Deck 4: Choosing a Form of Business Ownership

Question 1

Because of unlimited liability,it is easy for sole proprietors to borrow large sums of money.

Answer 1

False

Question 2

Since someone must be responsible for a partnership's debts,a limited partnership must have at least one general partner.

Answer 2

True

Question 3

The courts have held that an oral partnership agreement is not legally binding and,therefore,cannot be enforced.

Answer 3

False

Question 4

Every partnership must have at least one limited partner.

Question 5

In a limited partnership,a limited partner's name must be included in the partnership's name.

Question 6

As with a sole proprietorship,one disadvantage of a partnership is a lack of continuity.

Question 7

The weakness of one partner may be offset by another partner's strength.

Question 8

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

Question 9

A general partner is responsible for any debts of the partnership,regardless of whether he or she was directly involved in the transaction that created the debt.

Question 10

If the owner of a sole proprietorship retires or dies,the owner's heirs may take over the business and either sell it or continue to operate it.

Question 11

Articles of partnership are a legal document issued by the secretary of state.

Question 12

Because there are two or more people in a general partnership,bankers,suppliers,and other creditors are not concerned about unlimited liability.

Question 13

About 85 percent of all business firms in the United States are sole proprietorships.

Question 14

Compared to a corporation,a partnership is more difficult and expensive to establish.

Question 15

The corporation,partnership,and sole proprietorship are the three most common forms of business ownership in the United States.

Question 16

A corporation is an artificial person created by law.

Question 17

Unlike a person,a corporation exists only on paper.

Question 18

Although a partnership pays no income tax,the Internal Revenue Service requires partnerships to file an annual information return that states the amount of distributions made to each partner.

Question 19

Unlimited liability holds a sole proprietor personally responsible for all the debts of the business.

Question 20

A banker or lender is more likely to make sizable loans to a sole proprietor than to a partnership.

Question 21

When a business incorporates,it receives articles of incorporation from the Internal Revenue Service.

Question 22

Shareholders of an S-corporation are taxed as if they were owners in a partnership.

Question 23

A limited-liability company is taxed like a corporation.

Question 24

Preferred stockholders receive dividends before dividends are paid to common stockholders.

Question 25

A limited-liability company extends the concept of personal-asset protection to small business owners.

Question 26

A corporation chartered in Mexico and doing business in the United States is known as a foreign corporation in the United States.

Question 27

Surplus funds of a not-for-profit organization are distributed to members of the board of directors.

Question 28

Corporations account for about 82 percent of all sales revenues.

Question 29

Because of limited liability,individuals are more willing to invest in corporations than in other forms of business.

Question 30

A corporation chartered in Texas and doing business in Texas is known as a domestic corporation.

Question 31

Profits of a large corporation are taxed twice,once as corporate income and again as personal income of stockholders.

Question 32

A corporation is perhaps the easiest form of business to organize.

Question 33

Corporate officers are elected by the stockholders.

Question 34

Most stockholders attend a corporation's annual meeting and vote in person.

Question 35

All not-for-profit corporations rely solely on volunteers to perform services of the organization.

Question 36

Common stockholders have the right to elect a corporation's board of directors and vote on corporate matters.

Question 37

Joint ventures are created for a specific purpose and dissolved when that purpose is achieved.

Question 38

All corporations operate primarily for profit.

Question 39

An S-corporation can have no more than twenty stockholders.

Question 40

Experts predict that mergers in the first part of the twenty-first century will be the result of cash-rich companies looking to acquire businesses that will enhance their position in the marketplace.

Question 41

Tiffany graduated from college and needed to decide where she wanted to work.She had several options.Her aunt Martha owned and operated a small business that she started about twenty years ago.Martha,an individual owner of her business,informed Tiffany that she could work for her.On one hand,Tiffany 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 retires.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,Tiffany 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,Tiffany decided she didn't want an opportunity and a job because someone knew her.She wanted to prove how motivated and hardworking 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 Tiffany's Dilemma.What would not be an advantage of Tiffany'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 42

B&G,Inc.
​A year ago,Carl 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,Carl 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,Carl felt that,considering his present financial situation,he had to continue working for B&G,Inc.A week later,Carl discovered there was going to be a merger between B&G,Inc.and one of its major competitors.Carl'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 Service tax regulations

Question 43

A vertical merger is a merger between firms that operate at different but related levels in the production and marketing of a product.

