Cengagenowv2, 1 Term Printed Access Card For Warren/reeve/duchac's Financial Accounting, 15th
Cengagenowv2, 1 Term Printed Access Card For Warren/reeve/duchac's Financial Accounting, 15th
15th Edition
ISBN: 9781337272353
Author: WARREN, Carl; Reeve, James M.; Duchac, Jonathan
Publisher: Cengage Learning
Question
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Chapter 12, Problem 1DQ
To determine

Explain the main advantages of the following:

  1. (a) Proprietorship.
  2. (b) Partnership.
  3. (c) Limited Liability Company.

Expert Solution & Answer
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Explanation of Solution

Proprietorships: Proprietorship is a form of organization, which is owned by an individual, called proprietor. The most common proprietors are lawyers, physician, and more.

Partnership: It is that form of organization which is owned and managed by two or more persons who invest and share the profits and losses according to a pre-determined ratio.

Limited Liability Company: It is that form of organization which is formed as a legal entity that provides limited liability to the owners. It has a common seal.

  1. The main advantages of Proprietorships are:
    • Easy of formation: It is easy for forming this type of entity.
    • Non-taxable entity: This entity is not taxed for federal income tax purposes.
  2. The main advantages of Partnership are:
    • Moderately complex to form: It is formed with a partnership agreement, so moderately complex.
    • Non-taxable entity: This entity is not taxed for federal income tax purposes.
  3. The main advantages of Limited Liability Company are:
    • Moderately complex to form: It is formed with an agreement among the owners, so moderately complex.
    • Non-taxable entity: This entity is not taxed for federal income tax purposes, but the owners are required to file the individual members’ tax return.
    • Expanded access to Capital: This entity is attracted by the investors to invest in the organization because of the limited liability.

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Chapter 12 Solutions

Cengagenowv2, 1 Term Printed Access Card For Warren/reeve/duchac's Financial Accounting, 15th

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