56) There is no limit to the number of general partners a partnership may have, but it must have
at least one general partner.
57) Profits earned by a partnership are taxed in the same fashion as those earned by a sole
proprietorship.
58) The partnership, like the proprietorship, avoids the disadvantage of double taxation.
59) In a partnership, the business itself is subject to federal income tax.
60) A general partner is personally liable only for the amount of money he has invested in the
partnership.
61) One of the advantages of a partnership over a proprietorship is the increased sources of
capital and credit it offers.
62) If a limited partner withdraws, sells his ownership in the partnership, or dies, the partnership
is not forced into dissolution.
63) One disadvantage of the partnership form of ownership is the great potential for personality
and authority conflicts.
64) A common denominator in many partnership disputes is the lack of a written agreement
clearly spelling out the roles, rights, and responsibilities of each partner.
65) A limited partner is personally liable only for the amount of money she has invested in the
partnership.
66) A limited partner is treated as an investor in a business venture and does not take an active
role in managing it.
67) Each partner in a limited liability partnership is a limited partner; there are no general
partners.
68) 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.
69) A corporation formed and chartered in Kansas is considered a domestic corporation when
doing business in Kansas, and a foreign corporation when doing business in Missouri.
70) A corporation formed in Taiwan doing business in the United States is a foreign corporation.
71) Most states do not require a Certificate of Incorporation or a charter to be filed for a new
corporation.
72) Corporations must obtain a federal charter before they can conduct any business.
73) Stockholders in the corporation have the same kind of liability as do general partners in a
partnership.
74) When filing the corporate charter, a corporation must file in the state in which its
headquarters are located.
75) A business with more than five owners must be a corporation.
76) One significant advantage of a corporation is the ability to attract capital.
77) The corporation has the advantage of transferable ownership, which easily enables the
corporation to sell shares to others or to transfer stock through inheritance.
78) “Double taxation” refers to the fact that corporations are required to pay both federal and
state income taxes.
79) “Double taxation” refers to the fact that the corporation itself must pay taxes on its net
profits, and the stockholders must also pay taxes on the portion of those same profits distributed
to them as dividends.
80) Company founders can become minority stockholders in a corporation but can never lose
their final authority or control over business decisions because they are the founders.
81) An S corporation maintains the advantages of the corporate form of ownership while having
the ability to be taxed as a partnership.
82) An S corporation can issue both voting and nonvoting common stock to its shareholders.
83) One disadvantage of an S corporation is that the cost of many benefits-insurance, meals,
lodging, and others-that are paid to shareholders with 2 percent or more of stock-cannot be
deducted as business expenses for tax purposes and are considered taxable income.
84) Liquidating an S corporation involves several steps, including paying all taxes and debts,
obtaining the written approval of shareholders to dissolve the company, filing a statement of
intent to dissolve with the secretary of state’s office and, finally, distributing all remaining assets
of the corporation to shareholders.
85) 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.
86) A limited liability company must have at least two owners.
87) The limited liability company, like an S corporation, is a form of ownership that is a cross
between a partnership and a corporation.
88) To form a limited liability company, an entrepreneur must file both the articles of
incorporation and the operating agreement with the secretary of state.
89) 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.
90) Like an S corporation, a limited liability company does not pay income taxes; its income
flows through to its owners, who pay taxes on their shares of the limited liability company’s net
income.
91) 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.
92) In a professional corporation, all shares of stock must be owned and held by individuals
licensed in the profession of the corporation.
93) A professional corporation is created in the same way as a regular corporation, and exists to
provide the advantages of corporate ownership, including limited liability, to professionals such
as doctors and lawyers.
94) A joint venture is much like a partnership except that it is formed for a specific limited
purpose.
95) What factors should an entrepreneur consider when choosing a form of ownership?
96) What is a sole proprietorship? Explain the advantages and the disadvantages of a sole
proprietorship.
97) What is a partnership? Explain the advantages and the disadvantages of a partnership.
98) John and Bill are considering starting a partnership. Why is it important for them to develop
a formal partnership agreement? List at least ten of the provisions their partnership agreement
should include.
99) Outline the incorporation process.
100) What is a corporation? Explain the advantages and the disadvantages of a corporation.
101) What is an S corporation? Explain the advantages and the disadvantages of an S
corporation.
102) What kinds of companies would benefit most from S corporation status? Least?
103) What is a limited liability company? How is one formed? What benefits does an LLC offer?
104) Compare and contrast the following forms of ownership: a corporation, an S corporation,
and a limited liability company.
Mini Case 5-1: “Today, You Gotta’ Be a Corporation”
Duke has been a successful used car dealer for 25 years in the same location, operating as a
proprietorship. In those 25 years, he has expanded his operation and become the largest
independent car dealer in a city of 85,000 people. Few people in town can boast of a business
reputation better than Duke’s. As he says, “I’ve always done business in a fair and honest fashion,
and I’ve tried to give my customers an honest deal. The public has responded well, and last year
the business revenue increased to an all-time high of $830,000.”
As the business has grown, so have Duke’s liabilities. On a given day, Duke will have cars worth
from $350,000 to $450,000 as inventory on the lot. “Twenty years ago, if I‘d asked the bank for a
line of credit of $200,000, they’d have tossed me out the front door. There is no question that
today business is different.”
Duke’s only daughter recently married a garage mechanic who has worked in the area for the past
three years. Though Duke thinks the boy is certainly nice enough, he does not believe he is very
smart. “The kid sure knows how to fix a car, but that’s as far as it goes,” says Duke. “On my last
visit to the accountant, he suggested I consider incorporating. I guess he knows what he’s talking
about. That’s all you hear today-‘you gotta be a corporation.’ I guess he’s right. But, to tell you the
truth, I don’t know.”
105) Should Duke incorporate or should he remain a proprietorship? Why?
106) Would you recommend Duke establish an S corporation? What conditions would he have to
meet?
107) Would a limited liability corporation be any better for Duke? Why or why not?