Deck 4: Choosing a Form of Business Ownership

Question 1

How would you go about incorporating a business? Describe the information contained in a corporate charter.

Answer 1

Answer not provided.

Question 2

Why would a partnership have more capital available to it than would a sole proprietorship?

Answer 2

Answer not provided.

Question 3

What is the difference between a joint venture and a syndicate?

Answer 3

Answer not provided.

Question 4

Describe the ownership, operation, and size of a sole proprietorship.

Question 5

Describe the advantages and disadvantages of the sole proprietorship form of ownership.

Question 6

Describe the advantages and disadvantages of a corporation.

Question 7

How do management tasks differ for a general partner and a limited partner?

Question 8

Describe the advantages and disadvantages of the partnership form of ownership.

Question 9

What does the board of directors manage? What do corporate officers manage?

Question 10

Why does the IRS allow some corporations to use the S-corporation form of ownership?

Question 11

What is an owner of a corporation called? What is the difference between a closed corporation and an open corporation?

Question 12

What does it mean when someone says that a corporation is an artificial person created by law? In your answer, describe some things that an artificial person and a real person, like you, could both do.

Question 13

Why is a sole proprietorship the most flexible type of business?

Question 14

Discuss some of the similarities between not-for-profit corporations and for-profit corporations. What are some of the primary differences?

Question 15

Why do farmers join cooperatives?

Question 16

Explain the differences among a domestic, a foreign, and an alien corporation.

Question 17

Why is the concept of unlimited liability a concern for the sole proprietor?

Question 18

What types of information should a partnership agreement contain?

Question 19

Compare and contrast common stock and preferred stock. Which would you rather own? Why?

Question 20

How does an S-corporation differ from a limited-liability company? Does either type of ownership appeal to you? Explain your answer.

Question 21

Assume that you are a corporate manager and that a corporate raider is trying to take over your company. What steps could you follow to avoid the takeover?

Question 22

A year ago, Kevin went to work for B&G, Inc. He has worked for the finance department ever since he started. He noticed that the corporation was only taxed as though it were a partnership. This was something that he found very odd when he first started working for the company, but he later realized it was a fairly common practice. He recognized that this was one of the advantages of this type of corporation.
While the job was challenging, Kevin was not happy. He wanted to work for a company whose main goal was to provide service to the community, not to make a profit. However, Kevin felt that, considering his present financial situation, he had to continue working for B&G, Inc. A week later, Kevin discovered there was going to be a merger between B&G, Inc. and one of its major competitors. Kevin's boss informed him that he would be getting a promotion and a raise. While he was excited about making more money, he still was not happy. He knew then that he would not be working for the company for long.
Refer to B&G, Inc. What type of organization was Kevin considering switching to?

A) Limited-liability corporation
B) Sole proprietorship
C) S-corporation
D) Not-for-profit corporation
E) Closed corporation

Question 23

Which form of business is the easiest to start?

A) Corporation
B) Partnership
C) Entrepreneurship
D) Sole proprietorship
E) S-corporation

Question 24

Samantha's Dilemma
Samantha graduated from college and needed to decide where she wanted to work. She had several options. Her aunt Julie owned and operated a small business that she started about twenty years ago. Julie, an individual owner of her business, informed Samantha that she could work for her. On one hand, Samantha thought it would be a great opportunity to be able to work for her aunt, learn the business, and then run the business when her aunt retired. On the other hand, she also felt that she wanted something a little more challenging; a job where she could really use her education. Her other option would be to work for a company that a friend and her husband had started and jointly owned. It was a rapidly growing company with plenty of opportunity for advancement. However, Samantha had some reservations about this choice because she was not sure she wanted to work for friends. Her last option was to work for a large retail company, headquartered in Maryland, which had stores across the United States.
After much consideration, Samantha decided she didn't want an opportunity and a job because someone knew her. She wanted to prove how motivated and hard-working she was. Once she weighed all the advantages and disadvantages of her different options, she decided to work for the large retail company so that she could gain the most experience for herself.
Refer to Samantha's Dilemma. Based on the information provided, what type of business does Samantha's aunt operate?

