors.
Depends on Owner’s Skills:
Success depends on the owner’s abilities.
Ends if Owner Dies:
The business stops if the owner passes away. cheap to start.
Full control.
Few rules and taxes.
Profits taxed as personal income.
Disadvantages:
Unlimited liability.
Hard to get funding.
Depends on owner’s skills.
Ends if owner dies.
Advantages:
S – Simple to start
I – Independent control
M – Minimal rules and taxes
P – Personal income taxation (profits taxed as personal income)
L – Low cost to start
E – Easy decision-making
Disadvantages:
U – Unlimited liability (personal assets at risk)
H – Hard to get funding
D – Dependent on owner’s skills
E – Ends if owner dies
Q17: Compare a general partner to a limited partner. (6 Marks)
General partner: Manages business and has unlimited liability.
Limited partner: Only invests money and has limited liability; no control.
Q18: Evaluate the advantages and disadvantages of a partnership. (10 Marks)
Advantages:
Easy to start.
Shared skills and work.
More capital options.
Joint decision-making.
Disadvantages:
Hard to remove a partner.
Possible disagreements.
Shared responsibility for debts and actions.
✅ Advantages – “TEAM”
Think of a partnership as a TEAM effort:
T – Together it’s easy to start
E – Extra skills are shared
A – Added capital options
M – Mutual decision-making
⚠️ Disadvantages – “TRAP”
Partnerships can fall into a TRAP if things go wrong:
T – Tough to remove a partner
R – Risk of disagreements
A – All share debt responsibility
P – Problems from conflicts
Q19: Discuss how corporations provide more protection from liability. (6 Marks)
In a corporation, owners (shareholders) are only responsible for business losses up to what they invested—personal assets are protected.
Q20: Discuss the advantages and disadvantages of a C-Corporation. (10 Marks)
Advantages of a Partnership:
Easy to Start:
Simple to set up with fewer formalities than a corporation.
Shared Skills and Work:
Partners can bring different skills and divide tasks for efficiency.
More Capital Options:
More financial resources since partners can pool their money.
Joint Decision-Making:
Decisions are made together, which can bring diverse perspectives.
Disadvantages of a Partnership:
Hard to Remove a Partner:
If a partner wants to leave, it can be complicated and time-consuming.
Possible Disagreements:
Conflicts can arise between partners, affecting business operations.
Shared Responsibility for Debts and Actions:
Partners are personally liable for the business’s debts and decisions.
C-Corporation Advantages (LARGE SCALE)
L – Limited Liability for shareholders (personal assets are protected)
A – Access to Capital (easier to raise funds through stock issuance)
R – Raising Investment (can attract investors)
G – Growth Potential (scalable for expansion)
E – Endurance (business continues even if the owner/shareholders change)
C-Corporation Disadvantages (COMPLEX)
C – Complicated to set up and maintain
O – Ongoing Regulations (subject to strict government regulations)
M – More Taxes (taxed as a separate entity and again when profits are distributed as dividends)
P – Public Disclosure (requires extensive reporting)
L – Limited Control (owners may have less influence if there are many shareholders)
E – Extra Costs (cost of compliance and maintaining legal structure)
Q21: Compare nonprofit corporations to C-corporations. (8 Marks)
Nonprofits help the public and don’t pay out profits; they reinvest them.
C-corporations aim to earn profit for shareholders and pay taxes on earnings and dividends.
Q22: Explain how an LLC combines features of a corporation and partnership. (6 Marks)
An LLC gives owners limited liability like a corporation but is taxed like a partnership. There are no limits on owners.
Q23: What key factors should be considered when choosing a business legal form? (10 Marks)
Skills and experience.
StartKey Factors to Consider:
Skills and Experience:
Choose a structure that matches the owner’s skills and experience.
Start-Up Cost:
Consider how much it will cost to set up the business.
Risk and Liability Level:
Evaluate personal liability and risk exposure.
Control Desired:
Decide how much control you want over the business decisions.
Long-Term Plans:
Consider your goals for the future of the business.
Expected Profit or Loss:
Estimate the potential financial success or challenges.
Plans to Grow or Sell the Business:
Think about how you plan to expand or exit the business later.
-up cost.
Risk and liability level.
How much control is wanted.
Long-term plans.
Expected profit or loss.
Plans to grow or sell the business.
🔑 COST LEG:
C – Control (How much control do you want?)
O – Ownership Skills (Your skills and experience)
S – Start-Up Cost (Initial money needed)
T – Taxes & Liability (Risk and legal responsibility)
L – Long-Term Plans (Future goals for the business)
E – Earnings (Expected profit or loss)
G – Growth Plans (Will you grow or sell the business?)
Q24: Explain how small businesses can enter e-commerce affordably. (6 Marks)
Use cheap tools like hosted carts, free open-source software, or sell online without holding stock—like using virtual stores or auction sites
