Deck 6: Forms of Business Ownership

Question 1

In a sole proprietor ownership,if business assets are not enough to pay business debts,then personal assets,such as the sole proprietor's house,personal investments,and retirement plans can be used to pay the debt.This is called ________.

A) unlimited liability
B) limited liability
C) non-liability
D) double taxation
E) sole liability

Answer 1

A

Question 2

Arthur is a truck driver who owns his own business.He has been on the road for several months,and the constant wear and tear on his truck results in the need for several major mechanical repairs.This generates a loss for his business.Which of the following reflects how this will affect Arthur's tax obligation?

A) Arthur's tax obligation will be increased.
B) Arthur's tax obligation will be reduced.
C) Arthur's tax obligation will not change at all.
D) Arthur will not be required to pay his tax obligation.
E) Arthur gets an automatic extension on paying his tax obligation

Answer 2

B

Question 3

Paula is thinking of making homemade perfumes and selling them to her relatives.She has not filed any legal documents to start her business.Paula would be operating as a(n)________.

A) S corporation
B) corporation
C) sole proprietor
D) limited liability company
E) unlimited partner

Answer 3

C

Question 4

In a partnership,the type of partner that is responsible for all claims against the company is called a(n)________.

A) investor
B) general partner
C) unlimited partner
D) limited partner
E) sole partner

Question 5

Dan is excited to start marketing and selling his new indoor practice hockey tarps and would like to start today.He already has several hockey associations waiting to make purchases.Dan's best option for starting his business quickly and hassle free is a(n)________.

A) S corporation
B) C corporation
C) general partnership
D) sole proprietorship
E) master limited partnership

Question 6

Which of the following parts of a partnership agreement spells out the policy regarding partners entering into key financial or contractual agreements?

A) addition of partners
B) departure of partners
C) responsibilities of partners
D) decision-making process
E) capital contributions

Question 7

Kris and Amy own a workout facility in which they are co-owners.Both take an active role in the management of the business and each accepts unlimited liability.Kris and Amy operate as a ________.

A) joint venture
B) general partnership
C) limited partnership
D) cooperative
E) dual proprietorship

Question 8

Unlimited liability with respect to business ownership means ________.

A) to have an obligation to pay all business debt
B) to have an obligation to pay only the money you invest in a business
C) to be liable for expenses incurred only by you, not your employees
D) to be liable for estimated business expenses only
E) to have an obligation to perform all the roles in the company

Question 9

All of the following are advantages of sole proprietorship EXCEPT ________.

A) single ownership
B) no separate tax form
C) ease of formation
D) limited liability
E) control and flexibility

Question 10

All of the following EXCEPT ________ would be an advantage to partnership.

A) pooled skills
B) increased financial resources
C) increased available time
D) unlimited liability
E) no separate tax return required

Question 11

A partner who invests money in a business but is not involved in the day-to-day operation and is only risking capital equal to what they have contributed is called a ________.

A) general partner
B) limited partner
C) partial partner
D) corporate investor
E) back-up partner

Question 12

One disadvantage of sole proprietorship is the ________.

A) possibility of disagreements between different owners
B) unlimited liability the owner has for the debts of the company
C) fact that any income earned by this type of business is taxed twice
D) cost of starting or ending the company is higher than other businesses
E) burden of all the required paperwork that must be filed

Question 13

The most significant difference between a partnership and a sole proprietor is the ________.

A) amount of liability of owners
B) taxation process used by owners
C) number of government forms required for establishment
D) number of people contributing resources
E) revenue potential

Question 14

Policies regarding all of the following points should be included in a partnership agreement EXCEPT ________.

A) division of stock
B) capital contribution
C) shares of profits or losses
D) decision-making process
E) departure of partners

Question 15

It's important for partners to spell out the details of their partnership arrangements in writing because ________.

A) the partnership is not a legally recognized business until the arrangement is in writing
B) a written agreement will help reduce misunderstandings and disagreements among the partners
C) putting the agreement in writing will limit the liability of each partner to a specified level
D) doing so will make it easier to convert the business to a corporation at a later date
E) the law requires these arrangements to be filed with state and federal authorities

Question 16

In a partnership,all profits and losses flow through each partner's ________.

A) tax returns
B) savings
C) liabilities
D) investments
E) mortgages

Question 17

A sole proprietor's income and expenses flow through ________.

A) shareholders' tax returns
B) individual partners' tax returns
C) his or her personal tax returns
D) corporate tax returns
E) chapter S tax returns

Question 18

Jaden and Noel are starting a computer repair business together.Jaden insists on outlining rules for the departure of partners in the partnership agreement,although Noel does not think it is necessary.Which of the following statements might Jaden use to explain his insistence to Noel?

