Deck 4: Options for Organizing Business

Question 1

Limited partners do not participate in the management of the business.

Answer 1

True

Question 2

An S corporation is taxed just like any other corporation.

Answer 2

False

Question 3

A strategic alliance occurs when one company purchases another company by buying most of its stock.

Answer 3

False

Question 4

Marco is an independent contractor who prepares architectural plans for building contractors; however, he is not an employee of any of the contractors for which he works. Marco is a(n)

A) corporate contractor.
B) sole proprietor.
C) limited partner.
D) general partner.
E) independent partner.

Question 5

Carmen owns a small gift shop and is solely responsible for its debts and liabilities. She is also entitled to all the profits the shop makes after paying off taxes and other expenses. Her business is an example of a(n)

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

Question 6

All of the following are ways technology is helping today's sole proprietors succeed EXCEPT

A) computers, copiers, scanners, and websites allow them to interact quickly with customers, suppliers, and others.
B) smartphones and tablet computers allow them to work as they travel.
C) e-mail and social networking have made it possible for them to develop in the services area.
D) landline telephones allow them to make free long-distance calls to customers, suppliers, and others.
E) Internet connections allow them to establish websites to promote their products.

Question 7

Angelica owns a small hair salon. When a chain hair salon opened across the street from her business, Angelica lowered her prices and added more specialty services, like manicures and facials. Her ability to make these decisions on the spot without anyone else's approval gave her a

A) trade secret.
B) guaranteed profit.
C) competitive advantage.
D) loyal customer base.
E) quick profit.

Question 8

Nathan is a sole proprietor. How is the income earned in his business taxed?

A) Nathan is taxed twice-once for the business and once for his personal income.
B) Nathan is exempt from paying any tax.
C) Nathan pays one tax that includes both the business and his personal income.
D) Nathan pays a business tax if the business earns a profit, if not, only his personal income is taxed.
E) Nathan only pays tax on his business income; personal income is not taxed.

Question 9

Ritesh wants to open his own bowling alley that will also serve alcoholic beverages and food. What will Ritesh have to do to start his business?

A) He will need to hire a lawyer to help him obtain a liquor license.
B) He will not require any licenses or permits to run this type of business.
C) He will need to fill out paperwork to obtain the proper licenses and permits.
D) He will need to hire someone to fill out the complicated paperwork to get the necessary licenses and permits.
E) He will need to pay over $10,000 for the necessary licenses and permits.

Question 10

Which form of business ownership has the most freedom from government regulation?

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

Question 11

In sole proprietorships, owners

A) are limited in their ability to make decisions quickly.
B) are limited in the sources of funding available to them.
C) do not have to pay any income tax.
D) have to share their profits.
E) cannot easily dissolve the business.

Question 12

Mel owns an auto repair shop. He started the business with a personal loan and is wholly responsible for repaying it. Mel also needs to pay personal income tax on the profits generated from the business. Mel's business is an example of a(n)

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

Question 13

When it comes to borrowing funds, a sole proprietor

A) usually pays lower interest rates on funds borrowed from banks than do large corporations.
B) has access to more sources of funds than do large corporations.
C) oftentimes must pledge a car, a house, other real estate, or other personal assets to guarantee a loan.
D) can sell stocks and bonds to the public to raise money.
E) does not need to rely on his or her credit standing in order to obtain funds.

Question 14

When Dr. Hamilton, a local physical therapist, dies, her children sell her physical therapy practice to a young, new therapist who just moved to the area. What advantage will this new therapist gain by buying a business rather than starting a new one?

A) being able to start fresh with all new equipment
B) some of the customers will stay with the business
C) getting to train all new employees for the business
D) finding new employees for the business
E) finding a partner to help run the business

Question 15

Why is it difficult for sole proprietorships to hire qualified employees?

A) Many large corporations are downsizing and outsourcing tasks, so there are less well-trained employees available for small businesses.
B) It is difficult for sole proprietorships to match the wages and benefits offered by large corporations.
C) There is more room for advancement within sole proprietorships.
D) Sole proprietorships prefer to spend their high profits on running the business, rather than on hiring qualified employees.
E) Sole proprietors prefer to do all the work themselves, so they don't want to hire qualified employees.

Question 16

All of the following are keys to a successful partnership EXCEPT partners must

A) have different skill sets or resource contributions.
B) maintain effective communication skills.
C) focus on customer satisfaction and product quality.
D) keep profit sharing equal regardless of contributions.
E) maintain transparency with stakeholders.

