Q. 7RQ - Horngren'S Financial And Managerial Accounting

Question

Describe the similarities and differences among the four different types of business entities discussed in the chapter.

Step-by-Step Solution

Answer

Sole proprietorhip has only one owner, there are two or more owners in partnerships, and in the case of corporation and LLC—there is one or more owners.

Coprpoerartion and LLC has indefinite life, sole propreietorship terminates at owners’ willor death. Also, in case of partnership, it can  be terminated at choice of partner or death.

Step 1: Types of Business Organizations

The different types of business organizations are Sole proprietorship, Partnership, Corporation and Limited-Liability Company (LLC). 

Step 2: Similarities and Difference

The similarities and difference between the different type of organizations are as follows:

Basis	Sole Proprietorship	Partnership	Corporation	LLC
Definition	In this businesss there is single owner.	In this business there are two or more owners, and are not considered as corporation.	It is recognized under the sate law, and treated as separate legal entity.	In this business, member is only liable for own actions.
Number of Owners	Single owner.	Two or more partners.	One or more stockholders.	One or more partners.
Life of Business	Terminates by owner’s choice or at death.	Terminates by partner’s choice or at death.	Indefinite.	Indefinite.
Personal liability of owners	Personal liability of owner.	Personal liability of partners.	No personal liability of stockholders.	No personal liability of partners.
Taxation	Not separate taxable entities.	It is not taxed. Partners pays tax on their income.	Separate taxable entity.	It is not taxed. Partners pays tax on their income..
Type of business	Small businesses.	Professional organization of accountants, attorneys, etc.	Small to large multinational businesses.	Partnership alternative.