Question

You see and read about different kinds of businesses every day. The following scenarios describe two businesses. Use the description of each business to classify it as a proprietorship, partnership, corporation, or limited liability partnership and/or limited liability company (LLP/LLC).

Business #1: Jin and his uncle started a software development company. Without his uncle’s knowledge, Jin illegally used another company’s code to meet the needs of a client. The resulting lawsuit closed the business and bankrupted both Jin and his uncle.
This is an example of:
A. An LLP/LLC
B. A proprietorship
C. A corporation
D. A partnership
Business #2: Alexander and Jin run a law firm in downtown Phoenix. The firm has debt of $100,000, but Alexander and Jin will not be held personally liable for the firm’s debts. The business organization is the type that requires Alexander and Jin to report all business-related income on their personal tax returns.
This is an example of:
A. A partnership
B. A corporation
C. An LLP/LLC
D. A proprietorship

Answer 1

Business #1: Jin and his uncle started a software development company. Without his uncle’s knowledge, Jin illegally used another company’s code to meet the needs of a client. The resulting lawsuit closed the business and bankrupted both Jin and his uncle.

• D. A partnership

One of the main disadvantages of a partnership is that the owners are personally liable for all the obligations regarding to the business.

Business #2: Alexander and Jin run a law firm in downtown Phoenix. The firm has debt of $100,000, but Alexander and Jin will not be held personally liable for the firm’s debts. The business organization is the type that requires Alexander and Jin to report all business-related income on their personal tax returns.

• C. An LLP/LLC

A LLC is a hybrid between a partnership and a corporation. The firm is a pass through entity, meaning that the owners are taxed directly (no corporate tax). But it also provides limited liability, so the owners are not personally liable for the firm's obligations.