Deck 8: The Organizational Plan: Teams, Legal Structures, Alliances, and Directors

Question 1

The management team of a small business should focus on competent insiders as opposed to outside specialists.

Answer 1

False

Question 2

Typically strategic alliances are harder to set up than to maintain.

Answer 2

False

Question 3

A partnership reports the income it earns to the Internal Revenue Service, but the partnership itself does not pay any taxes.

Answer 3

True

Question 4

A management team is often stronger than an individual entrepreneur because it provides a diversity of skills and assurance of continuity.

Question 5

A partnership agreement states explicitly the rights and duties of partners with each party assuming joint and several liability.

Question 6

A non-profit organisation can be for civic, educational, charitable, or religious purposes and must pass the organisational test of not making a profit.

Question 7

Partners must contribute capital or assets to form a partnership.

Question 8

Effective leadership is more important for prospective managerial personnel than for investors.

Question 9

The sole proprietorship is a business owned by two or more people but operated by only one person.

Question 10

Sometimes small business board members are given company shares in lieu of compensation.

Question 11

The concept of balance on the management team means that the entrepreneur should not be wrapped up too much in one area, such as sales or production, but be well rounded.

Question 12

Creating a partnership allows a business to pool the managerial talents and capital of those individuals joining together as partners.

Question 13

An ownership interest does not automatically confer a right to act for, or to share in, the management of a company.

Question 14

For the best success, strategic alliance partners should sign contracts with stated expectations and an "easy out" clause.

Question 15

The board of directors is elected by the shareholders of a company.

Question 16

There are no limits on the owner's personal liability in a sole proprietorship.

Question 17

The liability of owners is greater with a sole proprietorship than with a general partnership.

Question 18

Partners always share profits and losses equally.

Question 19

Sole proprietors often benefit from fringe benefits such as tax-free insurance plans.

Question 20

An advisory board functions like a board of directors does, except that the members are compensated for their services and the company must have Directors and Officers Liability insurance.

Question 21

Start-up owners may increase their chances for success by seeking _____ over a management team with family and friends.

A)a good CPA
B)an outstanding law firm
C)members with a balance of expertise
D)a business consultant team

Question 22

Among the advantages of hiring family for leadership positions in a new company is the fact that:

A)government wage and hour laws do not apply to family members.
B)the owner does not have to provide fringe benefits for them.
C)they will often work for less compensation than non-family candidates.
D)they share liability in the event of a business failure.

Question 23

A key characteristic of a partnership is that each partner:

A)must contribute capital to the business.
B)shares in company assets upon the dissolution of the partnership.
C)is capable of legally contracting.
D)must manage the business.

Question 24

Max chose to operate his production studio as a sole proprietorship even though his attorney cautioned that he was:

A)reducing its overall profit potential.
B)increasing his taxable income.
C)exposing himself to unlimited personal liability.
D)violating an existing partnership agreement.

Question 25

Robbie's financial advisor referred a customer to Robbie's new business.Under the concept of ___________, Robbie is now obligated to return the favour.

A)reciprocation
B)social capital
C)social networking
D)unlimited liability

Question 26

Unlimited liability for business debts is imposed on:

A)shareholders in a company.
B)sole proprietors.
C)limited partners.

Question 27

Any person capable of ____ may legally become a business partner.

A)assenting to liability
B)contracting
C)contributing capital
D)having a claim on assets

Question 28

As it relates to new businesses, one function of a social network is to:

A)promote the enterprise during conversations with potential rivals.
B)provide a pool of candidates for leadership positions.
C)assure a steady flow of applicants for production positions.
D)connect the enterprise to a web of contacts that provides access to a wide range of resources.

Question 29

Webster is reviewing resumes looking for candidates for leadership positions in his very young company.Webster is putting together his:

A)business plan.
B)advisory board.
C)board of directors.
D)management team.