A) Provisions to remove a partner's ownership interest are necessary so the business would not have to end.
B) Determining the allocation of profits to new, junior partners is important to eliminate future potential conflicts.
C) Responsibilities must be clearly delineated to avoid the possibility of one partner overstepping his or her bounds.
D) As the partnership matures and ages, defining how profits and losses will be distributed must be made.
E) In a partnership of two, where the possibility of a deadlock is likely, we should provide for a trusted associate to act as an acting third "partner" whose sole responsibility is to be the tiebreaker.

Question 19

Jenny and Rose are hairstylists that have decided to open their own salon by starting a general partnership.The first step to ensuring a successful partnership would be to ________.

A) guarantee that they each have 25 clients to bring into the partnership
B) submit the partnership formation fee to the state
C) draw up a partnership agreement
D) submit the limited liability forms before they see clients
E) arrange for the special tax filing considerations a partnership requires

Question 20

Lucia owns her own dog walking business and has several employees.She filed no legal paperwork and has no partners.Lucia's business is a(n)________.

A) limited liability company
B) corporation
C) sole proprietorship
D) separate legal entity
E) illegal endeavour

Question 21

Which of the following is the MOST compelling argument for incorporating a business?

A) to hire more employees
B) to avoid paying federal taxes
C) to protect the owners' personal assets
D) to complete minimal legal requirements
E) to avoid lots of paperwork

Question 22

Many new business owners prefer a limited liability structure because there are ________.

A) fewer corporate formalities
B) fewer lawsuits
C) typically higher profits than other forms of ownership
D) more informal agreements
E) limits on the number of members

Question 23

Which of the following is the limit of liability of a limited partner?

A) the amount of their investment
B) the amount of business capital
C) the amount of their shared profits
D) the amount of their personal assets
E) the amount of his/her share of the profits

Question 24

Traci and Sally have considered starting their own business but are concerned about the possibility of losing their personal assets if the business fails.One way for Traci and Sally to avoid this risk would be to organize their company as a ________.

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

Question 25

Management and ownership roles would most likely be separate in what type of business structure?

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

Question 26

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

A) A corporation is a separate entity and is legally formed under state laws.
B) A corporation automatically expires in 99 years and must be renewed if a corporation wants to remain in business.
C) Owners of a corporation have unlimited liability for any claims against their company.
D) A corporation tends to be much easier to set up than a sole proprietorship or partnership.
E) All profits and losses flow through the corporation owners' personal tax returns.

Question 27

Nick is investing $25,000 in a partnership with his sister and brother.Nick does not want to be an active part of the partnership and can only afford to risk the $25,000 he is investing.His brother and sister agree to let him share a proportionate amount of the profits.Nick is a ________ in this partnership.

A) limited partner
B) junior partner
C) general partner
D) sole partner
E) unlimited partner

Question 28

Compared to the C corporation,the limited liability company is an attractive form of business ownership because ________.

A) a limited liability company may be more expensive to form but it has a longer life than a C corporation
B) a limited liability company allows only one owner, whereas a C corporation requires over 100 owners
C) a limited liability company provides owners with protection of their personal assets; whereas C corporation owner's personal assets are at risk
D) a limited liability company does not require the firm to hold annual meetings and it can avoid double taxation
E) a limited liability company issues stock, while in a C corporation each member's ownership is determined by the value of their capital account

Question 29

All of the following are advantages of forming a corporation EXCEPT ________.

A) extended life
B) capitalization
C) separated liability
D) ease of set up
E) an air of legitimacy

Question 30

Which of the following tasks is NOT the responsibility of the board of directors?

A) setting policies for the corporation
B) authorizing the issuance of stock
C) electing corporate officers
D) managing the company's daily operations
E) approving loans to and from the corporation

Question 31

Alex and Bailey opened a dance studio together as general partners.They each invested $10,000 of their personal savings.After one year in business,they decided to close the doors.Their partnership agreement said they would divide profits and losses 50/50.They have more debt than assets.Alex and Bailey will each ________.

A) lose only $10,000, the amount they invested since they agreed to share profits and losses 50/50
B) lose only $5,000, half the amount they invested, since they agreed to share profits and losses 50/50
C) collect the debt from their former customers since the customers accepted responsibility for the business when they purchased services
D) avoid any liability for the debt since a partnership is considered to be a separate entity from the partners who own it
E) lose personal assets to repay the debt since a partnership is not considered to be a separate entity from the partners who own it

Question 32

Which of the following is a benefit of forming a corporation?

A) Corporations can be double taxed.
B) Owners of a corporation are passive investors.
C) Owners of a corporation are subject to unlimited liability.
D) Corporations can offer stock options to employees.
E) There is little paperwork to file when forming a corporation.

