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4. Forms of business organizations

Businesses can be classified into the following forms: sole proprietorship, partnership, corporation, limited liability company (LLC), and limited liability
partnership (LLP).

Different forms of businesses have different characteristics. Which of the following characteristics would apply to a limited liability company and a

limited liability partnership? Check all that apply.

Owners have limited liability and right to vote

Have corporate ownership structure

Taxed as a partnership

LLPs are not suitable for professional firms such as accounting, law, and architecture

Limited financial liability

Owned by single individual

Points: 0.83 / 1

Explanation: Close Explanation

A limited liability company (LLC) or a limited liability partnership (LLP), as the name suggests, is similar to a partnership, but owners
have limited personal liability for the debts and actions of the company. An LLP is similar to an LLC. These firms combine the features of a
partnership and a corporation. Owners of an LLC are called members, and they cannot be held personally liable for the company’s debts. As in

a partnership, income is distributed proportionately among the members, and they are taxed at individual levels, thus avoiding the issue of
double taxation. LLPs are used for professional firms such as accounting, law, and architecture, while LLCs are used by other businesses.

You come across different kinds of businesses every day. The following table describes some businesses. Using the description of each business,
classify it as a sole proprietorship, a partnership, a corporation, or a limited liability company/limited liability partnership.

Business Scenario Type of Business

Jacob founded and operated a wedding planning agency, which specialized in celebrity LLC/LLP
weddings. When he died, his business was dissolved because there was no plan for control
after his death.

Wilson started a business, based in a different state, with his uncle. Due to the business’s Sole Proprietorship

underperformance, they had to close the business. Wilson, however, ended up losing his
house due to a litigation claim.

DDX Co. is a shipping company. David owned 1,000 shares of DDX stock. He found better Corporation
opportunities and sold his entire stake in DDX to another investor.

Selena and Mario run a law firm in Chicago. The firm has debt of $100,000, but Selena LLC/LLP
and Mario will not be held personally liable for the law firm’s debt.

Points: 0.5 / 1

Explanation: Close Explanation

Jacob’s wedding planning business is an example of a sole proprietorship. The life of the business was limited to the proprietor’s life.
Wilson’s company is an example of a partnership in which Wilson and his uncle made a legal arrangement to run the company. In a partnership,
the owners are subject to unlimited personal liability, which allows claims over the partners’ personal assets.

DDX Co. is a corporation, and David was one of the shareholders (owners) in the company. His stake in the company was equal to the value of

1,000 shares of DDX stock. Ownership in corporations can be transferred, so David transferred his ownership by selling his shares of DDX stock.

Selena and Mario’s law firm is an example of a limited liability partnership (LLP). LLPs, similar to LLCs, protect the owners so that they are not

personally liable for the company’s debts.

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