Question 17

Smith, Taylor, and Jones is a law firm specializing in medical malpractice. Each owner has unlimited liability for the debts of the business and all owners share in the management of the firm. This law firm is an example of a

A) general partnership.
B) limited partnership.
C) joint venture.
D) C corporation.
E) strategic alliance.

Question 18

Victor is asked to be a part of a new business venture for a revolutionary mechanism to repair Internet cables that are placed on the ocean floor. Since the business involves high risk, Victor does not want to be held completely liable for the firm's debts if the project fails. In this case, Victor is most likely to prefer to participate as a(n)

A) member of a cooperative.
B) limited partner.
C) general partner.
D) owner of an S corporation.
E) sole proprietor.

Question 19

GasSource, a national provider of natural gas, is a partnership that is traded on securities exchanges. This allows it to have the tax benefits of a limited partnership but the liquidity of a corporation. GasSource is an example of a(n)

A) master limited partnership.
B) general partnership.
C) C corporation.
D) S corporation.
E) joint venture.

Question 20

David, Shannon, and Greg are starting a new accounting firm together, and they are drafting articles of partnership. All of the following are items they should include EXCEPT

A) the business's name, purpose, and location.
B) the authority and responsibility of each partner.
C) the total money and assets of each partner's estate.
D) the duration of the agreement.
E) how much each partner is allowed to withdraw.

Question 21

Keesha, Mandy, and Isabel are starting their own pet grooming business, and they are drafting articles of partnership. What item should they be sure to include in their articles of partnership?

A) what to do if one of the partners becomes disabled
B) the total money and assets of each partner's estate
C) how to manage customer information
D) the age of each partner
E) the number of pets each partner owns

Question 22

Lawyers, Inc. is a large law practice with partners that specialize in real estate closings, estate planning, and divorce proceedings. Since each partner specializes in a different area of law, clients would be likely to

A) take their business to a sole proprietor, rather than this partnership.
B) view the service as lower quality than that provided by one person.
C) question the qualifications of each partner.
D) prefer to work with one person who has diverse skills.
E) view the service as higher quality than that provided by one person.

Question 23

Ken is a partner in a local hardware store. He decides to sell his partnership interest. What is one challenge that Ken will face?

A) His partners could refuse to let him sell his partnership interest, trapping him in the partnership.
B) The business could be disrupted and financing could be reduced.
C) Selling his partnership interest may violate the articles of partnership and he may need to pay fines.
D) It may be difficult for the partners to place a value on Ken's share of the partnership.
E) Ken will be bound by the public valuation of the company.

Question 24

Isaac starts a consulting firm with his friend Arnie. They decide to equally share the profits and have unlimited liability for the debts of their business. Such unlimited liability can be a distinct disadvantage for Isaac if he has

A) less financial resources than Arnie.
B) more financial resources than Arnie.
C) comparable financial resources to Arnie.
D) the exact same financial resources as Arnie.
E) the status of a limited partner.

Question 25

Sarah is a partner in a local coffee shop. Without consulting her partners, she ordered some expensive, specialty roasted coffee beans that she thought would greatly improve their business. However, their customers felt the coffee had a bitter taste and are no longer buying it. What impact will Sarah's decision have on her partners?

A) She bears the financial responsibility for her decision, so her partners will not be affected.
B) Her partners may eliminate her from the partnership to avoid having to use their personal resources to pay for her decision.
C) Her decision could impact the money her partners invested in the business, but not their personal resources.
D) Her decision could impact her partners' profits, but not their personal resources.
E) Her decision may put her partners' personal resources in jeopardy.

Question 26

Pipes R Us, a small plumbing company, decides to incorporate. It wants to have greater flexibility than traditional corporations. What type of corporation would work best for this company?

A) S corporation
B) C corporation
C) domestic corporation
D) foreign corporation
E) alien corporation

Question 27

When a business decides to incorporate, it will do so according to the laws of the ________ in which it incorporates.

A) city
B) country
C) state
D) municipality
E) county

Question 28

Frank, Martin, and Paul secure a charter for their business. They hold an organizational meeting to establish the corporation's bylaws and elect a board of directors. What is one thing the bylaws might do?

A) determine how many employees their corporation will have
B) set up committees of the board of directors
C) determine the type of customers their corporation will have
D) describe the type of products their corporation will sell
E) describe the types of services their corporation will offer

Question 29

The Food Palace, Inc. is a large grocery chain that was incorporated in the United States. Over the years, the corporation has grown, and it has now opened locations in five other nations. In those nations, The Food Palace is considered to be a(n)

A) foreign corporation.
B) domestic corporation.
C) alien corporation.
D) private corporation.
E) public corporation.

