Deck 6: Forms of Business Ownership

Question 1

Which of the following people would be most interested in participating in a business organized as a co-operative?

A)Jeff wants to work for a government owned business because he believes government ownership ensures a more equitable distribution of income and wealth.
B)Joe is intrigued by the idea of combining his time and resources with many other people to operate a business providing a good or service that they all will use.
C)Joan wants to be an owner of a business and share in its profits,but has no desire to take an active role in managing the company or participating in its daily operations.
D)Jennifer prefers to work for a charitable organization that emphasizes helping people who are less fortunate than her.

Answer 1

B

Question 2

Homer and Marge have decided to open a floral design shop,which they intend to run as co-owners.Both intend to take an active role in the management of their new business,and each will accept unlimited liability.Homer and Marge are planning to operate a:

A)general partnership.
B)limited partnership.
C)co-operative.
D)joint venture.

Answer 2

A

Question 3

A(n)is someone who has a good idea for a business and who sells the right to use the business name and sell a product or service within a given territory.

A)franchisor
B)intrapreneur
C)venturist
D)limited partner

Answer 3

A

Question 4

A person who buys the right to use a business name and sell a product within a given territory is called a:

A)limited franchisor.
B)venture capitalist.
C)stockholder.
D)franchisee.

Question 5

The earnings of corporations are taxed:

A)as if the business were a partnership.
B)at twice the going rate of a partnership or proprietorship.
C)by the federal government,but they are exempt from provincial taxes if the corporation owns any facilities within that province.
D)as income to the corporation,then again as income to the stockholders on earnings that are distributed as dividends.

Question 6

Midas Muffler sells its business name and the rights to its products to prospective business persons who want to use the Midas name and offer Midas products.In this arrangement,Midas would be the ,and the buyer of these rights is the ____________.

A)owner;limited partner
B)wholesaler;retailer
C)co-signer;co-signee
D)franchisor;franchisee

Question 7

Mehdi operates a sole proprietorship,but he is in poor health and may be unable to continue running the business.If Mehdi becomes incapacitated,his business:

A)automatically continues under new management as a sole proprietorship.
B)automatically converts into a public corporation with stock sold to interested investors.
C)becomes the property of the most senior employee who wishes to continue operating the firm.
D)ceases to exist unless sold or taken over by Mehdi's heirs.

Question 8

The board of directors for a corporation is elected by its:

A)Shareholders.
B)managers.
C)employees.
D)creditors.

Question 9

A is a federally or provincially chartered legal entity with authority to act and to have liability separate from its owners.

A)non-profit organization
B)limited partnership
C)general partnership
D)corporation

Question 10

The authorization from the federal or provincial/territorial government for a company to use the corporate format is known as what?

A)resolution of the board of directors.
B)management agreement.
C)shareholders agreement.
D)articles of incorporation.

Question 11

Mara plans to open a shop specializing in foods and cultural items from the Middle East.She wants to be the firm's only general partner,but she is trying to get several friends to participate as limited partners.Apparently Mara wants to:

A)limit her personal liability to the amount she personally invests in the company.
B)obtain a strong financial base for the firm while maintaining personal control over the firm's management.
C)be the only person allowed to share in the firm's profits.
D)meet the legal requirements of the Uniform Partnership Act.

Question 12

The form of business ownership that usually requires the most detailed record keeping is the:

A)limited partnership.
B)sole proprietorship.
C)partnership.
D)corporation.

Question 13

Ellen wants to start a business.She is leaning toward setting up her company as a sole proprietorship,but she is also looking at other possibilities.Ellen has two major goals.First,given her limited personal wealth and eagerness to get started,she wants to get her business up and running with the least possible hassle and expense.Second,she wants to minimize her personal risk in the event that her company experiences difficulties.If Ellen chooses a sole proprietorship,she would:

A)achieve her second goal,since the owners of sole proprietorships are legally protected from losing more than the amount they invest in their company.However,she would find that the start-up costs would be higher than if she had incorporated her business.
B)not achieve either goal since proprietorships are both costly to set up and subject to unlimited liability.
C)be able to achieve both goals since this form of ownership is both the easiest to form and the least risky.
D)meet her first goal since sole proprietorships are easy and inexpensive to form.However,she would expose herself to a high level of personal risk because owners of sole proprietorships have unlimited liability.