Question 33

Which of the following statements about S corporations is MOST accurate?

A) S corporations enable owners to avoid the problem of double taxation.
B) S corporations can have an unlimited number of owners.
C) S corporations must have fewer than 5 employees.
D) S corporation are easier to set up than sole proprietorships and partnerships.
E) S corporations have unlimited liability.

Question 34

Which of the following types of ownership is limited to 100 owners?

A) C corporation
B) S corporation
C) sole proprietor
D) limited liability company
E) general partnership

Question 35

Leslie is excited to begin a personal shopping business.She is planning to have employees and is concerned about losing personal assets should something happen to the business.She would like to focus on profits and building a business but she does not want her business to pay its own taxes.What ownership structure is Leslie's best choice?

A) sole proprietor
B) C corporation
C) S corporation
D) cooperative
E) limited partnership

Question 36

Owners of limited liability companies are referred to as ________,while owners of corporations are called ________.

A) partners; shareholders
B) shareholders; partners
C) shareholders; members
D) members; shareholders
E) partners; members

Question 37

The Sarbanes-Oxley Act of 2002 was enacted to provide a new set of standards of accountability for ________.

A) corporate officers
B) board of directors
C) shareholders
D) business owners
E) limited liability partners

Question 38

In a large corporation,shareholders responsibilities include ________.

A) making major business and financing decisions
B) authorizing the issuance of stock
C) electing corporate officers
D) electing a board of directors
E) organizing annual meetings

Question 39

Which of the following is a disadvantage of forming a corporation?

A) unlimited liability of owners
B) difficult transfer of ownership
C) limited life
D) double taxation
E) less flexibility raising capital

Question 40

Ben recently purchased 100 shares of stock in Feger's Sports,Inc.Ben is a(n)________ of Feger's Sports,Inc.

A) owner
B) manager
C) director
D) partner
E) employee

Question 41

Which of the following methods do not-for-profit corporations primarily use to generate revenues?

A) withholding employees' salaries
B) scaling down big-budget projects
C) organizing fund-raising events
D) issuing shares of corporate stock
E) not providing employees with health insurance

Question 42

A merger involving a computer manufacturer and an electronics retailer that sells its computers would be an example of a ________.

A) vertical merger
B) horizontal merger
C) product extension merger
D) conglomeration
E) market extension merger

Question 43

A(n)________ acquisition occurs when one company tries to take control over another company against its wishes.

A) proxy
B) hostile
C) horizontal
D) extension
E) conglomeration

Question 44

A dance studio and a dancewear manufacturer decide to combine.This type of merger is called a ________.

A) vertical merger
B) horizontal merger
C) product extension merger
D) conglomeration
E) market extension merger

Question 45

When two companies in entirely different industries combine,it is known as a ________.

A) vertical merger
B) horizontal merger
C) product extension merger
D) conglomeration
E) market extension merger

Question 46

A(n)________ occurs when two companies of about the same size mutually agree to create a new combined company.

A) merger
B) acquisition
C) takeover
D) synergy
E) cooperative

Question 47

Mr.Gonzales wants to help fellow farmers in his community,but he is not interested in making a personal profit.His main goal is to join with other farmers so they can have better bargaining power when purchasing supplies.Which of the following business types will Mr.Gonzales MOST likely form?

A) general partnership
B) sole proprietorship
C) cooperative
D) not-for-profit corporation
E) C corporation

Question 48

Limited liability companies are unable to offer stock options or stock bonus incentives to their employees because ________.

A) benefits such as these are too costly for these types of start-up companies
B) extra profits are reinvested into the company, not into company stocks
C) limited liability companies do not have shareholders or stock
D) approval of stock benefits is difficult due to the number of members
E) LLC members are limited to just U.S. residents

Question 49

When a not-for-profit corporations dissolves,its assets are ________.

A) transferred to the federal government
B) distributed among major donors
C) passed to the owners' families
D) given to a similar not-for-profit group
E) seized by the state

Question 50

Lizzie is the CEO of a large corporation that offers accounting services to several companies.She has tried to acquire her closest rival,but her rival's management is opposed to the idea.In order to gain a competitive edge,Lizzie starts a campaign to persuade her rival company's shareholders to vote out its existing management in the hopes of replacing it with a management team more sympathetic to the goals of the acquiring company.Which method of acquiring a company is Lizzie using?

A) conglomeration
B) proxy fight
C) tender offer
D) synergistic value
E) cooperative takeover

Question 51

Becca and Bob own a car rental business.Becca contributes 75 percent of the capital but does only 20 percent of the work,while Bob contributes 25 percent of the capital but does 80 percent of the work.Both decide on a 50/50 allocation of profits.In which types of business structures would this arrangement be possible?

