Deck 4: Choosing a Form of Business Ownership

Question 1

Karen 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 neighbourhood restaurant. Because she plans to maintain complete ownership and control of the business, she will most likely organize it as which of the following?

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

Answer 1

D

Question 2

Sophia and Frederik are opening a landscape company. Although they will each own 50% of the business, Sophia will be doing more work. The plan is to give her 60% of the profits and give Frederik the remaining 40%. This relates to which key consideration for choosing ownership structure?

A) taxation and division of profits
B) legal and financial liability
C) ease of start-up and administration
D) business control and transfer of ownership

Answer 2

A

Question 3

Jerome is starting a solo business right now, but he hopes it will grow fast so that he can sell it in a few years. This relates to which key consideration for choosing ownership structure?

A) taxation and division of profits
B) legal and financial liability
C) business control and transfer of ownership
D) riskiness of industry

Answer 3

C

Question 4

Two dermatologists have created a skin care line to help with blemishes and wrinkles. They'd like to go into business selling their products. Which form of business would allow them to combine the benefits of a corporation and a partnership while avoiding some of the disadvantages?

A) an entrepreneurship
B) a joint venture
C) an LLP
D) a sole proprietorship

Question 5

Which of the following is a voluntary association of two or more people acting as co-owners of a business?

A) partnership
B) corporation
C) sole proprietorship
D) conglomerate

Question 6

When Alyssa decides that she wants to sell her accounting business, which of the following will she discover to be a related benefit of a corporation?

A) the ease of transfer of ownership
B) equal division of profits
C) limited liability
D) specialized management

Question 7

After Leo graduates from college, he will be joining his father, uncles, and grandfather in the family business. His grandfather will be retiring soon and Leo isn't sure who will be running the business. This relates to which key consideration for choosing ownership structure?

A) legal and financial responsibility
B) taxation and division of profits
C) business control and transfer of ownership
D) management structure

Question 8

Isla is starting a medical consulting business that she'll own and operate by herself. She wants to ensure that making decisions about the business will be fast and easy. Which form of business should she most likely choose?

A) sole proprietorship
B) corporation or joint venture
C) joint venture or syndicate
D) LLP or corporation

Question 9

Brothers Marko and Ivan would like to start a landscaping business. They each plan to invest $5000 into the business for equipment and initial advertising and plan to split the profits evenly. This is an example of which of the following?

A) corporation
B) partnership
C) joint venture
D) franchise

Question 10

Which of these Canadian companies started out as a sole proprietorship?

A) Swiss Chalet
B) Tim Hortons
C) Cirque du Soleil
D) BlackBerry

Question 11

Ramin is interested in starting his own business. He is concerned about how much it will cost to start and maintain this new venture. Which question should Ramin ask himself?

A) Which ownership structure will minimize the tax burden for the company and for me?
B) How risky is this business?
C) Is this really a business or just a money-making hobby?
D) Will the business have additional owners or investors in the future?

Question 12

Which form of business is the easiest to start?

A) corporation
B) partnership
C) entrepreneurship
D) sole proprietorship

Question 13

Which of the following is one of the four key considerations when choosing business ownership structure?

A) number of suppliers
B) whether you own patents
C) taxation and division of profits
D) return on investment in your industry

Question 14

Kayla is evaluating the ownership structure for her new business, which is in a high-risk industry where businesses are often sued. This relates to which key consideration for choosing ownership structure?

A) taxation and division of profits
B) legal and financial liability
C) business control and transfer of ownership
D) management structure

Question 15

Santino would like to start selling his homemade salsas and sauces. He figures his start-up costs will be low, and he has money saved, so he decides to start his business on his own and sell his products at a local farmers' market. This is likely an example of which of the following?

A) joint venture
B) corporation
C) partnership
D) sole proprietorship

Question 16

The Wilson Furniture Company has been in existence for 75 years and was started as a family business. However, all members from the original business have since passed away, and none of the current owners are part of the Wilson family. This business is most likely to be which of the following?

A) sole proprietorship
B) corporation
C) partnership
D) joint venture

Question 17

Which of the following is the simplest form of business, owned and operated by one person?

A) franchise
B) partnership
C) sole proprietorship
D) syndicate

Question 18

Three college friends start a new mobile messaging service in the hope that venture capital investors will buy part of the company within a few years. Which form of ownership should they choose?