Question 30

Brewer Bikes, Inc. is a company that sells bicycles and accessories. It has been owned and operated by the Brewer family for 25 years. The Brewers own all the corporation's stock, and they are not required to disclose financial information publicly. What type of business is this?

A) a domestic corporation
B) a public corporation
C) a sole proprietorship
D) a private corporation
E) a limited partnership

Question 31

Mountain Outfitters is a large company that manufactures durable outdoor clothing. The company has stock that anyone can buy, sell, or trade, but since it is a large company, its stockholders are far removed from its management. What type of business is this?

A) a public corporation
B) a private corporation
C) a general partnership
D) a limited partnership
E) a domestic corporation

Question 32

A private corporation sells its stock to raise the money it needs for global expansion. As a result, anyone can now buy, sell, or trade the stocks of the company. This process of "going public" is referred to as

A) factoring.
B) a leveraged buyout.
C) franchising.
D) an initial public offering.
E) a stock split.

Question 33

Summer Foods is a public corporation that is experiencing difficulty growing its vegetable products during an especially dry summer season. Wanting the flexibility to make decisions for restructuring the company's operations, its managers buy all the stock, which means the company is

A) changing to a quasi-public corporation.
B) initiating an initial public offering.
C) essentially shutting down operations.
D) taking the company private.
E) converting the company to a nonprofit.

Question 34

Books to Grow, a corporation owned and managed by volunteers, supplies books and educational materials to impoverished children in Latin America. Its focus is not on earning a profit but on serving the community. Books to Grow is an example of a(n)

A) sole proprietorship.
B) domestic corporation.
C) nonprofit corporation.
D) quasi-public corporation.
E) C corporation.

Question 35

All of the following are true of 501(c)(3) organizations EXCEPT

A) they receive certain tax exemptions.
B) they include public charities.
C) their donors may reduce their tax deductibility for their donations.
D) they include private operating foundations that sponsor and fund their own programs.
E) they must answer to their shareholders.

Question 36

What is a true statement about the board members of a corporation?

A) They are directly responsible for the daily operations of the firm.
B) They have dramatically increased company oversight since the passage of the Sarbanes-Oxley Act.
C) They have a duty of care and loyalty to oversee the management of the firm.
D) They are responsible for the short-term, but not the long-term, objectives of the corporation.
E) They are not responsible for management of the firm's funds.

Question 37

Geraldine is a professor at a local college who serves on the board of directors for a leading academic publisher. She is a valued member of the board because she brings her unique perspective from the field, and she is qualified, knowledgeable, and independent of the company. Geraldine is a(n)

A) inside director.
B) outside director.
C) corporate officer.
D) chief executive officer.
E) field director.

Question 38

A difference between common stockholders and preferred stockholders within a corporation is that common stockholders

A) act as the board of directors.
B) are completely isolated from its operations.
C) have the right to make a cumulative claim to dividends.
D) are restricted from exercising preemptive rights.
E) receive dividends after preferred stockholders.

Question 39

What is a proxy?

A) the selling of a corporation's stock on the public market for the first time
B) another name for an outside director of a corporation
C) the right of a stockholder to purchase new shares of stock before anyone else
D) an advisory position to a corporation's board of directors.
E) a written authorization assigning voting privileges to someone else

Question 40

Keith wants to buy stock in a large pharmaceutical company. Since he lives in the city where the company is headquartered, he wants to attend its annual meetings and vote for the board of directors. He also wants to maintain a 5 percent ownership of the company, so having priority in purchasing new shares on the marketplace is very important to him. What type of stock should Keith purchase?

A) proxy stock
B) dividend stock
C) preferred stock
D) common stock
E) preemptive stock

Question 41

What is an advantage that corporations provide as a form of business ownership?

A) The owners of corporations do not have to share their profits with stockholders.
B) The income earned by corporations is taxed only once.
C) Corporations have the most freedom from government regulations.
D) The process involved in forming corporations is very easy and inexpensive.
E) It is easy to transfer ownership in corporations.

Question 42

A disadvantage of the corporate form of business ownership is that the

A) owners will have limited access to external funds.
B) owners will have unlimited liability for the debts of the corporation.
C) formation of a corporation can be costly and it faces double taxation.
D) transfer of ownership in a corporation is very difficult.
E) life expectancy of a corporation is very short and it lacks continuity.

