Exam 5: Forms of Business Ownership

Which of the following statements is not true regarding the liquidation of an S corporation?

If a partnership agreement does not exist,the partnership will be governed by the Uniform Partnership Act.

A limited partner is personally liable only for the amount of money she has invested in the partnership.

If a sole proprietor dies,retires,or becomes incapacitated,the business automatically terminates.

Like an S corporation,a limited liability company does not pay income taxes; its income flows through to its owners,who pay taxes on their shares of the limited liability company's net income.

Would a limited liability corporation be any better for Duke? Why or why not?

The most critical disadvantage of the sole proprietorship is:

A joint venture is much like a partnership except that it is formed for a specific limited purpose.

Which of the following is true regarding the corporate form of ownership?

What is a sole proprietorship? Explain the advantages and the disadvantages of a sole proprietorship.

State law requires that individuals creating a partnership file the Articles of Partnership with the secretary of state.

In a professional corporation,all shares of stock must be owned and held by individuals licensed in the profession of the corporation.

If a sole proprietorship fails,the owner is not liable for its debts since the business is a separate legal entity.

What is an S corporation? Explain the advantages and the disadvantages of an S corporation.

Would you recommend Duke establish an S corporation? What conditions would he have to meet?

One disadvantage of an S corporation is that the cost of many benefits insurance,meals,lodging,and others that are paid to shareholders with 2 percent or more of stock cannot be deducted as business expenses for tax purposes and are considered taxable income.

To form a limited liability company,an entrepreneur must file both the articles of incorporation and the operating agreement with the secretary of state.

The partnership,like the proprietorship,avoids the disadvantage of double taxation.

The sole proprietorship is the best form of ownership for entrepreneurs launching their first businesses.

Choosing S corporation status is usually beneficial to startup companies anticipating net losses and to highly profitable firms with substantial dividends to pay out to shareholders.