What is unlimited liability in business quizlet?

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1. Social Science
2. Business

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Terms in this set (28)

liability

the legal obligation of a business owner to use personal money and possessions to pay the debts of the business

unlimited liability

a business owner can be legally forced to use personal money to pay the debts of the business

limited liability

a business owner cannot be legally forced to use personal money and possessions to pay the debts of a business

sole proprietorship

business ownership in which a single individual owns the business, collects all profit from it, and has unlimited liability for its debt.

sole proprietorship advantages

-least expensive
-business income and costs are reported on the owner's personal tax return
- sole decision maker

sole proprietorship disadvantages

- carry a heavy workload
- unlimited liability
-difficult to borrow money and attract investors

partnership

business organization in which at least two individuals share the management, profit, and liability.

general partnership

all partners have unlimited liability

limited partnership

at least one partner has limited liability the other partners have no say in the company's day-to-day operations but are merely investors

partnership advantages

- similar to a sole proprietorship in terms of taxes
- can rely on the entrepreneurialship of more than one person
- easier to borrow money

partnership disadvantages

- unlimited liability in a general partnership
- profit is split
- each partner is responsible for the business actions of the others
- partners may not agree

partnership agreement

a legal document that clearly defines how the work, responsibilities, rewards, liabilities of a partnership will be shared by the partners

corporation

type of business ownership in which the business itself is considered a "person" under the law, and limited liability is granted to the business owners

shareholders/ stockholders

owners of a corporation

share of stock

a unit of ownership in a corporation

dividend

a portion of a corporations profit

C corporations

a corporation that is taxed as entities by the federal government

corporation advantages

- shareholders have limited liability
- can end ownership by selling their shares
- life span of corporation not tied to life span of owners
- can raise money easily

corporation disadvantages

- difficult and expensive to set up
- regulated by state laws
- must follow strict procedures
- profit is taxed twice

subchapter S corporation

differs from a C corporation in how it is taxed. Not taxed as an entity, its income or loss is applied to each shareholder and appears on their tax returns. Not taxed twice

limited liability company

a type of business similar to a C corporation, but with simpler operating requirements and tax procedures and greater liability protection for the business owners

nonprofit corporation

operates not to provide profit for its shareholders but to serve the good of society. uses profit to further their mission, exist through donations to raise money rather than selling shares of ownership

cooperative

a business controlled, owned, and operated for the mutual benefit of its members

what is the difference between limited and unlimited liability?

unlimited means that the owner is personally responsible for the debts of the company using their own money and possessions.

how is a sole proprietorship different from a general partnership?

a sole proprietorship relies on one person, all operations are controlled by the one person. both have unlimited liability.

advantage and disadvantage that a corporation has over a sole proprietorship

advantage: limited liability
disadvantage: more expensive and more regulations

who owns a cooperative?

its members. people who use its services, buy its products, or are employed by it

A sole proprietor owns a clock store and skateboard outlet. Which business needs limited liability?

The skateboard outlet so that the owner is not responsible for any injuries.

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