A) partnership
B) limited partnership
C) corporation
D) joint venture

Question 19

Amal and Nasim would like a form of business that combines the benefits of a corporation and a partnership while avoiding some of the restrictions associated with those forms of ownership. Which type of business should they form?

A) syndicate
B) conglomerate
C) joint venture
D) LLP

Question 20

Edward would like a form of business that is a separate legal entity, with most of the legal rights of a real person. Which form of business should he consider?

A) sole proprietorship
B) partnership
C) corporation
D) joint venture

Question 21

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) A partnership is exempt from taxes.
D) The partnership is taxed as a separate entity.

Question 22

Taraun has always dreamed of starting his own restaurant. He graduated from culinary school and has worked as an executive chef in several restaurants. Now that he is ready to open his own restaurant he realizes he will need some help. Taraun is obviously knowledgeable about all things culinary, but needs some help with management, marketing, and finance. Which of the following is the best choice for Taraun?

A) a partnership, because Taraun can purchase an existing restaurant and maintain all of the employees
B) a corporation, because it has perpetual life and the restaurant can stay open forever
C) a partnership, because it will combine the knowledge of multiple people
D) a sole proprietorship, because Taraun knows everything he needs to know about starting a restaurant

Question 23

Thomas wants to make money, so he starts his own business as a sole proprietor. Why does he like this form of business?

A) he will get to keep all of the profits the business makes
B) profit is guaranteed because 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

Question 24

If Cara, Aubrey, and Liam want to limit liability for their business debts and want to avoid double taxation, which type of business ownership would you recommend?

A) regular corporation
B) general partnership
C) sole proprietorship
D) LLP

Question 25

Nidal has an idea for a new technology company. He knows the technology industry is constantly changing and in order to be successful his company will require a large amount of capital to keep up with the changes. Which of the following is the best choice for Nidal?

A) a partnership, because Nidal will need someone to help generate ideas for the business
B) a corporation, because it is easiest to exchange shares of ownership for investment capital
C) a sole proprietorship, because it will be easiest for Nidal to remain in control
D) a partnership, because it is easiest to exchange shares of ownership for investment capital

Question 26

What does corporate taxation mean?

A) Companies have to pay both sales taxes and income taxes.
B) Companies must pay taxes on their earnings, and then shareholders pay taxes on their dividends.
C) Suppliers tax their customers, and in turn these businesses tax the ultimate consumer.
D) Companies must pay taxes on corporate income and then they pay additional taxes on distributions of profit to shareholders.

Question 27

Denzel has a lot of expertise in architecture but doesn't know much about management. He'd like to share ownership in a business with another person who could offer the management expertise to make the business successful. Which of the following will he likely form?

A) sole proprietorship
B) corporation
C) partnership
D) joint venture

Question 28

In which of the following do profits from a business go straight to the owners, who then report their share of profits (or losses) in the business on their individual tax returns?

A) corporate dual taxation
B) pass-through taxation
C) single taxation
D) profit rate taxation

Question 29

If you are a shareholder in a corporation and you receive dividends, they must be reported to the Canada Revenue Agency. How are these dividends taxed?

A) as business income
B) as capital gains
C) as personal income
D) as investment income

Question 30

Jutta and Carl have a small medical practice that operates as a partnership. Jutta does 70% of the work and Carl does 30%. However, Carl invested 60% of the money required to start the business. If the company makes $100,000 in profit this year, how much will each partner receive?

A) Jutta will receive $70,000; Carl will receive $30,000
B) Jutta will receive $40,000; Carl will receive $60,000
C) Jutta will receive $60,000; Carl will receive $40,000
D) Profits will be shared in the proportion specified in the partnership agreement.

Question 31

A growing pizza restaurant was originally formed as a sole proprietorship because it was based on the owner's family recipe. The restaurant has become so popular that several wealthy people have inquired about investing money to help the business open more locations. If the owner had known there would be an opportunity to sell shares of the company in exchange for investment capital, which form of business would he have chosen?

A) syndicate
B) partnership
C) joint venture
D) corporation

Question 32

The Zebra Corporation is owned by three people. Jun owns 40%, Liu Wei owns 35%, and Minh owns 25%. However, Minh does at least 50% of the work, and Jun is a passive owner who does no work at all. If the company makes $100,000 profit this year and decides to distribute it all to the owners, how much would Jun get?

A) $0
B) $25,000
C) $40,000
D) $50,000

Question 33

Which form of business organization experiences double taxation?