Question 44

Hailey Wilson 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,Hailey 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 45

The purchase of one corporation by another is called a merger.

Question 46

Corporations are forbidden by law to enter joint ventures.

Question 47

B&G,Inc.
​A year ago,Carl 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,Carl 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,Carl felt that,considering his present financial situation,he had to continue working for B&G,Inc.A week later,Carl discovered there was going to be a merger between B&G,Inc.and one of its major competitors.Carl'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 48

A syndicate is a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital.

Question 49

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 50

A tender offer is an offer to purchase stock from existing stockholders.

Question 51

Tiffany graduated from college and needed to decide where she wanted to work.She had several options.Her aunt Martha owned and operated a small business that she started about twenty years ago.Martha,an individual owner of her business,informed Tiffany that she could work for her.On one hand,Tiffany 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 retires.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,Tiffany 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,Tiffany decided she didn't want an opportunity and a job because someone knew her.She wanted to prove how motivated and hardworking 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 Tiffany's Dilemma.Based on the information provided,what type of business does Tiffany's aunt operate?

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

Question 52

Economists,financial analysts,corporate managers,and stockholders all agree that mergers are good for both the company and the economy.

Question 53

A horizontal merger is a merger between firms in completely unrelated industries.

Question 54

Tiffany graduated from college and needed to decide where she wanted to work.She had several options.Her aunt Martha owned and operated a small business that she started about twenty years ago.Martha,an individual owner of her business,informed Tiffany that she could work for her.On one hand,Tiffany 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 retires.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,Tiffany 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,Tiffany decided she didn't want an opportunity and a job because someone knew her.She wanted to prove how motivated and hardworking 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 Tiffany's Dilemma.What type of company does Tiffany's friend operate?

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

Question 55

A common tactic of corporate raiders is to start a proxy fight.

Question 56

Tiffany graduated from college and needed to decide where she wanted to work.She had several options.Her aunt Martha owned and operated a small business that she started about twenty years ago.Martha,an individual owner of her business,informed Tiffany that she could work for her.On one hand,Tiffany 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 retires.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,Tiffany 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,Tiffany decided she didn't want an opportunity and a job because someone knew her.She wanted to prove how motivated and hardworking 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 Tiffany's Dilemma.If Tiffany 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 57

Financial experts agree that takeovers enhance corporate profitability and productivity.

Question 58

B&G,Inc.
​A year ago,Carl 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,Carl 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,Carl felt that,considering his present financial situation,he had to continue working for B&G,Inc.A week later,Carl discovered there was going to be a merger between B&G,Inc.and one of its major competitors.Carl'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 59

B&G,Inc.
​A year ago,Carl 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,Carl 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,Carl felt that,considering his present financial situation,he had to continue working for B&G,Inc.A week later,Carl discovered there was going to be a merger between B&G,Inc.and one of its major competitors.Carl'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 Carl considering switching to?

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

Question 60

Gwyn 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.Gwyn's business is organized as a

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

Question 61

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 62

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) Limited legal documents

Question 63

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 64

Michelle 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 65

Which form of business is the easiest to start?

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

Question 66

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 67

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 68

Local residents have always thought the mom-and-pop store on the corner of Locust and Congress was a partnership between Mr.and Mrs.Davis.But Mr.Davis 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 69

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 these answer choices.

Question 70

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 71

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 72

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

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

Question 73

Jonathan inherited a large amount of money from his uncle.Jonathan 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 74

Julio 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 75

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 76

Sandy 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 Sandy is a(n)

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

Question 77

Nick 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 78

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

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

Question 79

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 80

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.