Question 14

Franchisors will sometimes send reverse royalties to franchisees who:

A)desire to streamline their communication with employees,customers,and vendors.
B)have not yet created their own web site.
C)are using e-commerce to expand their sales territory.
D)feel their sales have been hurt by the franchisor's Internet sales.

Question 15

A significant disadvantage of owning a sole proprietorship is the:

A)overwhelming time commitment often required of the owner.
B)possibility of limited liability.
C)lack of incentives to motivate the owner.
D)heavy tax liability that must be assumed.

Question 16

A separation between ownership and management is most likely to occur in a:

A)limited liability partnership.
B)general partnership.
C)sole proprietorship.
D)corporation.

Question 17

The is usually the easiest form of business to start and end.

A)co-operative
B)corporation
C)sole proprietorship
D)limited partnership

Question 18

Which of the following is normally considered a major disadvantage of the corporate form of business?

A)difficult transfer of ownership.
B)unlimited liability of owners.
C)limited life.
D)double taxation of earnings.

Question 19

Mary is interested in becoming a franchisee in Katie's Grill,a very successful fast food chain from the Canadian West.Which of the following problems is Mary most likely to encounter if she agrees to become a franchisee?

A)Lack of managerial assistance.
B)High initial costs and fees.
C)Lack of financing.
D)Poor name recognition and visibility.

Question 20

In a sole proprietorship,the equipment and profits of the business are:

A)taxed at the lowest corporate rate.
B)the property of the owner,except for taxes owed to the government.
C)taxed as income for the business,but are exempt from the personal income tax paid by the owner.
D)tax-free if the appropriate exemption is filed with the local government.

Question 21

Elroy is the sole proprietor of a gift shop in a small shopping centre.Because he is a sole proprietor,any profit Elroy's business earns is:

A)taxed twice,once as business income,then again as Elroy's personal income.
B)taxed only if and when it is distributed to investors.
C)taxed only as Elroy's personal income.
D)totally tax-free.

Question 22

A is an organization that is owned and controlled by the people who use it -producers,consumers and workers with similar needs who pool their resources for mutual gain.

A)co-operative
B)limited partnership
C)mutual fund
D)corporation

Question 23

A(n)is an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory.

A)conditional grant
B)trade contract
C)extended ownership agreement
D)franchise agreement

Question 24

Which of the following statements about the operation of a corporation is correct?

A)A corporate charter automatically expires in 99 years and must be renewed if the corporation wants to remain in business.
B)Owners of a corporation have unlimited liability for any claims against their company.
C)A corporation tends to be much easier to set up than a sole proprietorship or partnership.
D)A corporation receives its charter from the federal or a provincial government.

Question 25

A is a business organization that is owned,and usually managed,by one person.

A)closed corporation
B)general partnership
C)limited partnership
D)sole proprietorship

Question 26

The limited liability provided to limited partners means that they are not responsible for the debts of the business beyond:

A)the firm's total assets.
B)the amount they have invested in the company.
C)their total personal assets.
D)the percentage of profits they are entitled to earn.

Question 27

Twenty-six years ago,several small vineyard owners in the Niagara region joined voluntarily to market their grapes and wine in an attempt to get better prices.Over the years,they expanded the organization to include other services such as buying and selling farm supplies and equipment and providing financial and technical services.The arrangement established by these vineyard owners is an example of a:

A)co-operative.
B)joint venture.
C)closed corporation.
D)limited partnership.

Question 28

An entrepreneur who wishes to start a business with little delay or hassle,and who wants to be his or her own boss,should organize the business as a:

A)sole proprietorship.
B)general partnership.
C)limited partnership.
D)co-operative.

Question 29

The form of business ownership that is best suited to raising large amounts of money for expansion is the:

A)partnership.
B)sole proprietorship.
C)co-operative.
D)corporation.

Question 30

Compared to a sole proprietorship,which of the following is considered an advantage of a general partnership?

A)Limited liability for all owners.
B)Ease and flexibility in transferring shares of ownership to others.
C)Equal division of profits among the owners.
D)More financial resources.