A) partnership
B) corporation
C) venture company
D) sole proprietorship

Question 34

Three construction contractors decide to form a real estate development firm where they will share ownership and decision making. They would like the ability to allow others to "buy in" to the business, but only if those people will be active participants who can add value to the existing ownership team. Which form of business should they most likely choose?

A) sole proprietorship
B) syndicate
C) partnership or LLP
D) joint venture

Question 35

Twenty young entrepreneurs decide they want to start a dating service; however, they do not want to be held personally liable for losses of the company. They want to avoid double taxation. Which type of business organization would best fit their needs?

A) corporation
B) LLP
C) partnership
D) closed corporation

Question 36

Which type of entity exists independent of the owners?

A) sole proprietorship
B) corporation
C) partnership
D) joint venture

Question 37

Big Box Corporation has two owners who share the work equally. Andrea owns 80% of the company shares, and Sheryl owns 20% of the company shares. Andrea invested 60% of the money required to start the business. If the company makes $100,000 profit this year and decides to distribute it all to the owners, how much will Andrea get?

A) $20,000
B) $60,000
C) $80,000
D) $100,000

Question 38

Joan is opening a home-based craft business where she makes high-end greeting cards and sells them on Etsy. Because this will remain a small and simple business, which of the following will she likely form?

A) sole proprietorship
B) corporation
C) partnership
D) joint venture

Question 39

Fifteen years ago, Saul started a small business in which he was the only owner. He is looking to change ownership structure because his business has grown exponentially and he would like to expand overseas. Saul knows his overseas expansion will be expensive and he will need investments from people outside the business to make that happen. Saul would likely consider switching to which form of business?

A) an entrepreneurship
B) a sole proprietorship
C) a partnership
D) a corporation

Question 40

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

A) automatically split the profits, with 50% for Lisa and 50% for John
B) divide the profits according to each person's investment in the business
C) distribute the profits according to the terms of the partnership agreement
D) split the profits according to how many hours each person worked

Question 41

What is the term for ownership structures where profits go straight to the owners and taxes are reported on each owner's individual tax return?

A) pass-through taxation
B) double taxation
C) corporate taxation
D) flat taxation

Question 42

You are 50% partner in a general partnership. The business has outstanding debts of $250,000 and is closing due to the death of your only partner. What is your personal liability?

A) $0
B) $125,000
C) $250,000
D) $500,000

Question 43

Which of the following ownership structures holds a business owner personally responsible for all debts of the business?

A) private corporation
B) public corporation
C) sole proprietorship
D) LLP

Question 44

Nastasia is 50% owner in a manufacturing company that runs as an LLP. She invested $25,000 when the business started and has received no money from the business since then. The company just lost a $1,000,000 patent infringement lawsuit and will have to shut down. What is Nastasia's personal loss on this business?

A) $0
B) $25,000
C) $1,000,000
D) $1,025,000

Question 45

Rachelle owns a business with her brother, Ryan. Last year their company earned a profit of $200,000. Which type of business do they own if Rachelle paid taxes on her $100,000 share on her individual tax return?

A) a partnership that has pass-through taxation
B) a partnership that has corporate taxation
C) a partnership where the partners pay taxes only on dividends received from the company
D) a corporation where the owners pay taxes only on their initial investment in the company

Question 46

Sam opened the restaurant of her dreams two years ago. It is a sole proprietorship. The business lost a lawsuit for $250,000 due to a customer getting sick. This legal liability is not covered by Sam's insurance and the restaurant has to close down. What is Sam's personal liability for this lawsuit?

A) $0
B) $250,000
C) $300,000
D) $500,000

Question 47

Karissa is 25% owner in a corporation that builds custom machinery. Last year the corporation suffered due to intense competition. After losing $1,000,000 last year, the business is shutting its doors. The business has unpaid debts of $9,000,000. What is Karissa's personal liability?

A) $0
B) $1,000,000
C) $9,000,000
D) $10,000,000

Question 48

If a corporation makes $100,000 in profit, how will that profit be taxed if the money is all distributed to the owners?

A) $100,000 will be taxed at the individual tax rate of each owner.
B) $100,000 will be taxed at the corporate rate only.
C) $100,000 will be taxed at the corporate rate; then those after-tax profits will be taxed again as dividends when distributed to each owner.
D) $100,000 will be taxed at the corporate rate; then those after-tax profits will be taxed again at the corporate rate when distributed to each owner.

Question 49

Mei's coffee shop made $250,000 profit last year. Mei and her partner will report their share of profits on their individual tax return. What is the term for this type of taxation?

