Exam 4: Choosing a Form of Business Ownership

Three advertising executives have decided to start their own business. They will each invest the same amount to get the business started and plan to split profits evenly among themselves. They want limited liability and to avoid double taxation. Which type of business ownership would best suit their needs?

You invested $50,000 to start an LLP business, but things haven't gone as planned. After two years of no profits, you have to shut the doors. The business owes creditors $75,000 for bills you haven't paid. How much money will you personally lose as a result of this business?

Three construction contractors decide to form a real estate development firm where they will share ownership and decision making. They would like the ability to allow others to "buy in" to the business, but only if those people will be active participants who can add value to the existing ownership team. Which form of business should they most likely choose?

Lisa and Aron own a partnership that provides rental equipment for parties and special occasions. Which of the following is true about the way Lisa and Aron would handle company profits?

Mei's coffee shop made $250,000 profit last year. Mei and her partner will report their share of profits on their individual tax return. What is the term for this type of taxation?

Tasha's T-Shirts Inc. made $500,000 profit last year. That profit will be taxed at the company's tax rate. Tasha will then reinvest those after-tax profits back into the business to avoid paying an additional tax on dividends. What is the term for this type of taxation?

Denzel has a lot of expertise in architecture but doesn't know much about management. He'd like to share ownership in a business with another person who could offer the management expertise to make the business successful. Which of the following will he likely form?

In terms of business ownership, what is meant by unlimited liability?

You and four friends are investing $10,000 each to start a business. To keep things even, you will all own 20% of the business and will contribute 20% of the work required to make the business successful. If the business makes a profit, you'll each get 20%. However, you all agree that the business must provide liability protection. Which form of business best meets your needs?

Sophia and Frederik are opening a landscape company. Although they will each own 50% of the business, Sophia will be doing more work. The plan is to give her 60% of the profits and give Frederik the remaining 40%. This relates to which key consideration for choosing ownership structure?

With regard to taxation of partnerships, which of the following statements is true?

You are 50% owner in a catering corporation. The business is closing down because it has $250,000 in unpaid business debts and just lost a $750,000 lawsuit. What is your personal liability?

Which form of business organization experiences double taxation?

Sam opened the restaurant of her dreams two years ago. It is a sole proprietorship. The business lost a lawsuit for $250,000 due to a customer getting sick. This legal liability is not covered by Sam's insurance and the restaurant has to close down. What is Sam's personal liability for this lawsuit?

If you are a shareholder in a corporation and you receive dividends, they must be reported to the Canada Revenue Agency. How are these dividends taxed?

Which of these Canadian companies started out as a sole proprietorship?

Fifteen years ago, Saul started a small business in which he was the only owner. He is looking to change ownership structure because his business has grown exponentially and he would like to expand overseas. Saul knows his overseas expansion will be expensive and he will need investments from people outside the business to make that happen. Saul would likely consider switching to which form of business?

Nidal has an idea for a new technology company. He knows the technology industry is constantly changing and in order to be successful his company will require a large amount of capital to keep up with the changes. Which of the following is the best choice for Nidal?

Which type of entity exists independent of the owners?

Rachelle owns a business with her brother, Ryan. Last year their company earned a profit of $200,000. Which type of business do they own if Rachelle paid taxes on her $100,000 share on her individual tax return?