A) Incorporation
B) Partnership
C) Franchise
D) Corporation
E) Sole proprietorship

Question 25

Which of the following is necessary for starting a sole proprietorship?

A) A contract
B) An agreement
C) An application to the secretary of state
D) Articles of proprietorship
E) No specific legal documents

Question 26

Karen Howard loves to cook and receives unqualified praise whenever she prepares a meal for someone. Encouraged by these compliments and eager to put her culinary talents to good use, Karen decides to open a small neighborhood restaurant. Since she plans to maintain complete control of the business, she will most likely organize it as a

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

Question 27

The simplest form of business owned and operated by one person is called a(n)

A) franchise.
B) partnership.
C) S-corporation.
D) sole proprietorship.
E) syndicate.

Question 28

Local residents have always thought the small store on the corner of Locust and Congress was a partnership between John and Joe, two brothers from the neighborhood. But Joe is the real owner. This probably means that the store is a

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

Question 29

When compared to partnerships and corporations, sole proprietorships account for ____ percent of total sales.

A) 34
B) 16
C) 9
D) 4
E) 2

Question 30

A business can grow by expanding its current operations. It can also grow by completing a merger or acquisition. Which do you think is the best method for growing a company?

Question 31

A year ago, Kevin went to work for B&G, Inc. He has worked for the finance department ever since he started. He noticed that the corporation was only taxed as though it were a partnership. This was something that he found very odd when he first started working for the company, but he later realized it was a fairly common practice. He recognized that this was one of the advantages of this type of corporation.
While the job was challenging, Kevin was not happy. He wanted to work for a company whose main goal was to provide service to the community, not to make a profit. However, Kevin felt that, considering his present financial situation, he had to continue working for B&G, Inc. A week later, Kevin discovered there was going to be a merger between B&G, Inc. and one of its major competitors. Kevin's boss informed him that he would be getting a promotion and a raise. While he was excited about making more money, he still was not happy. He knew then that he would not be working for the company for long.
Refer to B&G, Inc. Which of these features does not belong to this type of corporation?

A) No double taxation
B) Management flexibility
C) Limited liability
D) Personal asset protection
E) Many Internal Revenue tax regulations

Question 32

A year ago, Kevin went to work for B&G, Inc. He has worked for the finance department ever since he started. He noticed that the corporation was only taxed as though it were a partnership. This was something that he found very odd when he first started working for the company, but he later realized it was a fairly common practice. He recognized that this was one of the advantages of this type of corporation.
While the job was challenging, Kevin was not happy. He wanted to work for a company whose main goal was to provide service to the community, not to make a profit. However, Kevin felt that, considering his present financial situation, he had to continue working for B&G, Inc. A week later, Kevin discovered there was going to be a merger between B&G, Inc. and one of its major competitors. Kevin's boss informed him that he would be getting a promotion and a raise. While he was excited about making more money, he still was not happy. He knew then that he would not be working for the company for long.
Refer to B&G, Inc. B&G, Inc. was going through a ____ merger.

A) vertical
B) horizontal
C) conglomerate
D) hostile
E) leveraged

Question 33

In your own words, explain the differences among a horizontal merger, a vertical merger, and a conglomerate merger.

Question 34

Samantha's Dilemma
Samantha graduated from college and needed to decide where she wanted to work. She had several options. Her aunt Julie owned and operated a small business that she started about twenty years ago. Julie, an individual owner of her business, informed Samantha that she could work for her. On one hand, Samantha thought it would be a great opportunity to be able to work for her aunt, learn the business, and then run the business when her aunt retired. On the other hand, she also felt that she wanted something a little more challenging; a job where she could really use her education. Her other option would be to work for a company that a friend and her husband had started and jointly owned. It was a rapidly growing company with plenty of opportunity for advancement. However, Samantha had some reservations about this choice because she was not sure she wanted to work for friends. Her last option was to work for a large retail company, headquartered in Maryland, which had stores across the United States.
After much consideration, Samantha decided she didn't want an opportunity and a job because someone knew her. She wanted to prove how motivated and hard-working she was. Once she weighed all the advantages and disadvantages of her different options, she decided to work for the large retail company so that she could gain the most experience for herself.
Refer to Samantha's Dilemma. What type of company does Samantha's friend operate?

