What are two main advantages that a corporation has over a proprietorship and a partnership quizlet?

Deciding how to form your business will influence many aspects of your business, including how profits and liability are divided, how your business pays taxes and who runs the business. If you are a large business, forming a corporation offers several advantages over forming a partnership or sole proprietorship. Examining the benefits of a corporate structure can help you decide if forming a corporation is the best bet for your business.

A corporation is owned by shareholders, who profit from the company's gains. A partnership is owned by two or more people who divide the business' profits. A sole proprietorship is owned by one person who alone is responsible for losses and reaps profits. A corporation is the most complex form of business and involves the most paperwork and expenses to set up, but it can offer certain rewards that other forms of business do not.

Liability Protection

The biggest benefit a corporation offers over other business structures is liability protection, according to Entrepreneur. Shareholders do not risk losing personal assets because of a company's debts, because corporations are considered separate legal entities from the people who own them. Owners of partnerships and sole proprietorships, on the other hand, are held responsible for all company debts and legal responsibilities, and are subject to losing personal assets if the company goes bankrupt or is caught up in costly legal situations.

Access to Funds

Corporations can more easily raise funds than other forms of businesses, according to the U.S. Small Business Administration. Corporations can sell stock to raise money for business expenses or cover debts. Sole proprietors and business partners, on the other hand, must try to come up with funds on their own or turn to loans or credit programs to raise money. It takes less time and effort to sell stocks than it does to apply for loans or seek out investors for a business.

Tax Benefits

Corporations enjoy some tax benefits that sole proprietorships and partnerships do not. Corporations must file taxes separately from the shareholders. Owners of corporations pay taxes on any salaries, bonuses and dividends they earn from the corporation. However, loopholes exist to ease the burden of paying taxes as a corporation and as individual shareholders. A corporation is not required to pay tax on earnings paid as compensation to employees or shareholders, and it can deduct the payments as a business expense. Also, the corporate tax rate is usually lower than the personal income tax rate. The owners of sole proprietorships and partnerships pay income taxes at regular rates on the profits they earn from their companies.

Which of the following statements is CORRECT?

Nội dung chính

• What are two main advantages that a corporation has over a proprietorship and a partnership What are two main disadvantages of a corporation?
• What are two main advantages that a corporation has over a proprietorship and a partnership What are two main disadvantages of a corporation quizlet?
• What are two advantages of a corporation vs any form of partnership?
• What is one advantage of a partnership over a corporation quizlet?

a. The corporate bylaws are a standard set of rules established by the state of incorporation. These rules are
identical for all corporations in the state, and their purpose is to ensure that the firm's managers run the firm in
accordance with state laws.
b. The corporate charter is a standard document prescribed by the state of incorporation, and its purpose is to
ensure that the firm's managers run the firm in accordance with state laws. Procedures for electing corporate
directors are contained in bylaws, while the declaration of the activities that the firm will pursue and the
number of directors are included in the corporate charter.
c. Companies must establish a home office, or domicile, in a particular state, and that state must be the one in
which most of their business (sales, manufacturing, and so forth) is conducted.
d. Attorney fees are generally involved when a company develops its charter and bylaws, but since these
documents are voluntary, a new corporation can avoid these costs by deciding not to have either a charter or
bylaws.
e. The corporate charter is concerned with things like what business the company will engage in, whereas the
bylaws are concerned with things like procedures for electing the board of directors.

Independence—the owner alone is responsible for all aspects of the business.

Efficiency in decision-making (no board of directors or stockholders involved).

Tax reporting to the IRS is relatively simple and inexpensive.

Minor children of the sole proprietor may be hired without paying payroll taxes, and, if the child earns $5000 or less, he or she pays no income taxes.

Healthcare reimbursement arrangements (HRAs), also known as IRC Section 105(b) plan, are available to the employees, spouses, and families of sole proprietors. This loophole in the tax laws allows an employer plan to reimburse employees for medical costs, including medical and dental insurance, deductibles, copayments, and other healthcare expenses.

If a home office is used, a portion of office expenses, property taxes, utilities, and vehicle expenses may be tax deductible.

The owner keeps all the profits.
THE IHO

Partnerships are relatively easy and inexpensive to form.

Owners share commitment, decision-making, profits, and responsibilities; however, each partner can contribute a unique set of skills and expertise to the success of the business.

The incentive of becoming a partnership may attract highly motivated and qualified employees.
The tax advantage of a partnership over a corporation is that the owners are taxed only once—on their personal tax returns.

As with sole proprietorships, business decisions can be made efficiently, without involving shareholders, officers, and directors.

Laws concerning partnerships vary among states; however, the Uniform Partnership Act has been adopted in every state except Louisiana, which means partnership laws are generally uniform across the country.

Acquisition of capital can be easier in a partnership than in a corporation since individuals often receive better loan terms. Banks perceive loans to individuals to be less risky since personal assets can be used to secure a loan. In addition, limited partnerships allow investors to avoid the personal liabilities of general partners.

C corporations can raise capital by selling shares of the business to prospective shareholders in exchange for money, property, or both. The initial sale of stock is often done when the business "goes public" through an initial public offering, known as an IPO. To justify the expense of setting up and registering a corporation, the business should have enough income or potential income to reap the benefits of a large entity. Such benefits could include the following: 1) capital to make large-scale investments; 2) qualifying for bank loans and lines of credit; and 3) achieving economies of scale through large purchases.

Limited liability. Corporations have limited liability, in that individual employees (including management) or shareholders are not personally liable for the actions or indebtedness of the corporation.

Corporate tax treatment. Corporations usually pay lower taxes, and only on the profits of the corporation. In addition, these taxes are completely separate from the taxes paid by individual owners of the corporation. Individuals would, however, pay personal taxes on bonuses, salaries, and dividends received from the corporation.

Not only is partial ownership attractive to employees, it also motivates employees to make the company successful. Another attraction—though not necessarily unique to C corporations—is employee benefits, such as health insurance and retirement plans, which are tax-deductible expenses for the corporation while adding to the employees' compensation.

The corporation has a "perpetual existence," compared with employees or shareholders who may leave the corporation.

What are two main advantages that a corporation has over a proprietorship and a partnership What are two main disadvantages of a corporation?

Advantages of a corporation include personal liability protection, business security and continuity, and easier access to capital. Disadvantages of a corporation include it being time-consuming and subject to double taxation, as well as having rigid formalities and protocols to follow.

What are two main advantages that a corporation has over a proprietorship and a partnership What are two main disadvantages of a corporation quizlet?

The advantages of a corporation are limited liability, the ability to raise investment money, perpetual existence, employee benefits and tax advantages. The disadvantages include expensive set up, more heavily taxed, taxes on profits.

What are two advantages of a corporation vs any form of partnership?

The benefits of a close corporation as opposed to a partnership include potentially lower tax rates, limited liability, and the option to sell stock in exchange for ownership of the business to raise capital.

What is one advantage of a partnership over a corporation quizlet?

Limited liability is a key advantage of partnerships and sole proprietorships over corporations.

What are two main advantages that a corporation has over a proprietorship and a partnership?

What are two main advantages that a corporation has over a proprietorship and a partnership What are two main disadvantages of a corporation?

What are two main advantages that a corporation has over a proprietorship and a partnership What are two main disadvantages of a corporation quizlet?

What are the advantages of a corporation compared to a sole proprietorship or partnership?