Question 30

Vincenzo is the sole owner and manager of a start-up company.As the business grows, he finds it more difficult to fulfil the needs of all the management positions.Although he is the creative genius behind the company, he lacks experience in other areas.At this point, Vincenzo should:

A)seek the advice of an investment banker.
B)hire a management team with expertise in complementary areas.
C)encourage his advisors to take an active role in managing the company.
D)form an alliance with another start-up company.

Question 31

The key to strong management in a new business is:

A)balance, with each member having competence in at least one area.
B)financial competence of the chief executive.
C)a strong marketing manager who understands financial statements.
D)close friendship among all members of the team.

Question 32

Reciprocation is:

A)responding to competitor's marketing efforts.
B)a sense of obligation to repay what has been done for you.
C)not important when building social capital.
D)only important once you have established your business.

Question 33

Sam does not want to share the fruits of his labour with anyone.It is important to him that he has total control over his new business.Which form of ownership would you recommend for Sam?

A)Partnership
B)Sole proprietorship
C)Company
D)Limited liability partnership

Question 34

Millie has a sole proprietorship that is her only source of income.What legal action should she take to prevent the business from being ruined if she becomes incapacitated?

A)Give someone who is competent power of attorney to continue the business.
B)State in her will what she would like to do with the company.
C)Find a partner and change the legal organisation of the company.
D)Tell her heirs to sell as she cannot prevent ruin with a sole proprietorship.

Question 35

What legal form has the smallest percentage of new businesses?

A)Sole proprietorship
B)Partnership
C)company

Question 36

An entrepreneur can best build social capital by:

A)joining several social networking sites.
B)building contacts through community organisations.
C)letting others know when the company has done something well.
D)using reciprocation.

Question 37

Trevor is in his early 60s but still wants to "strike out on his own" by starting a new business.One roadblock he may face is:

A)resistance from creditors to lend money for the enterprise.
B)resistance from his heirs about the distribution of assets at his death.
C)resistance from customers who fear he may become ill and unable to fulfil their orders.
D)resistance from the government regarding his tax identification number.

Question 38

By utilising the experience of a board of directors, the chief executive of a small company may have to relinquish active control of its operations.

Question 39

After working together for a few months, disputes begin to arise between two of the young company's leaders.Their differences seem to be irreconcilable.The owner's best action is to:

A)let one or both of the individuals go.
B)call in an arbitrator.
C)sell the business.
D)form a strategic alliance with a larger company.

Question 40

Which group best defines a partnership?

A)A business owned and operated by one person who hires part time employees.
B)A voluntary association of two persons to have a business for profit.
C)The governing body for a company.
D)A group of three persons in which each person has limited personal liability.

Question 41

Which legal form allows owners to contribute no capital but still play a part in managing the business and share in its profits?

A)company
B)Partnership
C)Sole proprietorship

Question 42

As she considered becoming a partner in a new business venture, Valerie asked her potential partner about a(n) ___________ in the event that the partnership did not work out as expected.

A)liquidation plan
B)equity split
C)exit strategy
D)asset distribution plan

Question 43

A basic legal principle involving shareholders is that:

A)an ownership interest in a company does not confer a legal right to manage the business.
B)the board of directors cannot elect the principal owner as CEO.
C)all dividends are non-taxable.
D)shareholders cannot buy new shares until it is offered for public sale.

Question 44

Ownership in a company:

A)is difficult to transfer.
B)is more easily transferable than ownership in other forms of organisation.
C)is transferred in much the same way as shares in a partnership.
D)noticeably affects the operation of the business.

Question 45

A corporate charter should:

A)be detailed.
B)be in accord with state law.
C)include bylaws.
D)indicate profit potential.

Question 46

Don has purchased shares in a new company.As proof of ownership, Don will receive:

A)a dividend.
B)a shares certificate.
C)a corporate charter.
D)a pre-emptive right.

