Multiple Choice
Which two of the following should be included when calculating start-up costs for a business?
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1. Introduction to Accounting
Business Organization
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Which of the following organizational forms provides its owners with limited liability?
A
Unlimited liability company
B
General partnership
C
Sole proprietorship
D
Corporation
Verified step by step guidance1
Understand the concept of limited liability: Limited liability means that the owners of a business are not personally responsible for the debts and obligations of the business beyond their investment in the company.
Review the characteristics of each organizational form: Unlimited liability company, general partnership, and sole proprietorship all expose owners to personal liability for business debts, meaning their personal assets can be used to cover business obligations.
Examine the structure of a corporation: A corporation is a separate legal entity from its owners (shareholders). This separation provides limited liability protection, meaning shareholders are only liable up to the amount they invested in the corporation.
Compare the organizational forms: Corporations are unique in providing limited liability to their owners, unlike the other forms listed in the problem.
Conclude that the correct answer is 'Corporation' based on its ability to shield owners from personal liability for business debts.
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