A) double taxation
B) corporate taxation
C) flat taxation
D) pass-through taxation

Question 50

In terms of business ownership, what is meant by unlimited liability?

A) there is no limit on the amount an owner can borrow
B) the business can borrow money for any type of purchase
C) the owner is responsible for all business debts and legal liabilities
D) shareholders can borrow money from the business

Question 51

Derek and his friend Tim own a bicycle shop. Tim works at the store full-time, whereas Derek only works on the weekends. Derek invested $5,000 in the business to get it started, plus he owned the building the shop is housed in, which is worth $50,000. Derek invested $15,000 in the business. Which of the following explains why Derek and Tim will split this year's profits of $130,000 with Tim getting 40% of the profits and Derek getting 60%?

A) Their business is a corporation, and they will split the profits according to each owner's percentage of ownership.
B) Their business is a corporation, and Tim's investment in the company is equal to 40%.
C) Their business is a partnership, and Tim works more hours at the shop than Derek.
D) Their business is a partnership, and they will distribute the profits according to the terms of the partnership agreement.

Question 52

What is the primary disadvantage of a sole proprietorship that a corporation overcomes?

A) tax complications
B) unlimited liability
C) ease of start-up
D) lack of secrecy

Question 53

You invested $50,000 to start an LLP business, but things haven't gone as planned. After two years of no profits, you have to shut the doors. The business owes creditors $75,000 for bills you haven't paid. How much money will you personally lose as a result of this business?

A) $0
B) $50,000 initial investment, but nothing more
C) $50,000 initial investment plus the $75,000 in unpaid business debt
D) $75,000 in unpaid business debt

Question 54

Zach inherited a large amount of money from his uncle. Zach wishes to start a business with his college friend, and his lawyers encourage him to make it a corporation. What is the advantage of forming a corporation instead of a partnership?

A) limited liability
B) ease of start-up and administration
C) pass-through taxation
D) double taxation

Question 55

Namra and her brother, Faisal, took over the family-owned pet store when her father retired. Sales have been sluggish due to a larger pet store opening in the area. Namra is panicked because the pet store owes various creditors $25,000. If the business closes, she will have to sell her car to pay back the debt. Faisal tells her, "Don't worry! There is no way the creditors can come after your personal property." How can Faisal be so sure?

A) Faisal knows that his father formed the business as a sole proprietorship, which means they have limited liability and will not need to pay back business debts.
B) Faisal knows that companies formed as corporations only have to pay back business debts over $30,000.
C) Faisal knows that the company is a partnership, which means they have limited liability and will not need to pay back business debts.
D) Faisal knows that the company is owned as an LLP, which means that he and Namra have limited liability and will not need to pay back business debts.

Question 56

Which of the following statements about corporations is true?

A) Corporations must distribute profits at the end of each year.
B) Corporate tax rates are always higher than individual tax rates.
C) Corporations utilize pass-through taxation.
D) Corporations can deduct certain business expenses that other forms of business can't, which could lower the amount of money subject to taxes.

Question 57

The gift shop chain that Althea started has since been incorporated. Which of the following best describes the liability that Althea has as the primary shareholder in this corporation?

A) Althea may have to give up her car and house if the corporation fails in order to cover the debts of the corporation.
B) The other shareholders will be able to seize Althea's personal money but not her primary residence in the event that the business fails.
C) Althea's personal assets will be protected in the event that the corporation fails, although she could lose her entire initial investment.
D) Althea will be liable only for losses that develop from decisions she made about the daily business operations.

Question 58

Tasha's T-Shirts Inc. made $500,000 profit last year. That profit will be taxed at the company's tax rate. Tasha will then reinvest those after-tax profits back into the business to avoid paying an additional tax on dividends. What is the term for this type of taxation?

A) sales taxation
B) corporate taxation
C) flat taxation
D) pass-through taxation

Question 59

Doctors, lawyers, accountants, and tradespeople like plumbers and electricians often set themselves up as what form of business?

A) one-person corporation
B) a public corporation
C) a partnership
D) a private corporation

Question 60

Manuel owns a mobile pet-grooming business. Last year as he was grooming a poodle Manuel accidentally dropped the clippers, causing a gash on the poodle's back. The poodle's owner then sued Manuel for the veterinarian bills. The court determined that Manuel owed the poodle's owner $2,000. Which of the following describes the likely form of Manuel's pet-grooming business and his liability?

