Question

What are the properties of the four types of firms? What is similar across the types? What is different?

Answer 1

Answer: Four types of firms- There are four types of business forms or firms. These are the following:

1. Sole Proprietorship
2. Partnership
3. Limited liability corporation (LLC)
4. Corporation

Sole Proprietorship- This business form is run and owned by only one (sole) person. He is responsible for all the obligations of the business, he enjoys whole profit of the business. This business can be easily set up and wound up. There is no distinct between the personal or professional income.

Partnership- Partnership is of two types; General & Limited. In general partnership, owners are 100% liable for the company's obligations. General partnership can be verbal, no written contract is required. Limited partnership brings limited liability. Partners have the responsibility according to their ownership interest. It is also easy to set up and wound up. Partnership ends with the withdrawal of death of a partner.

Limited liability corporation (LLC)- As the name suggests, in LLC, all the partners have limited liability, they are not responsible for the obligations of the company. There is no double taxation in the LLC. It is hybrid in nature, it has characteristics of both, i.e. the partnership and the sole proprietorship.

Corporation- It is the artificial person and a separate legal entity from its owners. Owners are not personally liable for any obligation of the company. There are two types of corporation; S &C.

S corporation is exempt from double taxation in the USA. C corporation is the normal corporation that is subject to double taxation at corporation level and at individual level.