Question 31

Marco is a franchisee with Daggies,a chain of sandwich shops.His business was doing well until several Daggies franchisees got in trouble and were forced to close their shops.Soon afterward,Marco's business deteriorated and he too was forced to close.

A)the coattail effect.
B)management by exception.
C)an economic shakeout at work.
D)the law of diminishing returns.

Question 32

Starting a new business as a sole proprietorship:

A)requires retaining the services of an attorney.
B)is usually simpler and less expensive than starting other forms of ownership.
C)is simple,but the proprietorship fee is very expensive in some provinces.
D)is very similar to starting a business as a corporation.

Question 33

A distinguishing feature of a co-operative is that it:

A)is owned and operated by the people who use it.
B)is only intended to operate for a limited period of time.
C)maintains a distinct separation between ownership and management.
D)can have no more than 75 owners,all of whom must be citizens of Canada.

Question 34

Which of the following statements about buying a franchise is most accurate?

A)Before purchasing a franchise,the buyer should carefully evaluate the franchise,the franchisor,his or her own situation,and the nature of the market.
B)Buying a franchise is the simplest and least expensive way to set up a business,since the franchisor has already worked out all of the details for setting up and running the business.
C)Franchise agreements are simple to evaluate,since federal law requires that all such agreements must be written in plain English with all fees and terms clearly explained.
D)One of the advantages of buying a franchise is that franchisors are so closely regulated that there is virtually no chance for scams to succeed.

Question 35

A partner who invests money in a business,but does not take an active role in management or assume unlimited liability for the firm's losses is known as a(n):

A)partial partner.
B)limited partner.
C)corporate partner.
D)implied partner.

Question 36

Which of the following is an advantage of the corporate form of business when compared to sole proprietorships and partnerships?

A)simplified paperwork
B)ease of formation
C)limited liability of owners
D)lower taxes

Question 37

A legal entity with authority to act separately from its owners is known as a _.

A)corporation
B)sole proprietorships
C)partnership
D)limited liability partnership

Question 38

Juan wants to start his own business.He would be most likely to favour organizing his new company as a sole proprietorship if he:

A)expects rapid growth and wants to be able to raise a large sum of money.
B)wants to minimize the financial risk he must accept as the owner of a business.
C)wants to make it easy to attract qualified employees.
D)has a strong desire to be his own boss.

Question 39

When entering into a new partnership,the partners should:

A)plan to incorporate as soon as possible.
B)agree to put the first year's profits back into the partnership.
C)avoid putting their agreement in writing since this would limit the flexibility of the partnership.
D)put the partnership agreement in writing.

Question 40

Yolanda owns a roofing business.She enjoys being her own boss,but her satisfaction comes at a price.Her days are filled with organizing the activities of her employees and soliciting new customers.She often misses activities with friends and family because of the obligations of running her own business.She also knows that she has unlimited personal liability for any of her firm's debts.It appears that Yolanda's business is organized as a:

A)sole proprietorship.
B)corporation.
C)limited partnership.
D)joint venture.

Question 41

Todd and Jorge have considered starting their own business but are concerned about the possibility of losing their personal assets if the business fails.One way for both Todd and Jorge to avoid this risk would be to organize their firm as a:

A)sole proprietorship.
B)general partnership.
C)limited partnership.
D)corporation.

Question 42

One of the major disadvantages of a sole proprietorship is the:

A)unlimited liability the owner has for the debts of the firm.
B)possibility of disagreements between owners.
C)fact that any income earned by this type of business is taxed twice.
D)high cost of starting or ending the company.

Question 43

Which of the following statements about partnerships is the most accurate?

A)A partnership is simply a corporation with fewer than 100 owners.
B)Partnerships are taxed at the lowest corporate tax rate.
C)A major drawback of a partnership is that it is difficult to terminate.
D)A major advantage of a partnership is that it offers owners limited liability.

Question 44

Dr.Driller is a dentist who is interested in incorporating as an individual.If he attempts to do so,Dr.Driller is likely to find that:

A)he may actually save on taxes.
B)his business will be owned by a large number of stockholders with whom he must share his income.
C)the procedures for an individual to incorporate are extremely complex.
D)most provinces do not allow individuals to incorporate.