A) Incorporation
B) Partnership
C) Franchise
D) Corporation
E) Sole proprietorship

Question 35

Samantha's Dilemma
Samantha graduated from college and needed to decide where she wanted to work. She had several options. Her aunt Julie owned and operated a small business that she started about twenty years ago. Julie, an individual owner of her business, informed Samantha that she could work for her. On one hand, Samantha thought it would be a great opportunity to be able to work for her aunt, learn the business, and then run the business when her aunt retired. On the other hand, she also felt that she wanted something a little more challenging; a job where she could really use her education. Her other option would be to work for a company that a friend and her husband had started and jointly owned. It was a rapidly growing company with plenty of opportunity for advancement. However, Samantha had some reservations about this choice because she was not sure she wanted to work for friends. Her last option was to work for a large retail company, headquartered in Maryland, which had stores across the United States.
After much consideration, Samantha decided she didn't want an opportunity and a job because someone knew her. She wanted to prove how motivated and hard-working she was. Once she weighed all the advantages and disadvantages of her different options, she decided to work for the large retail company so that she could gain the most experience for herself.
Refer to Samantha's Dilemma. What would not be an advantage of Samantha's aunt's business?

A) Pride of ownership
B) Retention of profits
C) No special taxes
D) Ability to be your own boss
E) Unlimited liability

Question 36

Samantha's Dilemma
Samantha graduated from college and needed to decide where she wanted to work. She had several options. Her aunt Julie owned and operated a small business that she started about twenty years ago. Julie, an individual owner of her business, informed Samantha that she could work for her. On one hand, Samantha thought it would be a great opportunity to be able to work for her aunt, learn the business, and then run the business when her aunt retired. On the other hand, she also felt that she wanted something a little more challenging; a job where she could really use her education. Her other option would be to work for a company that a friend and her husband had started and jointly owned. It was a rapidly growing company with plenty of opportunity for advancement. However, Samantha had some reservations about this choice because she was not sure she wanted to work for friends. Her last option was to work for a large retail company, headquartered in Maryland, which had stores across the United States.
After much consideration, Samantha decided she didn't want an opportunity and a job because someone knew her. She wanted to prove how motivated and hard-working she was. Once she weighed all the advantages and disadvantages of her different options, she decided to work for the large retail company so that she could gain the most experience for herself.
Refer to Samantha's Dilemma. If Samantha worked for the large retail company in Philadelphia, what type of corporation would that be?

A) Foreign
B) Alien
C) International
D) Domestic
E) Global

Question 37

In the United States, approximately 72 percent of all businesses are

A) corporations.
B) partnerships.
C) sole proprietorships.
D) joint ventures.
E) franchises.

Question 38

A year ago, Kevin went to work for B&G, Inc. He has worked for the finance department ever since he started. He noticed that the corporation was only taxed as though it were a partnership. This was something that he found very odd when he first started working for the company, but he later realized it was a fairly common practice. He recognized that this was one of the advantages of this type of corporation.
While the job was challenging, Kevin was not happy. He wanted to work for a company whose main goal was to provide service to the community, not to make a profit. However, Kevin felt that, considering his present financial situation, he had to continue working for B&G, Inc. A week later, Kevin discovered there was going to be a merger between B&G, Inc. and one of its major competitors. Kevin's boss informed him that he would be getting a promotion and a raise. While he was excited about making more money, he still was not happy. He knew then that he would not be working for the company for long.
Refer to B&G, Inc. What type of organization is B&G, Inc.?

A) Sole proprietorship
B) Limited-liability company
C) S-corporation
D) Not-for-profit corporation
E) Cooperative

Question 39

Glenn owns and operates a large hardware store in Missouri that employs about fifty people. He delegates some of the decision making to two managers, but he remains the only owner. Glenn's business is organized as a

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

Question 40

Describe the merger trends affecting American business.

