Deck 6: Setting up the Company

Question 1

Unfortunately, with the way the laws are written, the sole owner does not have the right to make all the decisions for the business.

Answer 1

False

Question 2

One of the most attractive features of sole proprietorships is how fast and simple it is to begin operations.

Answer 2

True

Question 3

In choosing a form of ownership, entrepreneurs must remember that there is no single "best" form.

Answer 3

True

Question 4

The greatest advantage of a sole proprietorship is unlimited personal liability.

Question 5

When a corporation is founded, it does not have to accept the regulations and restrictions of the state in which it is incorporated and of each state in which it does business.

Question 6

When a corporation is established, its equity is divided among a number of shares of stock that are issued to the investors in proportion to their investment in the corporation.

Question 7

The CEO selects the board and the CEO has the power to remove board members.

Question 8

The total number of issued shares outstanding in a company is most often shown in the annual report.

Question 9

A disadvantage of a limited liability company is that the owners do not assume liabilities for debt.

Question 10

An advantage of becoming an S corporation is that the business does not need to pay corporate income tax.

Question 11

A disadvantage of an S corporation is unlimited personal liability, very similar to the liability in a sole proprietorship.

Question 12

When choosing an attorney, an entrepreneur should select one who is able to assist in formatting the business, filing necessary documents with governmental authorities, and preparing employment contracts.

Question 13

Before launching a business, an entrepreneur should register the company with local taxing authorities.

Question 14

A(n) ________ is a form of business in which a single owner does business himself or herself and requires only a business license to open.

Question 15

_________ value is an archaic concept of monetary value that is still applied to each share of stock.

Question 16

Annual state _________ are usually based on the number of shares of authorized stock and on whether the stock has a par value.

Question 17

____________ are the stock that a company sold to investors to generate capital.

Question 18

The _____________ is a corporation that elects under federal and state tax laws to be taxed like a partnership.

Question 19

A(n) _________ is usually defined as an association of two or more people carrying on as co-owners of a business for profit.

Question 20

A(n) ________ partnership must have at least one general partner so at least one person or entity's personal assets must be at stake.

Question 21

A(n) ________ is a blend of some of the best characteristics of corporations, partnerships, and sole proprietorships.

Question 22

A limited liability company is formed by filing a(n) _______________ form with a secretary of state and signing an LLO Operating Agreement.

Question 23

All of the following are advantages of a sole proprietorship except:

A) Profit Incentive
B) Easy to Discontinue
C) Total Decision-Making Authority
D) Unlimited Personal Liability

Question 24

All of the following are disadvantages of sole proprietorship except:

A) Limited Skills
B) Limited Access to Capital
C) No Special Legal Restrictions
D) Lack of Continuity for the Business

Question 25

A "C" corporation need not have:

A) stockholders
B) a board of directors
C) external investors.
D) officers.

Question 26

Who has the ultimate power and control of every corporation?

A) Officers
B) Board of directors
C) Stockholders
D) Sole proprietors

Question 27

Who establishes the general policies of the company, and to a greater or lesser extent depending on the particular corporation, can become involves in various details of the operating procedures?

A) Employees
B) Board of directors
C) Stockholders
D) Government

Question 28

The functions of each officer are defined by:

A) Board of directors
B) Stockholders
C) Officers themselves
D) Government

Question 29

Who is in charge of day-to-day operations under the directives of the board of directors?

A) Stockholders
B) The President
C) An Attorney
D) Employees

Question 30

If you are not a resident of Delaware, you must have an agent who is in the state empowered to accept service in the event the corporation is sued. What is the next step after selecting a local agent?

A) Select the corporate name
B) Prepare the Certificate of Incorporation
C) Hire employees
D) Get a building

Question 31

Which type of stock is the most common/usual?

A) Preferred Stock
B) Par Value
C) No-Par-Value Stock
D) Private Stock

Question 32

All of the following are disadvantage of a C-corporation except:

A) Double Taxation
B) Cost and Time Involved in the Incorporation Process
C) Transferable Ownership
D) High Administration Compliance Costs

Question 33

To become an S-corporation, all of the following must occur except:

A) Only two classes of stock are allowed.
B) Shareholders cannot be nonresident aliens.
C) The company must be a domestic company.
D) Only individuals and certain trusts may own stock.

Question 34

All of the following are disadvantages of S-corporations except:

A) Investors cannot receive preferred shares.
B) Qualification requirements necessitate administrative and cost burdens.
C) Not eligible for qualified employee stock options.
D) Owners pay all taxes.

Question 35

What type of partnership has unlimited liability?

A) Limited
B) General
C) Complementary
D) Personal

Question 36

All of the following are advantages of a partnership except:

A) Division of Profits
B) Larger Pool of Capital
C) Capital Accumulation
D) Easy to Establish

Question 37

All of the following are disadvantages of a partnership except:

A) Potential for Personality and Authority Conflicts
B) Unlimited Liability
C) Restrictions of Elimination for the General Partnership
D) Division of Profits

Question 38

All of the following are advantages of a limited liability company except:

A) They may offer different classes of membership.
B) There are no restrictions on the number and types of owners.
C) Owners do not assume liabilities for debt.
D) Transferring ownership is restricted.

Question 39

In the first 30 days, a suggested business start-up checklist includes all but which one of the following?

A) Do a name search in location state to determine if the name is available on Clerks Commission web site.
B) Select an accountant
C) Obtain an Employer Identification Number (EIS) from IRS
D) Pay corporate franchise tax or annual state fees

Question 40

In the first 30 days of your new company you should:

A) Register your Internet domain name.
B) Select a lawyer.
C) File your first tax return.
D) Join the local entrepreneurs' network.

Question 41

When should you contact suppliers?

A) First 30 days
B) Sixty days
C) Between 3-6 months after opening
D) At the end of the year

Question 42

When should you establish a relationship with a bank in order to acquire a line of credit in the near term?

A) First 30 days
B) Sixty days
C) Between 30-60 days
D) At the end of the year

Question 43

Which of the following insurance coverages should be considered, although not required, as soon as you start you company?

A) Fire
B) Employee health and life
C) Business interruption
D) All the above

Question 44

Which of the rows in the following table is the correct combination of characteristics for C-Corps; S-Corps LLCs; and Partnerships?
$\begin{array}{|l|l|l|l|}\hline \text { Characteristic }&\text { C-Corp } & \text { S-Corp LLC } & \text { Partnership } \\\hline \text { a. Limited liability for all owners }& \text { Yes } & \text { Yes } & \text { Yes } \\\hline \text { b. Owners can participate in management }& \text { No } & \text { No } & \text { No } \\\text { without losing liability protection }\\\hline \text { c. Number of owners }&1 \text { or more } & 1-100 & 1 \text { or more } \\\hline \text { d. Easy to form and maintain without }&\text { Yes } & \text { No } & \text { No } \\\text { extensive records }\\\hline\end{array}$

A) a
B) b
C) c
D) d

Question 45

A skillful and capable entrepreneur who appreciates independence and control of operations would likely select which of the following forms of doing business?

A) S-Corp and LLC.
B) Partnership with up to 10 partners.
C) C-Corporation.
D) Sole proprietorship.

Question 46

Which of the following business could consider S-Corporation status?

A) A highly profitable personal service company with 125 shareholders.
B) A business with less than 5 stockholders which expects to distribute profits at the end of the year.
C) A business which has no more than two non-resident aliens as owners.
D) A service business with 10 shareholders located in NYC.