Question 43

An advantage of a corporation over a partnership is that

A) a corporation only pays taxes once, while a partnership is subject to double taxation.
B) setting up a corporation is easier, while setting up a partnership requires legal charters.
C) a corporation does not need to send out quarterly financial statements, but a partnership does.
D) a corporation has fewer regulatory controls than a partnership.
E) as a legal entity, a corporation can enter into contracts without as much difficulty as a partnership.

Question 44

Sasha works for a large corporation, and sometimes, she finds it difficult to see how she fits into the corporate picture. However, recently, her company decides to establish an employee stock ownership plan. Which is a benefit of this type of plan?

A) It can boost employee productivity.
B) It can make employees feel that their work benefits only the owners.
C) It can provide employees with higher regular wages.
D) It can build a partnership between managers and owners.
E) It allows employees to take over the management of the company.

Question 45

Jeff and Maggie both work in the real estate market. One day, a great investment property comes on the market, and they decide to pool their money to buy and renovate it. They plan to spend six weeks on the renovation, and they hope to make a nice profit when they turn around and sell it. Jeff and Maggie's partnership is an example of a(n)

A) cooperative.
B) joint venture.
C) sole proprietorship.
D) S corporation.
E) limited liability company.

Question 46

A(n) ________ is a form of business ownership that is taxed as though it were a partnership; it is very popular among entrepreneurs and represents almost half of all corporate filings.

A) worker cooperative
B) S corporation
C) C corporation
D) consumer cooperative
E) general partnership

Question 47

In an S corporation, net profits and losses of the corporation pass to the owners. What effect does this have?

A) It eliminates double taxation.
B) It gives the owners unlimited liability.
C) It allows the corporation to have unlimited shareholders.
D) It makes the operation of the corporation easier.
E) It gives the corporation a limited lifespan.

Question 48

The "limited" part of a limited liability company refers to the

A) length of time the business will be in operation.
B) number of employees in the business.
C) limited taxation of the business.
D) limited types of businesses that can use this form of ownership.
E) limited liability of the business.

Question 49

April is a doctor who is forming her own medical practice. She wants her practice to be flexible, simple to run, and free from required meetings, minutes, or resolutions. Her goal is to blend the best characteristics of corporations, partnerships, and sole proprietorships. What form of business ownership seems most in-line with April's goals?

A) S corporation
B) joint venture
C) limited liability company
D) C corporation
E) cooperative

Question 50

The Dairy Farmers of America is an association of dairy farmers. Its agenda is not to make profits but to help its members market their products and to offer farmers a fair voice in national policymaking. Thus, The Dairy Farmers of America is an example of a(n)

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

Question 51

A merger occurs when

A) one company purchases another.
B) a group of investors borrows money from banks and other institutions to acquire a company.
C) a company splits into two separate companies.
D) two companies combine to form a new company.
E) a company buys most of the stock of another company.

Question 52

Sweet Scents, a candle company, purchases Nature Candle Products, its direct competitor, by buying most of its stock. In this scenario, Sweet Scents is involved in a(n)

A) conglomerate merger.
B) acquisition.
C) vertical merger.
D) leveraged buyout.
E) franchise.

Question 53

Subs and More merges with its supplier, Top Shelf Ingredients, in an effort to have a constant supply of sauce for its sub sandwiches. This is an example of a

A) shark repellant.
B) vertical merger.
C) conglomerate merger.
D) white knight.
E) horizontal merger.

Question 54

Feed & Grow and Boost Products, two fertilizer companies, merge to reduce the number of corporations competing within the fertilizer industry. This merger is an example of a

A) vertical merger.
B) leveraged buyout.
C) horizontal merger.
D) shark repellant merger.
E) conglomerate merger.

Question 55

When two companies of different industries join together, it is an example of a

A) vertical merger.
B) limited partnership.
C) sole proprietorship.
D) horizontal merger.
E) conglomerate merger.

Question 56

A corporate raider is trying to take over the Cliff Company. In an attempt to avoid this hostile takeover, The Cliff Company is requiring a large majority of stockholders to approve the takeover. Which method of evading a takeover attempt does this describe?

A) a compliance buyout
B) a tender offer
C) a class action
D) a poison pill
E) a shark repellant

Question 57

In the context of the various forms of business ownership, discuss the two basic types of partnerships.

Question 58

Briefly discuss domestic, foreign, alien, private, and public corporations.

Question 59

Describe tactics companies may use to head off a hostile takeover attempt.