BUSI 1301 EXAM 2 VERIFIED STUDY GUIDE
Sole Proprietorship - Answers - A business owned, and usually managed, by one
person
Partnership - Answers - Two or more people legally agree to become co-owners of a
business.
Corporation - Answers - A legal entity with authority to act and have liability apart from
its owners.
Major Benefits of Sole Proprietorship - Answers - 1)Ease of starting and ending the
business
2)Being your own boss
3)Pride of ownership
4)Leaving a legacy
5)Retention of company profit
6)No special taxes
Unlimited Liability - Answers - Any debts or damages incurred by the business are your
debts, even if it means selling your home, car or anything else
Disadvantages of Sole Proprietorship - Answers - 1)Unlimited Liability -- Any debts or
damages incurred by the business are your debts, even if it means selling your home,
car or anything else.
2)Limited financial resources
3)Management difficulties
4)Overwhelming time commitment
5)Few fringe benefits
6)Limited growth
7)Limited life span
,General Partnership - Answers - All owners share in operating the business and in
assuming liability for the business's debts.
Limited Partnership - Answers - A partnership with one or more general partners and
one or more limited partners.
General Partner - Answers - An owner (partner) who has unlimited liability and is active
in managing the firm.
Limited Liability - Answers - that liability for the debts of the business is limited to the
amount the limited partner puts into the company; personal assets are not at risk.
Limited Partner - Answers - An owner who invests money in the business, but enjoys
limited liability.
Master Limited Partnership - Answers - A partnership that looks much like a corporation,
but is taxed like a partnership and thus avoids the corporate income tax.
Limited Liability Partnership - Answers - Limits partners' risk of losing their personal
assets to the outcomes of only their own acts and omissions and those of people under
their supervision.
ADVANTAGES of PARTNERSHIPS - Answers - •More financial resources
•Shared management and pooled/complementary skills and knowledge
•Longer survival
•No special taxes
DISADVANTAGES of PARTNERSHIPS - Answers - •Unlimited liability
•Division of profits
•Disagreements among partners
•Difficult to terminate
The strategy that will protect partners is to put the partnership agreement in - Answers -
writing
Conventional (C) Corporation - Answers - A state-chartered legal entity with authority to
act and have liability separate from its owners (its stockholders).
ADVANTAGES of CORPORATIONS - Answers - •Limited liability
, •Ability to raise more money for investment
•Size
•Perpetual life
•Ease of ownership change
•Ease of attracting talented employees
•Separation of ownership from management
DISADVANTAGES of CORPORATIONS - Answers - •Initial cost
•Extensive paperwork
•Double taxation
•Two tax returns
•Size
•Difficulty of termination
•Possible conflict with stockholders and board of directors
Major advantages are limited liability and possible - Answers - tax benefits.
S Corporation - Answers - A unique government creation that looks like a corporation,
but is taxed like sole proprietorships and partnerships.
S corporations have - Answers - shareholders, directors and employees, plus the
benefit of limited liability
Limited Liability Company (LLC) - Answers - Similar to an S corporation, but without the
eligibility requirements.
Profits are taxed only as the - Answers - personal income of the shareholder.
Advantages of LLCs - Answers - 1.Limited liability
2.Choice of taxation
3.Flexible ownership rules
4.Flexible distribution of profits and losses
5.Operating flexibility
DISADVANTAGES of LLCs - Answers - 1.Ownership can be in two ways: (1) by
percentage; or (2) by membership units, which can be sold
2.Limited life span
3.Fewer incentives
4.Taxes
5.Paperwork
Sole Proprietorship - Answers - A business owned, and usually managed, by one
person
Partnership - Answers - Two or more people legally agree to become co-owners of a
business.
Corporation - Answers - A legal entity with authority to act and have liability apart from
its owners.
Major Benefits of Sole Proprietorship - Answers - 1)Ease of starting and ending the
business
2)Being your own boss
3)Pride of ownership
4)Leaving a legacy
5)Retention of company profit
6)No special taxes
Unlimited Liability - Answers - Any debts or damages incurred by the business are your
debts, even if it means selling your home, car or anything else
Disadvantages of Sole Proprietorship - Answers - 1)Unlimited Liability -- Any debts or
damages incurred by the business are your debts, even if it means selling your home,
car or anything else.
2)Limited financial resources
3)Management difficulties
4)Overwhelming time commitment
5)Few fringe benefits
6)Limited growth
7)Limited life span
,General Partnership - Answers - All owners share in operating the business and in
assuming liability for the business's debts.
Limited Partnership - Answers - A partnership with one or more general partners and
one or more limited partners.
General Partner - Answers - An owner (partner) who has unlimited liability and is active
in managing the firm.
Limited Liability - Answers - that liability for the debts of the business is limited to the
amount the limited partner puts into the company; personal assets are not at risk.
Limited Partner - Answers - An owner who invests money in the business, but enjoys
limited liability.
Master Limited Partnership - Answers - A partnership that looks much like a corporation,
but is taxed like a partnership and thus avoids the corporate income tax.
Limited Liability Partnership - Answers - Limits partners' risk of losing their personal
assets to the outcomes of only their own acts and omissions and those of people under
their supervision.
ADVANTAGES of PARTNERSHIPS - Answers - •More financial resources
•Shared management and pooled/complementary skills and knowledge
•Longer survival
•No special taxes
DISADVANTAGES of PARTNERSHIPS - Answers - •Unlimited liability
•Division of profits
•Disagreements among partners
•Difficult to terminate
The strategy that will protect partners is to put the partnership agreement in - Answers -
writing
Conventional (C) Corporation - Answers - A state-chartered legal entity with authority to
act and have liability separate from its owners (its stockholders).
ADVANTAGES of CORPORATIONS - Answers - •Limited liability
, •Ability to raise more money for investment
•Size
•Perpetual life
•Ease of ownership change
•Ease of attracting talented employees
•Separation of ownership from management
DISADVANTAGES of CORPORATIONS - Answers - •Initial cost
•Extensive paperwork
•Double taxation
•Two tax returns
•Size
•Difficulty of termination
•Possible conflict with stockholders and board of directors
Major advantages are limited liability and possible - Answers - tax benefits.
S Corporation - Answers - A unique government creation that looks like a corporation,
but is taxed like sole proprietorships and partnerships.
S corporations have - Answers - shareholders, directors and employees, plus the
benefit of limited liability
Limited Liability Company (LLC) - Answers - Similar to an S corporation, but without the
eligibility requirements.
Profits are taxed only as the - Answers - personal income of the shareholder.
Advantages of LLCs - Answers - 1.Limited liability
2.Choice of taxation
3.Flexible ownership rules
4.Flexible distribution of profits and losses
5.Operating flexibility
DISADVANTAGES of LLCs - Answers - 1.Ownership can be in two ways: (1) by
percentage; or (2) by membership units, which can be sold
2.Limited life span
3.Fewer incentives
4.Taxes
5.Paperwork