Question 41

Ted's partnership agreement with two other men was a bit unsound. One of the problems the men were encountering was uneven productivity among the partners. The agreement required each partner to contribute to every aspect of the business to receive an equal portion of the profits. This agreement did not reflect the idea that

A) all partners need not be equal; that is, there are different types of partners. Some may be fully active in running the business, whereas others may have a more limited role.
B) limited partners are required to be active in day-to-day business operations.
C) customers and creditors of a limited partnership need not be protected.
D) the Uniform Partnership Act requires every general partnership to have at least one limited partner.
E) each partner must agree to contracts entered into on behalf of all the others.

Question 42

The major reason why businesses change from sole proprietorships to other forms of ownership is to

A) gain unlimited liability.
B) avoid unlimited liability.
C) avoid lack of continuity.
D) obtain help and eliminate the problem of too much to do in one day.
E) offer advancement opportunities for employees.

Question 43

Angela is tired of her boss as well as corporate America in general. She decides she would like to start a business where no one tells her what to do, and she can always make the decisions. The best form of business for Angela is a(n)

A) partnership.
B) limited partnership.
C) singleship.
D) sole proprietorship.
E) S-corporation.

Question 44

Darrell inherited a large amount of money from his uncle. Darrell wishes to start his own business, and his lawyers encourage him to make it a corporation. What disadvantage of a sole proprietorship are the lawyers trying to avoid?

A) Unlimited liability
B) Lack of management skills
C) Retention of all profits
D) Lack of money
E) Double taxation

Question 45

According to the text, which of the following statements is false?

A) The sole proprietor is often the sole manager.
B) Many sole proprietors cannot afford to hire the help they need.
C) Potential employees often feel there is no room for advancement in a sole proprietorship.
D) When compared to larger businesses, the lure of employee benefits is one reason why people go to work for sole proprietorships.
E) The sole proprietor often finds it hard to keep competent employees.

Question 46

The person who assumes full co-ownership of a partnership, including unlimited liability, is a

A) sole proprietor.
B) stockholder.
C) shareholder.
D) limited partner.
E) general partner.

Question 47

Thomas wants to make money, so he starts his own business as a sole proprietor. He likes this form of business because

A) he will get to keep all of the profits the business makes.
B) profit is guaranteed since he will be the only owner.
C) it will provide a steady income for him.
D) he has to split the profits with only one other person.
E) he has to pay small dividends to the other owners.

Question 48

Which of the following is not an advantage of a sole proprietorship?

A) It is easy to form and dissolve.
B) It has unlimited liability.
C) Profits are taxed as personal income.
D) There owner has the flexibility of being his or her own boss.
E) The owner keeps all profits.

Question 49

After Flora has gotten all the money she can from the bank and still cannot keep up with her fast-growing business, what is she most likely to do next if she wants her company to continue growing?

A) Obtain a partner or form a corporation to attract more money.
B) Hire more employees.
C) Turn away potential new customers.
D) Continue to plead with the bank for more money.
E) Hold a fundraising campaign.

Question 50

To close a sole proprietorship, the owner must

A) notify the secretary of state.
B) pay creditors.
C) publish an out-of-business statement in the newspaper.
D) have all licenses and permits revoked.
E) do none of the above.

Question 51

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

A) The owner has unlimited liability.
B) The business ceases to exist when the owner dies.
C) There is a limit to the amount one person can borrow.
D) Profits are taxed as individual income.
E) The owner enjoys lack of continuity.

Question 52

How might a sole proprietorship have a possible tax advantage?

A) It does not have to make tax payments until the end of the year.
B) It does not have to pay federal income taxes.
C) It does not have to charge sales tax on its merchandise.
D) It does not pay special state and federal taxes that corporations pay.
E) It is subject to a form of double taxation.

Question 53

A voluntary association of two or more people acting as co-owners of a business is known as a

A) partnership.
B) corporation.
C) sole proprietorship.
D) conglomerate.
E) syndicate.

Question 54

Unlimited liability means

A) there is no limit on the amount an owner can borrow.
B) creditors will absorb any loss from nonpayment of debt.
C) the business can borrow money for any type of purchase.
D) the owner is responsible for all business debts.
E) stockholders can borrow money from the business.

Question 55

Legally, a partnership must

A) have at least one limited partner.
B) have at least one general partner.
C) make all owners general partners.
D) not have any general partners.
E) designate a limited partner to be responsible for all debts of the partnership.