Question 47

Caleb is creating the document that specifies the size of the board, the duties of the directors, voting rights, etc.This document is known as:

A)the corporate bylaws.
B)the partnership agreement.
C)the employment contract.
D)the shares certificate.

Question 48

To maintain status as a company, the company must:

A)reapply for a charter annually.
B)hold annual meetings of both the shareholders and the board of directors.
C)properly declare annual dividends.

Question 49

Which entity is liable for a company's debts?

A)Shareholders.
B)Board of directors.
C)The company itself.
D)The company's CEO.

Question 50

Shareholders have limited liability unless they:

A)are active in the management of the company.
B)personally endorse company notes.
C)own preferred shares.
D)convert their shares to partnership status.

Question 51

A corporate charter should be:

A)very detailed.
B)prepared by the founder.
C)broad in the statement of the business's power.
D)lengthy and precise.

Question 52

If partners cannot resolve disputes between themselves they may be wise to hire a(n):

A)business mediator.
B)arbitrator.
C)business judge.
D)business attorney.

Question 53

Abby, Adam, and Arnold are partners.They have planned to continue the partnership even after the death of any one partner.To this end, the partners have:

A)stipulated in their wills that their share of the partnership is bequeathed to the other two partners.
B)purchased life insurance policies naming the other two partners as beneficiaries.
C)created trust funds that can be used to pay off the heirs of the deceased partner.
D)secretly signed documents to be opened only after the death that the deceased partner relinquishes all claims to the partnership.

Question 54

Zenzo, Zella and Zinzi wish to form a partnership.Zenzo is putting up 60% of the capital; Zella is putting up 40%, and Zinzi is putting in no capital but will manage the business.In the absence of a provision in the partnership agreement, how will the liability and profits be distributed?

A)According to the input of capital.
B)According to the amount of work each does in the business.
C)Equally.
D)According to the laws of the state where the partnership is formed.

Question 55

Which organisational type results in the business owner having unlimited liability?

A)Sole proprietorship
B)LLC
C)Limited partnership
D)Company

Question 56

Upton was surprised to find his partner had signed an agreement to sell products to a customer at below cost.He tried to cancel the contract but found out that:

A)partners have legal power of attorney to do as they please.
B)each partner is in essence a sole proprietor.
C)partners are seldom trustworthy.
D)any partner can legally bind the company without the consent of any other partner.

Question 57

The right to buy new shares of stock in proportion to shares already owned is called a:

A)stock right.
B)shares option.
C)Section 1244 right.
D)pre-emptive right.

Question 58

Because the company is a legal entity, one of its responsibilities is to:

A)have its accounting records audited.
B)sell shares.
C)pay dividends.
D)file annual tax returns.

Question 59

A typical common shareholder of a company:

A)has the right to act for the business.
B)has the right to receive declared dividends.
C)can always buy new shares in proportion to shares already owned.
D)can fire employees of the company.

Question 60

Upon the death of the majority shareholder in a company, direct control may pass to:

A)an heir's dependants.
B)an executor.
C)the founder of the business.
D)employees as directed by an employee share ownership plan.

Question 61

For a small business, which step will increase the chance for success of a strategic alliance?

A)Be protective of any proprietary materials shared with the other company.
B)Discuss the proposed alliance in enough detail that limited adjustments are needed after beginning the alliance.
C)Make sure the alliance is clearly a "win-win" opportunity.
D)All of these steps will increase success.

Question 62

One benefit of a public company that it allows shareholders to receive dividends without:

A)paying taxes.
B)penalties and interest.
C)double taxation.
D)partnership taxation.

Question 63

Collin's Classic for Children with Cancer is a non-profit organisation that sells shirts.The organisation will be taxed as a ____________.

A)partnership
B)company
C)It is not taxed.

Question 64

Which organisational form would be best if the new company owners intend to provide extensive fringe benefits for owners or employees that would not be treated as taxable income to employees?

