A+ FINANCIAL FOUNDATIONS:
MASTERING CHAPTERS 1 & 2 – THE
LAUNCHPAD TO FINANCE SUCCESS
(2026/2027)
Proprietorship - THE CORRECT ANSWER-Unincorporated business
owned by one individual.
Advantages:
-Easy and inexpensive to form
-subject to few government regulations
-subject to lower income taxes than corporations
Limitations:
-unlimited personal liability for the business' debts
-can lose more money than they invested
-life of the business is limited to the life of the owner
-Have difficulty obtaining large sums of capital
Business are often started as proprietorships and then
converted to corporations when their growth results in the
disadvantages outweighing the advantages.
Often set up through LLPs and LLCs.
Partnership - THE CORRECT ANSWER-A legal arrangement between
two or more people who decide to do business together.
Advantages:
,-can be established relatively easily and inexpensively
-firm's income is allocated on a pro rata basis to the partners
-taxed on an individual basis
-avoids corporate income tax
Limitations:
-partners are subject to unlimited personal liability
-partners are responsible for making up for loss of partner's
contribution (if the partner goes bankrupt)
-unlimited liability makes it difficult for partnerships to raise
large amounts of capital.
Often set up through LLPs and LLCs.
Corporation - THE CORRECT ANSWER-A legal entity created by a state.
It is separate and distinct from its owners and managers.
Advantages:
-seperation that limits stockholders' losses to the amount they
invested in the firm.
-unlimited lives.
-easier to transfer shares of stock than in an unincorporated
business
-easier for corporation to raise the capital necessary to operate
large businesses.
Drawbacks:
-Double taxation (corporate & dividends)
Corporations are generally referred to as C Corporations
, S Corporation - THE CORRECT ANSWER-Corporation taxed as a
proprietorship or partnership (exempt from corporate income
tax). Can have no more than 100 shareholders.
S Corporation to C Corporation - THE CORRECT ANSWER-Once a
company decides to sell stocks, they grow into a C Corporation
because they exceed 100 shareholders.
Liquidity - THE CORRECT ANSWER-The ease at which assets can be
turned into cash at their fair values
LLCs and LLPs - THE CORRECT ANSWER--Provide limited liability
protection.
-Taxed as partnerships.
-Investors have votes in proportion to their ownership -interest.
-Growing in popularity recently but people still like C
corporations because of the ability to grow.
-Idea established by lawyers, so important to have a good
lawyer when establishing one.
LLC - THE CORRECT ANSWER-Limited Liability Company
-Hybrid between a partnership and a corporation.
-Used by other businesses.
LLP - THE CORRECT ANSWER-Limited Liability Partnership
MASTERING CHAPTERS 1 & 2 – THE
LAUNCHPAD TO FINANCE SUCCESS
(2026/2027)
Proprietorship - THE CORRECT ANSWER-Unincorporated business
owned by one individual.
Advantages:
-Easy and inexpensive to form
-subject to few government regulations
-subject to lower income taxes than corporations
Limitations:
-unlimited personal liability for the business' debts
-can lose more money than they invested
-life of the business is limited to the life of the owner
-Have difficulty obtaining large sums of capital
Business are often started as proprietorships and then
converted to corporations when their growth results in the
disadvantages outweighing the advantages.
Often set up through LLPs and LLCs.
Partnership - THE CORRECT ANSWER-A legal arrangement between
two or more people who decide to do business together.
Advantages:
,-can be established relatively easily and inexpensively
-firm's income is allocated on a pro rata basis to the partners
-taxed on an individual basis
-avoids corporate income tax
Limitations:
-partners are subject to unlimited personal liability
-partners are responsible for making up for loss of partner's
contribution (if the partner goes bankrupt)
-unlimited liability makes it difficult for partnerships to raise
large amounts of capital.
Often set up through LLPs and LLCs.
Corporation - THE CORRECT ANSWER-A legal entity created by a state.
It is separate and distinct from its owners and managers.
Advantages:
-seperation that limits stockholders' losses to the amount they
invested in the firm.
-unlimited lives.
-easier to transfer shares of stock than in an unincorporated
business
-easier for corporation to raise the capital necessary to operate
large businesses.
Drawbacks:
-Double taxation (corporate & dividends)
Corporations are generally referred to as C Corporations
, S Corporation - THE CORRECT ANSWER-Corporation taxed as a
proprietorship or partnership (exempt from corporate income
tax). Can have no more than 100 shareholders.
S Corporation to C Corporation - THE CORRECT ANSWER-Once a
company decides to sell stocks, they grow into a C Corporation
because they exceed 100 shareholders.
Liquidity - THE CORRECT ANSWER-The ease at which assets can be
turned into cash at their fair values
LLCs and LLPs - THE CORRECT ANSWER--Provide limited liability
protection.
-Taxed as partnerships.
-Investors have votes in proportion to their ownership -interest.
-Growing in popularity recently but people still like C
corporations because of the ability to grow.
-Idea established by lawyers, so important to have a good
lawyer when establishing one.
LLC - THE CORRECT ANSWER-Limited Liability Company
-Hybrid between a partnership and a corporation.
-Used by other businesses.
LLP - THE CORRECT ANSWER-Limited Liability Partnership
