Exam 5: Forms of Business Ownership

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.

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

In a partnership, profits (and losses) must be shared according to the ratio of capital originally invested in the partnership.

Entrepreneurs should not spend much time selecting a form of ownership for their businesses because making the choice is merely a technicality, which has little impact on the business and its owner(s).

Limited liability partnerships (LLP) are where all partners in a business are limited partners, which offers the advantage of limited liability for the debts of the partnership.

A limited liability company:

Which of the following is a disadvantage of the corporation form of ownership?

If a limited partner withdraws, sells his ownership in the partnership, or dies, the partnership is not forced into dissolution.

A limited liability company cannot have any more than two of the following corporate characteristics: limited liability, continuity of life, free transferability of interest, and centralized management.

The limited liability company, like an S corporation, is a form of ownership that is a cross between a partnership and a corporation.

The most critical disadvantage of the sole proprietorship is:

The corporation has the advantage of transferable ownership, which easily enables the corporation to sell shares to others or to transfer stock through inheritance.

All the profits of a sole proprietorship are taxed as current income of the owner even if they are not withdrawn from the business.

A limited partner is treated as an investor in a business venture and does not take an active role in managing it.

As in a limited partnership, owners of a limited liability company who want to maintain their limited liability status cannot actively participate in the management of the company.

When filing the corporate charter, a corporation must file in the state in which its headquarters are located.

Which of the following issues would a typical partnership agreement address?

Outline the incorporation process.

Which of the following would be most likely to benefit from choosing S corporation status?

The sole proprietorship is the form of ownership with the least ability to accumulate capital.