Business Ownership Structures (Page 1 Notes)

Vocabulary flashcards covering ownership structures, liabilities, taxation, and partnership arrangements.

Legal structure

The formal ownership arrangement of a business (e.g., sole proprietorship, partnership, corporation, LLC/LLP) that affects liability, taxes, and how the business is managed.

Sole proprietorship

A business owned by one person; quick and easy to set up with complete control, but it carries unlimited personal liability for debts.

Unlimited liability

Personal responsibility for business debts, meaning the owner’s personal assets can be at risk.

General partnership

A business owned by two or more people; easier to raise capital and share expertise, but partners are jointly and severally liable for debts.

Joint and several liability

Each partner is personally liable for the partnership’s debts, and creditors can pursue any partner for the full amount.

Partnership agreement

A formal contract among partners that outlines roles, profit sharing, duties, and dispute resolution to reduce disagreements.

Corporation

A legal entity separate from its owners that provides limited liability but may face double taxation on profits.

Double taxation

Profits are taxed at the corporate level and again when distributed as dividends to shareholders.

Limited liability

Protection of owners’ personal assets from business debts; liability is limited to their investment.

Hybrid forms (LLC, LLP)

Business structures that offer limited liability protection and allow pass-through taxation, combining features of corporations and partnerships.

Pass-through taxation

Income from the business is taxed once on the owners’ personal tax returns, avoiding corporate-level tax.

Limited liability partnership (LLP)

A partnership form that protects partners from liabilities caused by other partners’ malpractice or negligence.