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.
You're being grilled by the board of directors about the firm's accounting.
You've been provided with the following information:
- The business is being sued and the general partners are personally liable
Which business entity is being used?
Answer:
- The business entity type is partnership.
Explanation:
-
Remember the appropriate definition: 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.