Understanding Business Organizations

What is a sole proprietorship?

• A legal entity separate from its owners

• A business owned by two or more individuals

• A business where one person is responsible

• A business owned by stockholders

What is a key drawback of a sole proprietorship?

• Special tax requirements

• Difficult to set up

• Unlimited liability

• Limited resources

How can a sole proprietorship be financed?

• Government grants

• Bank loans or personal investments

• Through stock sales

• Venture capital

What happens to a sole proprietorship when the owner dies?

• It becomes a corporation

• It is dissolved

• It continues with a new owner

• It becomes a partnership

What is a partnership?

• A separate legal entity

• A business owned by two or more people

• A business with limited liability

• A business owned by one person

What is a major consequence of being in a partnership?

• Limited control over the business

• Liability for partner's debts

• Easier tax requirements

• Automatic dissolution upon a partner's death

What is a corporation?

• A separate legal entity

• A business owned by a single individual

• A business where the owner has unlimited liability

• A business that cannot raise capital through stock

What is a benefit of incorporating a business?

• Personal liability for debts

• Simple setup process

• Limited access to capital

• Infinite life of the business

How does a corporation raise capital?

• Personal investments

• Bank loans

• Through stockholders

• Partnership contributions

What distinguishes a corporation's liability?

• Unlimited personal liability

• No liability

• Limited personal liability

• Shared liability among founders