A) a sole proprietorship, which means he has unlimited liability
B) a corporation, which means he has unlimited liability
C) a partnership, which means he has limited liability and paid only a portion of the veterinarian bills
D) a corporation, which means he has limited liability

Question 61

Which of the following are the basic legal requirements for setting up an LLP?

A) register name and get business licence
B) register name, get business licence, and submit articles of incorporation
C) register name, get business licence, and submit articles of organization
D) register name, get business licence, and schedule annual meeting

Question 62

You run a fitness studio that trains individual clients and small groups. Because you are the only trainer, you run the business as a sole proprietorship. A client was injured and sues you for $1,000,000. You have no liability insurance on the business. What is your personal liability if you lose the lawsuit?

A) $0
B) $50,000, because that is how much money you have in the business account
C) $500,000, because that is how much your landlord paid for the building you are in
D) $1,000,000

Question 63

Which of the following is the top governing body of a corporation?

A) incorporators
B) management
C) officers
D) board of directors

Question 64

You and four friends are opening a studio to create new Xbox games. You hope to raise $500,000 early on by selling equity in the business. You'll then reinvest profits back into the business to drive growth and minimize taxes. Within five years, you hope to sell the majority of the business to an angel investor or venture capital firm. Which form of business best fits your needs?

A) sole proprietorship
B) partnership
C) corporation
D) pass-through proprietorship

Question 65

Aoife and her friend Maureen would like to open a dog-walking business in Coquitlam. Maureen will handle acquiring new clients, billing, and advertising, and Aoife will walk the dogs. They agree Aoife will earn 60% of the profits the business earns. They don't plan on needing any investment into the company and prefer to make all the decisions regarding the business themselves. They are concerned about liability in case one of the dogs happens to get injured while in their care. Which type of business ownership best suits Aoife and Maureen?

A) LLP
B) corporation
C) partnership
D) sole proprietorship

Question 66

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

A) a partnership contract
B) an operating agreement
C) articles of proprietorship
D) a business licence

Question 67

Keisha and Wasim decide to go into business together. They start by writing an agreement explaining the terms of the business they will both own, along with each of their responsibilities. Which of the following have Keisha and Wasim created?

A) articles of partnership
B) business licence
C) licensing agreement
D) corporate charter

Question 68

Anja 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. She is not worried about liabilities because the business is small and she's personally insured. What type of business best fits Anja's needs?

A) joint venture
B) partnership
C) sole proprietorship
D) corporation

Question 69

You and four friends are investing $10,000 each to start a business. To keep things even, you will all own 20% of the business and will contribute 20% of the work required to make the business successful. If the business makes a profit, you'll each get 20%. However, you all agree that the business must provide liability protection. Which form of business best meets your needs?

A) joint venture
B) LLP
C) partnership
D) corporation

Question 70

What is the most effective form of business organization for raising capital?

A) joint venture
B) sole proprietorship
C) partnership
D) corporation

Question 71

You are 50% owner in a catering corporation. The business is closing down because it has $250,000 in unpaid business debts and just lost a $750,000 lawsuit. What is your personal liability?

A) $0
B) $125,000
C) $250,000
D) $750,000

Question 72

Three advertising executives have decided to start their own business. They will each invest the same amount to get the business started and plan to split profits evenly among themselves. They want limited liability and to avoid double taxation. Which type of business ownership would best suit their needs?

A) sole proprietorship
B) LLP
C) partnership
D) corporation

Question 73

You are starting a construction business with a friend. You will each own 50% of the business, but you will get 60% of the profits. Your business partner will get the other 40%. You want to ensure that the business offers liability protection against unpaid business debts and legal liabilities. Which form of business best meets your needs?

A) partnership
B) sole proprietorship
C) LLP
D) corporation

Question 74

You invested $80,000 into a consulting partnership and have a 50% stake in the business. Your partner didn't invest anything, but brings management expertise to the business. After a year, the business racks up $100,000 in debts and must close down. Based on this information, what is the total personal loss for you and your partner in the business?

A) $40,000
B) $80,000
C) $100,000
D) $180,000

Question 75

Three college graduates want to start an auto shop. Two of the partners will do most of the work, so they plan to share, receiving 40% of the profits each. The remaining partner will get 20% of the profits. Because working with other people's cars can create liabilities, they want to form of business that provides liability protection. Which form of business best fits their needs?

A) sole proprietorship
B) partnership
C) LLP
D) pass-through corporation