Question

* 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 partnership? Check all that apply.

- Subject to unlimited personal liability

- Income is allocated on a pro rata basis

- Can easily raise large amounts of capital

- Taxed at individual level

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

- Legal arrangement between two or more people

------------------

Answer 1

1) Subject to unlimited liability:

In sole proprietorship, the owner’s liability is unlimited and in the case of partnerships general partners may have unlimited liability.

2) Income is allocated on pro-rata basis

In Partnership and limited liability partnership the allocation is on pro-rata basis.

3) Can easily raise large amounts of cash

Corporations ability to raise large amount of cash is more than others. Limited liability corporations can also raise funds but normally not larger than corporations.

4) Taxed at individual level

Sole proprietorship, partnership and limited liability partnership are taxed are taxed at individual level. Limited liability corporation can be taxed at corporation as well as individual level, depending on the structure.

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

Corporations, limited liability corporations, and limited liability partnership has separate individual entity from its owners and managers.

6) Legal arrangement between two or more people

Partnership, limited liability partnership and limited liability corporation can be an example of legal agreement. Sole proprietorship would not be an example of legal agreement, as it is an individual owner.