1.2.6. Options
An option is a contract that gives the owner the right to buy or sell an asset, security, or derivative at a specified price and date. The contract stipulates a fixed quantity, quality, and price of the underlying asset to be bought or sold, and a fixed expiration date. The only thing negotiated between a buyer and seller is the cost of the option. Options are issued solely by the Options Clearing Corporation, though they are listed, bought, and sold on any options exchange.
Because an options contract is freely tradable on an exchange and its profitability is determined by market forces, it is not a DPP.
|
SUMMARY TABLE Business Structures and their Characteristics |
|
|
Legal Entities |
|
|
General Corporation |
• An incorporated business entity recognized as separate and distinct from its owners • Sells securities on open market; may issue many classes of stock • Offers limited liability for shareholders • Pays taxes as a separate entity; subject to double taxation • Has continuity of life • Cannot be a DPP |
|
Sole Proprietorship |
• An unincorporated business entity owned privately by a single person • Does not issue securities • Owner personally liable for business debts • Profits and losses “pass through” to owner’s personal tax returns • Terminates with sale, abandonment, or death of owner • Cannot be a DPP |
|
General Partnership |
• An unincorporated business with two or more owners, all of them general partners • Does not issue securities • Partners personally liable for business debts • Profits and losses “pass through” to general partners’ personal tax returns |