1. When choosing a business form, what are they key difference between proprieto
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Question
1. When choosing a business form, what are they key difference between proprietorship, partnership and a corporation? 2. What are the seven (7) characteristics of a partnership? 3. What are the differences between a/an a. Limited liability Partnership b. Limited liability Corporation c. S Corporation? 4. What factors are taken into consideration when choosing a business form? 5. What are the three (3) methods used to allocate income or loss? Explain each method. 6. What accounts are affected when recording the admission of a new partner when the new partner contributes cash? 7. What are the two ways a partner generally withdraws from a partnership? 8. What does capital deficiency mean? What happens if a partner cannot pay a deficiency? 9. When there is death of a partner, what happens to the partnership? 10. What are the steps taken when a partnership is liquidated?Explanation / Answer
1. Key differences betwen a properietorship, partnership and corporation are:
2. Seven Charcheteristic of Partnership are:
3. Differnce between the 3 are:
a. LLP:Limited liability partnerships are businesses with more than one owner who all have limited personal liability for business debts. LLP's are primarily used with liscensed proffesinal groups. A partner in LLP is protected from personal liability in the case of debt or claims accrued by another partner keeping personal asset from being used to pay for mistakes.
b.LLC: A limited liability corporation is a flexible incorporation option, but the option is only available to all businesses nor are the regualtions the same in all states. It allows all profits and losses from the business to pass to the owners and be reported on their personal tax returns. LLC owners are protected from the personall liability for debt and claims attached to the business. and stand to lose only what they have invested in the bussinessses.
c.S corporation : They are not legal business structures. The IRS grants S corp to gualifying C Corporations and the change in status affects the taxation of the corporations profits. Intended for small to medium sized domestic business. Cannot have more than 100 shareholders. Shareholders never have personal liability for business debt, but they have to pay personal income tax or any dividends or salaries drawn from the business.
4. There are 7 important factors taken into consideration when choosing business form:
5. 3 methods to allocate income and loss are:
6. New parnter's Capital account is affected and Cash account is affected. As the equation of net income and loss of the partnership changes. Profit and loss account of the partnership and individual partner's capital account will be affected.
7.2 ways in which a partner generally withdraws are either the partner resigns and the partnership deed is dissolved and a new partnership deed is formed among the existing partners. Or there is dissolution of the business and the business shuts down and each partner takes his of her share of income.
8. Capital Deficiency : Capital deficiency is a debit balance in Parnters capital account after allocation of net gain of loss in his account.
When a partner is not in a position to pay deficiency of a capital due to insolvency, the remaining partner with the credit balance must absorb such partners debt according to their net income and loss sharing ratio. This is called capital loss of individual partners due to default of another partners.
9. when there is death of a patner, the partnership deed is dissolved. On the decision if remaining partner if they want to continue the business a new partnership deed is formed among the remaining partners otherwise the business canbe liquidated.
10. To liquidate the partnership following 3 steps are involved.:
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