Question 45

An owner of a corporation is known as a:

A)limited partner.
B)shareholder.
C)director.
D)general partner.

Question 46

Rhonda has agreed to invest $16,000 in a partnership with her sister and brother-in-law.Rhonda does not plan to work in the partnership,nor does she wish to risk any of her own wealth other than the $16,000 she invests,but she does intend to share in any profits earned by the partnership.Evidently,Rhonda will be a:

A)preferred stockholder.
B)secondary partner.
C)limited partner.
D)restricted partner.

Question 47

Compared to partnerships and sole proprietorships,a major advantage of a public corporation as a form of business ownership is that it:

A)qualifies for simplified tax treatment.
B)is easier and less expensive to form.
C)creates unlimited liability of owners.
D)has the ability to raise more money.

Question 48

Which form of business ownership has no risks?

A)corporations
B)sole proprietorships
C)co-operatives
D)all forms have risks

Question 49

When comparing partnerships to sole proprietorships,an advantage of partnerships is that they:

A)cost less to organize.
B)limited liability for the general partner.
C)are easier to terminate.
D)give the firm a stronger financial foundation.

Question 50

A difference between partnerships and sole proprietorships is that partnerships:

A)are managed by an elected board of directors.
B)have the advantage of limited liability.
C)have a greater chance of long term survival.
D)are easier to form.

Question 51

People who form co-operatives:

A)believe the government should play a larger role in the economy.
B)want to find a way to supply basic necessities free of charge to everyone.
C)dislike the notion of having owners,managers,and customers as separate individuals with separate goals.
D)see competitive behaviour as the key to ensuring rapid economic growth.

Question 52

In a limited liability partnership,each partner's risk of losing personal assets is:

A)nonexistent.
B)determined entirely by the maximum loss provision established by the articles of co-partnership.
C)limited to losses that result from their own acts and omissions and the acts and omissions of those who work under their supervision.
D)limited to the amount that partner invested in the company.

Question 53

In a partnership,a(n)partner is an owner who is active in managing the company and has unlimited liability for claims against the firm.

A)unlimited
B)general
C)limited
D)associate

Question 54

A is the share of profits or percentage of sales a franchisee pays to a franchisor.

A)royalty
B)dividend
C)co-pay
D)premium

Question 55

To many business people,one of the major attractions of a sole proprietorship is:

A)the ability to obtain additional financial resources.
B)an unlimited lifespan.
C)the protection of limited liability.
D)the chance to be their own boss.

Question 56

Any debts or damages incurred by a firm organized as a sole proprietorship are:

A)limited to the amount the owner has invested in the firm.
B)the sole responsibility of the owner.
C)normally covered by liability insurance.
D)paid for out of a reserve contingency fund that sole proprietors are required by law to set up.

Question 57

Marie recently purchased 100 shares of stock in the McBun Development Corporation.Marie has become a(n)of McBun Development.

A)manager
B)partner
C)creditor
D)owner

Question 58

Dev is an owner (partner)who has unlimited liability and is active in managing a law firm.Dev is an example of a:

A)silent partner.
B)general partner.
C)limited partner.
D)none of the above.

Question 59

Which of the following statements is true about franchisors and franchisee-sponsored web sites?

A)few brick-and-mortar franchises have expanded their business online.
B)franchisees can do as they please on their own web sites.
C)franchisee web sales can hurt the franchisor financially.
D)many franchisors prohibit them.

Question 60

Daggie's Sandwiches,Inc. ,sells the rights to use its name and sell its sandwiches in a given market area to aspiring business people who are willing to pay agreed upon fees and meet certain contractual terms.Daggie's:

A)creates private subsidiary companies.
B)is offering investors the opportunity to form limited partnerships.
C)is a franchisor.
D)offers a tax-free investment potential.

Question 61

The is the most common form of business ownership.

A)partnership
B)sole proprietorship
C)corporation
D)joint venture

Question 62

The group farthest removed from the daily operations of a corporation are:

A)managers
B)officers
C)directors
D)owners

Question 63

Global franchising offers:

A)few opportunities for Canadian investors.
B)American firms the opportunity to market goods overseas without any need to adjust for cultural differences.
C)opportunities for both large and small franchises.
D)opportunities for the largest franchise systems,but not small ones.

