Question

4. Forms of business organizations 

Businesses can be classified into the following forms: sole proprietorship, partnership, corporation, limited liability company (LLC), and limited liability partnership (LLP) 

Different forms of businesses have different characteristics. Which of the following characteristics would apply to a corporation? Check all that apply. 

• Owned by single individual 

• Owners have limited liability 

• Has unlimited life 

• Chartered by a state and is its own legal entity separate and distinct from its owners and managers 

• Easier to transfer ownership in the form of stock 

• Exempt from double taxation

You come across different kinds of businesses every day. The following table describes some businesses. Using the description of each business, classify it as a sole proprietorship, a partnership, a corporation, or a limited liability company/limited liability partnership. 

• Joshua started a tutoring website. After a few months, a publishing company filed a lawsuit against his company for copyright infringement. Joshua had to shut down his business and lost all his personal assets in the process. 

• Willie started a business, based in a different state, with his uncle. Due to the business's underperformance, they had to close the business. Willie, however, ended up losing his house due to a litigation claim 

• James, the CEO of a beverage company, is required to certify the accuracy of information provided in the company's quarterly reports. 

• Selena and Mario run a law firm in Chicago. The firm has debt of $100,000, but Selena and Mario will not be held personally liable for the law firm's debt.

Answer 1

Q1.

Answer: 2^nd, 3^rd, 4^th, and 5^th options are correct.

A corporation has unlimited life of operation, and separate legal entity (can operate in its own registered name). Its owners are shareholders of the corporation; therefore, their liabilities are limited up to their investments in shares and there is no personal liability; this means their liabilities are limited. Ownership could be transferred by transferring shares.

1^st and 6^th options are not correct. A corporation has many owners, but not a single owner. There is double taxation – corporation pays tax on its taxable income, and shareholders pay tax on their dividend incomes.

Q2.

1^st scenario: sole proprietorship; it is so because J is the single owner and has unlimited liability.

2^nd scenario: partnership; because, W and his uncle are two partners in the business and they have unlimited liability.

3^rd scenario: corporation; because, this is a company having many owners and CEO of such company is in the management category.

4^th scenario: limited liability partnership; because, there are two partners but their liabilities are limited.