Essay on Chapter Six

1056 WordsOct 28, 20145 Pages
Chapter Six Business Formation: Choosing the Form that Fits Review Questions 1. Describe the basic features that distinguish the four basic forms of business ownership: sole proprietorships, general partnerships, C corporations, and limited liability companies. Sole Proprietorship – the business is owned by a single individual Partnership – two or more people serve as co-owners of the business Corporation – the business is a separate legal entity Limited Liability Company – a hybrid with characteristics of both a corporation and partnership 2. Why do many entrepreneurs initially set up their businesses as sole proprietorships? Why do many successful entrepreneurs eventually decide to convert their sole proprietorship to some other form…show more content…
5. What advantages help explain why virtually all large companies are organized as C corporations? C corporations are able to have unlimited shareholders, which is probably an important characteristic to large companies. (S corporations, for example, may not have more than 100 shareholders.) C corporations can also be owned by non-citizens or other business entities, where S corporations can only be owned by individuals who are US citizens. 6. What steps are involved in forming a C corporation? When you form a C corporation, you protect your personal assets. Anyone who sues your company can't go after you personally. You also can buy and sell stock. A corporation survives you, which means you can pass it on to your heirs. To form a C corporation, you must follow specific guidelines. If you file the correct papers, both the Internal Revenue Service and your state will recognize your company as a C corporation. 7. Describe the relationship between a corporation’s common stockholders, its board of directors, and its chief executive officer (CEO). Common stockholders are the basic owners of a corporation, but few stockholders of large corporations take an active role in management. Instead, they elect the corporation’s board of directors to represent their interests. Board members seldom get involved in the day-to-day management of the company. They establish the basic mission and goals of the corporation and appoint
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