Types of Business Entities
Lesson:
Business entities are the different legal frameworks that can be used to create a business endeavor. Choosing the correct one is critical, as it can decide who can own it, the level of protection afforded to owners, and how taxes will be attribbuted.
The main categories are as follows:
- Sole Proprietorship - The default for a business with a single owner. No paperwork is required, but there is no protection for the owner.
- Partnership - The default for businesses with two or more owners (the owners can be people or companies or a companiation). No paperwork is required, but there is no protection for the owner.
- Limited liability company (LLC) - The newest system. It is extremely flexible and has relatively low paperwork requirements.
- C Corporation - Best for very large companies with many owners.
- S Corporation - Good for small companies.
Some auditors are looking over your accounting work, and have come to you with an urgent question.
You've been briefed with the following facts:
- The firm's owners wanted to create a corporation with an unlimited number of owners
Which business entity is being used?
Answer:
- The business entity type is C corporation.
Explanation:
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Remember the appropriate definition: C Corporation - Best for very large companies with many owners.