Question 64

Jamie and Maria invested all their savings in a small pizzeria they opened outside the University of Western Ontario.They operated the business as a general partnership.After 11 months the business went broke and Jamie and Maria were left with outstanding bills of $37,500,which is more than their investment in the company.Jamie and Maria can:

A)lose only the funds they originally invested in their company.
B)lose their personal assets as the result of their company's financial problems.
C)lose only the total value of the assets actually used to operate the business.
D)avoid any liability for these debts since a partnership is considered to be a business entity that is separate and distinct from the partners who own it.

Question 65

Martyn is a limited partner in Gettout & Associates.Mary Gettout,one of the senior general partners in the company,must temporarily leave the company to attend to some personal matters.Mary has asked Martyn to temporarily perform her managerial duties while she is gone.As a limited partner,Martyn:

A)can make managerial decisions as long as they do not involve the payment of money.
B)can fill in as a manager whenever necessary,as long as it is for only a limited time.
C)can manage the firm as long as he gets approval from the company's other general partners.
D)cannot participate in the management of the partnership.

Question 66

One disadvantage of is the initial cost of starting this form of business organization.

A)limited partnerships
B)general partnerships
C)corporations
D)sole proprietorships

Question 67

Ted and Mark have been partners in a dry cleaning business for the past three years.They would like their brother Todd to join them.Unfortunately,partnership law states that only two partners can participate in a partnership.

Question 68

Ellen has just been granted a franchise from Tim Horton's.The new business will be set up as a:

A)sole proprietorship
B)corporation
C)partnership
D)any form of business she chooses

Question 69

Which of the following operations is not an example of a franchise?

A)Quiznos Sub
B)Swiss Chalet
C)Home Hardware
D)Loblaws

Question 70

In a co-operative,members/customers:

A)each have unlimited liability for the debts of the firm.
B)take turns serving on the board that manages the company.
C)democratically control their businesses using the one member/one vote system.
D)are known as limited partners.

Question 71

Ram is a stockholder in Endrun Investments,which is organized as a corporation.Endrun recently lost a major court decision and will probably be forced into bankruptcy.In fact,the damages awarded are so great that,even if all of its assets are sold and the proceeds are used to pay its debts,Endrun is likely to still owe money to its creditors.If Endrun does go bankrupt,Ram and the other stockholders will:

A)be entitled to full reimbursement of any investment losses.
B)be personally responsible for all remaining debts.
C)automatically qualify for federal reimbursement for any losses suffered by the firm.
D)lose their investment but nothing else.

Question 72

Once a business is established,it's almost impossible to change from one form of business ownership to another.

Question 73

One reason franchises have become so popular is that this arrangement provides the franchisee with:

A)limited liability.
B)the right to retain all profits earned by their franchise.
C)a low cost way to start a business.
D)a nationally recognized name and product.

Question 74

An evaluation of franchising would conclude that this type of arrangement:

A)has little chance of success outside the United States because many foreign countries do not allow such arrangements.
B)has become the dominant form of business organization in Canada because it has many advantages and almost no disadvantages.
C)appeals to people who want to own a business,but are not comfortable starting a company from scratch.
D)has a much higher risk of failure than independent companies.

Question 75

In a typical franchise agreement,the franchisor pays the franchisee a fee to manage its company,and the two of them split the profits based on the percentages established in the agreement.

Question 76

Home-based franchisees feel less isolated than who?

A)home-based entrepreneurs
B)managers
C)owners
D)customers

Question 77

The most popular international target for Canadian-based franchises is:

A)The United States
B)China
C)India
D)The European Common Market

Question 78

Which of the following is an advantage of a sole proprietorship?

A)longer survival
B)no special taxes
C)limited growth
D)unlimited liability

Question 79

Co-operatives differ from other businesses in several ways except:

A)allocation of profits
B)purpose
C)control structure
D)having a long history and proven track record

Question 80

Which of the following statements about co-operatives is most accurate?

A)has become a major force in Canadian agriculture and housing.
B)there are about 500 co-operatives in Canada.
C)are found in few sectors of the economy.
D)provide products and services to about 1 million Canadians.