Question 56

Most partnerships have ____ partners.

A) two
B) three
C) four
D) five
E) more than five

Question 57

When the owner of a sole proprietorship dies, what becomes of the business?

A) The employees take over the business.
B) It ceases to exist unless the heirs take it over or sell it.
C) It is automatically auctioned to the highest bidder.
D) It ceases to exist, and no one may legally take it over.
E) It may continue existing but only under a new name.

Question 58

Stephen decides his business will begin staying open until 7 p.m. instead of 6 p.m. The next day, the shop stays open until 7 p.m. This environment of flexibility to quickly change is characteristic of what form of business organization?

A) Corporation
B) Partnership
C) S-corporation
D) Flexible partnership
E) Sole proprietorship

Question 59

Which of the following is not a disadvantage of sole proprietorships?

A) Unlimited liability
B) Lack of money
C) Double taxation
D) Lack of continuity
E) Limited management skills

Question 60

Laura wants to start a business, but she is unsure of the legal form best for her. Short of cash, she has decided to take the form that is the least expensive and most flexible in terms of decision making and implementation. Which would you recommend?

A) Joint venture
B) Partnership
C) Sole proprietorship
D) Cooperative
E) Corporation

Question 61

Lisa and John own a partnership that provides rental equipment for parties and special occasions. Which of the following is true about the way Lisa and John would handle company profits?

A) Automatically split the profits, with 50 percent for Lisa and 50 percent for John.
B) They would do nothing because partnerships require that profits remain in the business.
C) Divide the profits according to each person's investment in the business.
D) Distribute the profits according to the terms of the partnership agreement.
E) Split the profits according to how many hours each person worked.

Question 62

Kerry wants to start a business to sell handmade jewelry. She is very competent at making the jewelry and teaching others to make it, and she has saved a reasonable amount of money to start the business. Who of the following would make the best partner for Kerry?

A) Bailey, an artist with a real flair for new-aged jewelry design
B) Ashley, Kerry's best friend who is fun to hang out with and good at solving problems
C) Natalie, who has business experience with accounting, management, and marketing
D) Janette, who used to work at the jewelry counter at a department store
E) Darla, an engineer with industrial management experience but no money

Question 63

Mike Nettles approached Nathan Lang about becoming a partner in a firm that destroys environmental waste. While Mike would like to become a partner in the firm, he is concerned about his liability because he has recently inherited a lot of money. In this situation, Mike should become a

A) general partner with a majority ownership interest in the business.
B) general partner with a minority ownership interest in the business.
C) limited partner.
D) joint venturist.
E) sole proprietor.

Question 64

A business partnership that is owned and managed like a corporation but taxed like a partnership is called a(n)

A) limited partnership.
B) master limited partnership.
C) domestic partnership.
D) alien partnership.
E) limited-liability company.

Question 65

Daniel, Thomas, and Lucas are partners in a law firm under a typical partnership agreement in which each owns an equal share of the business. Thomas dies suddenly of a heart attack. What will most likely become of the partnership?

A) It will immediately cease to exist and Daniel and Lucas will have to find new jobs.
B) Thomas's share of the business will automatically be split between Daniel and Lucas.
C) Daniel and Lucas will be able to purchase Thomas's interest from his estate.
D) Daniel and Lucas will have to quickly find a new partner to take Thomas's place.
E) It will dissolve, and Daniel and Lucas will lose personal property to pay business debts.

Question 66

With regard to taxation of partnerships, which of the following statements is true?

A) Profits are taxed twice.
B) Each partner is taxed in the same way as a sole proprietor.
C) Taxes are paid on a partnership's profits, after which each partner pays taxes on his or her share of the profits.
D) A partnership is exempt from taxes.
E) The partnership is taxed as a separate entity.

Question 67

A ____ invests money in the business but has no management responsibility.

A) general partner
B) limited partner
C) sole proprietor
D) nominal partner
E) stockbroker

Question 68

Which of the following would least likely be stated in the articles of partnership?