A) limited liabilities and partnerships
B) S corporations and partnerships
C) sole proprietorships and limited liabilities
D) S corporations and sole proprietorships
E) S corporations, limited liabilities, and partnerships

Question 52

At a meeting to announce a merger with another company,which of the following buzzwords is a business leader MOST likely to use to justify the decision?

A) accountability
B) bottom line
C) streamline
D) synergy
E) cooperative

Question 53

A proxy fight occurs when a company attempts to persuade the target company's shareholders to replace the existing management with one that is ________ the goals of the acquiring company.

A) unaware of
B) hostile toward
C) familiar with
D) sympathetic to
E) ambivalent about

Question 54

A cooperative is a type of business that is owned by ________ who use its products or services.

A) members
B) shareholders
C) directors
D) partners
E) outside investors

Question 55

The following are characteristics shared by both for-profit and not-for-profit corporations EXCEPT ________.

A) electing a board of directors to run the organization
B) offering employee fringe benefits
C) having limited liability protection
D) issuing shares of stock
E) holding board meetings

Question 56

Which of the following statements BEST describes the distinction between a not-for-profit corporation and a for-profit corporation?

A) Not-for-profits do not pay their employees.
B) Not-for-profits cannot be organized for any person's private gain.
C) Not-for-profits have to dissolve when the owner leaves or dies.
D) Not-for-profits cannot hire executive officers to run the business.
E) Not-for-profits do not need to keep complete books and records.

Question 57

Companies MOST often resort to mergers and acquisitions when they want to expand their markets and product lines because ________.

A) it minimizes conflicts that are rooted on hidden agendas and power struggles
B) it minimizes time and investment to research and develop new products
C) upper management prefers to concentrate on day-to-day activities
D) employees are motivated to work harder because of the resulting stability
E) more than 70 percent of all mergers exceed financial expectations

Question 58

All of the following are reasons business owners consider using a corporation structure of ownership EXCEPT ________.

A) the appearance of stability and legitimacy
B) protection from significant loss of personal assets
C) ease of forming and setting up the structure
D) eased ability of raising capital
E) ease of transferring ownership

Question 59

A disadvantage of a limited liability company is that it ________.

A) requires earnings to be taxed at the corporate rate
B) must dissolve when an owner leaves the company
C) requires the division of profits in a fixed proportion
D) has more restrictive ownership rules than S corporations
E) is required to hold annual meetings

Question 60

Which of the following moves would MOST likely initiate a hostile takeover?

A) The buying company offers to buy the target company's stocks at a price higher than their current value.
B) The buying company delivers an ultimatum to the target company's shareholders to give up their shares.
C) The target company's shareholders offer their company's stocks at an attractive rate to the buying company.
D) The target company's shareholders agree to sell their company's stocks all at the same time.
E) The acquiring company offers to buy the target company's stock at a lower price, indicating the vulnerability of the target.

Question 61

Tom has agreed to become a partner in a business.Since he will provide 30% of the capital to start the company,he is entitled to 30% of any profits the company earns during its first year of operation.

Question 62

S corporations are similar to C corporations because they both pay corporate income taxes.

Question 63

If you want to terminate your ownership in a publicly traded corporation,you simply sell your shares.

Question 64

One disadvantage of a sole proprietorship is they usually have limited access to additional financial resources.

Question 65

A limited partner is an owner who assumes no management responsibility and has no liability for losses beyond the amount invested.

Question 66

A sole proprietorship is a common form of business ownership for start-up businesses.

Question 67

The biggest difference between general and limited partnerships involves who accepts most of the business liability.

Question 68

S corporations are restricted to a limited number of owners,whereas limited liability companies can have an unlimited number of owners.

Question 69

The owners of a corporation are known as general corporate partners.

Question 70

When establishing a sole proprietorship,it may be necessary to obtain local licensing or permits.

Question 71

The organizational structure of a corporation allows for shareholders to have control over the company's daily operations.

Question 72

The profits of a sole proprietorship are taxed as the personal income of the owner.

Question 73

A sole proprietorship can have only one owner,but it can have any number of employees.

Question 74

Partnerships are taxed at the lowest corporate tax rate.

Question 75

A company with 200 shareholders can establish itself as an S corporation.

Question 76

To protect partnerships and minimize misunderstandings among partners,all terms of a partnership should be spelled out in writing.

Question 77

In a general partnership,all partners are guaranteed an equal share of the firm's profits.

Question 78

A corporation is a specific form of business that is legally formed under state laws and is considered a separate entity.

Question 79

Like partnerships,shareholders in an S corporation pay income taxes based on their proportionate share of the business profits.

Question 80

A disadvantage of corporations is that they generally require extensive paperwork.