Business Plan Legal & Organizational Structure 1 — Questions and Answers
Question 1: What is a sole proprietorship?
- A business owned by two or more partners
- A business owned and operated by one individual with no legal separation from the owner (Correct answer)
- A corporation with a single shareholder
- A non-profit organization
Correct answer: A business owned and operated by one individual with no legal separation from the owner
A sole proprietorship is a business owned and operated by one individual, with no legal distinction between the owner and the business entity.
Question 2: What is a Limited Liability Company (LLC)?
- A business structure where owners have unlimited liability
- A hybrid business structure combining corporate liability protection with partnership tax flexibility (Correct answer)
- A type of government-owned company
- A franchise agreement structure
Correct answer: A hybrid business structure combining corporate liability protection with partnership tax flexibility
An LLC is a hybrid business structure that provides owners (members) with limited liability protection while offering the tax flexibility of a partnership.
Question 3: What is the difference between a C-Corp and an S-Corp?
- C-Corps are non-profits; S-Corps are for-profits
- C-Corps face double taxation and can have unlimited shareholders; S-Corps pass taxes to shareholders and have limits on share structure (Correct answer)
- They are legally identical
- S-Corps can be publicly traded; C-Corps cannot
Correct answer: C-Corps face double taxation and can have unlimited shareholders; S-Corps pass taxes to shareholders and have limits on share structure
C-Corps are subject to double taxation (corporate and personal) but can have unlimited shareholders and types; S-Corps pass income to shareholders' personal taxes but have restrictions on shareholders.
Question 4: What does 'articles of incorporation' establish?
- The company's marketing strategy
- The legal formation of a corporation, including name, purpose, and share structure (Correct answer)
- A partnership agreement between founders
- A patent application
Correct answer: The legal formation of a corporation, including name, purpose, and share structure
Articles of incorporation are legal documents filed with the state that formally establish a corporation, including its name, purpose, registered agent, and share structure.
Question 5: What is a partnership agreement?
- A customer service contract
- A legal document defining the rights, responsibilities, profit sharing, and decision-making of business partners (Correct answer)
- A vendor supply contract
- A government licensing form
Correct answer: A legal document defining the rights, responsibilities, profit sharing, and decision-making of business partners
A partnership agreement is a legal document that defines the rights, responsibilities, profit-sharing arrangements, and decision-making processes between business partners.
Question 6: What is an operating agreement for an LLC?
- A product manufacturing contract
- An internal document defining ownership percentages, member roles, and operating procedures for an LLC (Correct answer)
- A tax filing document
- A lease agreement for business premises
Correct answer: An internal document defining ownership percentages, member roles, and operating procedures for an LLC
An LLC operating agreement is an internal document that defines ownership percentages, member roles, profit distribution, and operating procedures for the company.
Business Plan Legal & Organizational Structure 1
What is a sole proprietorship?