A) Who will make the final decisions
B) How much each partner will invest
C) What the duties of each partner are
D) What products the company will sell
E) What will happen if a partner dies or wants to dissolve the partnership

Question 69

Keisha Cook and Donnie Blackman decide to go into business together. They start by writing an agreement listing and explaining the terms of the business they will both own, along with each of their responsibilities. Keisha and Donnie created a(n)

A) articles of partnership.
B) master limited partnership agreement.
C) licensing agreement.
D) corporate charter.
E) division of partnership agreement.

Question 70

Most master limited partnerships are in the areas of

A) natural energy and health care.
B) health care, the energy sector, and real estate.
C) health care, services, and food prep.
D) natural resources, energy, and real estate.
E) medical and dental care, natural resources, and health support services.

Question 71

With respect to combined business skills and knowledge, which of the following partnerships is best?

A) Joe, Louis, and Raul own a bakery. They are able bakers by trade. Each wants to spend all of his time baking items.
B) Carolyn, Melvin, and Cindy own a boutique. Carolyn has marketing expertise. Melvin has ten years' experience operating a successful small store, including hiring employees, handling inventory control, buying, and managing credit. Cindy is a CPA. Each has agreed to use his or her experience and expertise for the success of the business.
C) Mary and Robert, both young pharmacists, own a pharmacy. Neither has taken a business course, but they are willing to learn.
D) Carter and Renée own a video store. Renée is most experienced as a homemaker and mother. Carter has worked as an auto mechanic for ten years.
E) Vince and Linda own a vacuum cleaner store. Vince knows everything possible about store operations. Linda is wealthy and can provide investment capital.

Question 72

Wade Comer and Tom Busby decide to start a partnership and offer accounting services. Which of the following is the best way to start this partnership?

A) They should orally discuss how they want the partnership to work and who is responsible for certain areas.
B) They should determine the exact way the business should be run and have a witness listen to their oral discussion.
C) They should let a third party, such as a consultant or an attorney, draft whatever agreement the consultant or attorney thinks is appropriate.
D) They should carefully draft an articles of partnership together, outlining each partner's responsibilities and other important information.
E) With the help of an attorney, they should draft a partnership agreement that states each partner's duties and investments.

Question 73

The ____ is a legal document that lists and explains the terms of the partnership.

A) co-owners' agreement
B) charter
C) will
D) articles of partnership
E) formation contract

Question 74

All of the following are advantages of the partnership form of organization except

A) unlimited liability.
B) retention of profits.
C) combined skills and knowledge.
D) better access to capital and credit.
E) ease of start-up.

Question 75

All of the following are disadvantages that Sean should consider before entering a partnership agreement with his cousin except

A) lack of continuity.
B) effects of disagreements with his cousin.
C) the inability to get out the money he invests.
D) unlimited liability.
E) double taxation.

Question 76

Brian wants to start a business that provides canoe and kayak trips. He decides that it would be better to ask his brother Brad to become his partner because

A) one person could not possibly run this type of business.
B) Brian will receive all of the profits from the partnership.
C) together they will be able to get more capital and credit to start the business.
D) the business will pay less taxes than it would as a sole proprietorship.
E) there are generally fewer control issues in a partnership than in a sole proprietorship.

Question 77

Jack has been saving his excess funds for several years and has contemplated entering a partnership with a friend from college. Jack hesitates because he knows that it is ____ to invest money in a partnership and ____ to get the money back out.

A) difficult; difficult
B) easy; difficult
C) easy; impossible
D) easy; easy
E) difficult; easy

Question 78

The partner who can lose only what he or she has invested in a business is the

A) general partner.
B) sole proprietor.
C) manager.
D) employee.
E) limited partner.

Question 79

Quarrels among business associates have become common. The associates quarrel over what products the firm should sell, division of authority, selection of personnel, whether to bring family members into the business, whether to expand, and who is contributing most to the firm's success. Such feuding, which damages business relationships, occurs most frequently in what form of business?

A) Partnerships
B) Cooperatives
C) Corporations
D) Sole proprietorships
E) S-corporations

Question 80

As a limited partner in a construction business, Joe

A) has input only on major company decisions.
B) contributes only his time and not his money.
C) does not receive any portion of the profits.
D) only risks his initial investment.
E) cannot lose his investment in the partnership.