A)Sole proprietorship.
B)Partnership.
C)Company
D)Limited liability company.

Question 65

The limited liability company form of organisation

A)avoids double taxation.
B)affords less protection from liability than partnerships.
C)is a poor choice for new businesses.
D)can offer share incentives to employees.

Question 66

Emily has very little money with which to start her business so she wants to keep the cost of forming her company as low as possible.Which form of ownership would you recommend for Emily?

A)Sole proprietorship
B)Partnership
C)company
D)

Question 67

The strategic alliance between The Centre for Systems Management and Technovative Marketing is an example of how:

A)success can be obtained when a large and a small business combine technological expertise.
B)difficulties of two cultures can be overcome when a common goal is desired.
C)an alliance was formed due to a third party bringing two companies together.
D)the flexibility of a small company can be combined with the financial backing of a larger business.

Question 68

Anna makes delicious baked goods but has no retail space.She has contracted with a local grocer to sell her wares in the grocery store.This arrangement is known as a(n):

A)professional company.
B)joint venture.
C)strategic alliance.
D)partnership.

Question 69

The two dimensions of management control of a small company usually involve which individuals?

A)Shareholders owning the majority of the voting common shares.
B)Corporate officers in conducting daily operations.
C)Both shareholders and corporate officers.
D)Neither the shareholders nor the corporate officers.

Question 70

Frank would like to avoid personal financial loss if his business idea does not work.Which form of ownership would you suggest?

A)Sole proprietorship
B)Partnership
C)Company

Question 71

Large manufacturers have been known to form strategic alliances with small manufacturers in order to benefit from the smaller businesses:

A)financial resources.
B)operational expertise.
C)research.
D)product development efforts.

Question 72

Glory, an employee of a company, caused a traffic accident while on company business.Who will pay for the damages?

A)The shareholders.
B)The board of directors.
C)The founder.
D)The company.

Question 73

A strategic alliance is:

A)an organisational relationship that links two separate businesses.
B)an unimportant organisational form in today's business environment.
C)an attempt to duplicate efforts between two businesses.
D)a strategy that, as a result of its unwieldy nature, is falling from practice.

Question 74

Angela has asked 110 of her closest friends to invest in her company, promising them protection from personal liability.Which form of ownership would you recommend Angela use?

A)Partnership.
B)Non-profit organisation.
C)Private company.
D)Limited liability company.

Question 75

In a limited partnership, which partner remains bound by all debts of the business?

A)Limited partner.
B)Special partner.
C)Partner with the greatest capital investment.
D)General partner.

Question 76

Lauren, a partner in J & J Company, manages its day-to-day operations.She is considered to be a _____ partner.

A)directing
B)general
C)limited
D)operating

Question 77

Jane and Roy have a partnership with their company of JR Enterprises.Which statements reflect how the partnership pays taxes?

A)JR Enterprises does not pay any taxes.
B)JR Enterprises pays taxes only as a partnership.
C)Jane and Roy each pay taxes on the total income.
D)Jane and Roy do not pay taxes since they are married.

Question 78

Ralph formed a company as a fund manager.He accepted money from his customers, promising to invest it and build cash value for them.Instead, he kept the money for himself to enjoy a lavish lifestyle.The court removed liability protection from his corporate entity because the incorporation had been used to perpetuate fraud.This is an example of:

A)piercing the corporate veil.
B)unlimited liability.
C)reciprocation.
D)a pre-emptive right.

Question 79

Harvey would like to support his friend's new business financially but also wants to protect his assets in case the business fails.Which form of ownership would you recommend?

A)Sole proprietorship.
B)Partnership
C)Limited partnership.
D)Company.

Question 80

A risk for a small business creating a strategic alliance with a larger company is:

A)not being able to keep up with the fast speed of a large company.
B)not having enough creative talent to join forces effectively.
C)being squeezed financially.
D)being too rigid for a large company's standards.