Deck 4: Selecting a Form of Business Ownership

Question 1

If you're asking yourself whether you want to make it easy for the ownership of your new business to change hands, which of the key questions about legal form of ownership are you posing?

A) How much control do you want?
B) Should it be possible for the business to continue without you?
C) Do you want to share profits with others?
D) How much liability exposure are you willing to accept?

Answer 1

B

Question 2

In deciding which legal form of business ownership to choose, these professionals must ask themselves all of the following questions except _____.

A) How much control do you want?
B) Do you want to share profits with others?
C) What are your financing needs?
D) All of these are critical questions to ask.

Answer 2

D

Question 3

It is imperative to decide which form of business ownership offers the features that are most important to you.

Answer 3

True

Question 4

As attorneys who share equal ownership, profits, and losses in their firm, Raymond James and Alexander Doss have opted for which legal form of business ownership?

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

Question 5

A very important consideration in picking a legal form of business is

A) how long you plan to run the business
B) How much legal liability you are willing to accept
C) How successful you believe your business will be
D) How many competitors you expect to have

Question 6

With enough employees and annual sales to form a company to limit the liabilities of its owners, Rock City Dental Clinic could opt to organize as a _____.

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

Question 7

No single form of ownership will give you everything you want and you will have to accept some tradeoffs.

Question 8

Teeth for Life would be better suited for a _____ than a sole proprietorship.

A) LLC
B) corporation
C) partnership
D) S corporation

Question 9

There are pros and cons for sole proprietorships and partnerships, but not for corporations.

Question 10

In deciding on a legal form of organization, you should ask yourself all of the following questions except______________

A) do you want to share the profits with others
B) do you have all the skills needed to run the business
C) how many employees will you hire
D) what are your financing needs

Question 11

Liability is a major issue in the formation and type of ownership of a new business enterprise.

Question 12

Sole proprietorship, partnership, and corporation are the three legal forms of business ownership.

Question 13

Choosing the right form of business ownership will give the owner everything he or she desires.

Question 14

Financing needs are not directly related to selecting a form of business ownership.

Question 15

Which legal form of organization did Ben Cohen and Jerry Greenfield choose when they started their business?

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

Question 16

"What are you willing to do to set up and operate your business?" is one of the questions you should ask yourself when choosing a form of ownership.

Question 17

It is not necessary to decide if the business should survive the owner(s) in the startup stage.

Question 18

If you want to own the business yourself, you might consider setting up as a(n)__________

A) partnership
B) sole proprietorship
C) independent owner
D) franchisee

Question 19

"How much control do you want?" is not a major consideration when starting a new business.

Question 20

Given the size of his operation and the fact that he's just opened his office, Dr. Harris is probably organized as a _____.

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

Question 21

The most common type of business ownership in the United States is the sole proprietorship, which has one owner.

Question 22

Profits earned are taxed as personal income and there are no special taxes to pay in the sole proprietorship form of business ownership.

Question 23

What action could any of Rock City's dentists take to limit their exposure to liability as well as make it easier to find capital for expansion?

A) form a silent partnership
B) incorporate
C) obtain a Small Business Administration loan
D) create a limited partnership

Question 24

If a sole proprietorship incurs a debt or suffers a catastrophe, the owner is personally liable for it.

Question 25

Under the ____ form of ownership, the business dissolves upon the owner's death.

A) partnership
B) corporation
C) sole proprietor
D) limited liability

Question 26

Which of these statements is true in regard to the sole proprietorship form of business?

A) You are required to share profits with others
B) If you die, the business continues.
C) If the company borrows money from a bank, you are not personally liable for the debt
D) It makes financing more difficult

Question 27

A sole proprietorship is a legal form of business ownership.

Question 28

Sole proprietors find it easier to obtain outside financing than do owners of other types of business enterprises.

Question 29

Bob Grange has just opened a new pet shop on Main Street. If he selected the easiest and cheapest legal form to start a business, what legal form would Bob have selected?

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

Question 30

Sole proprietorships account for about 72% of all U.S. businesses.

Question 31

As a sole proprietor, your personal assets are not at risk for the sake of the business.

Question 32

Maria Martin owns an advertising company. She gets to keep all of the income earned by the business. She operates it as a(n) _____.

A) partnership
B) sole proprietorship
C) S Corporation
D) corporation

Question 33

Which of the following is not true for a sole proprietor?

A) you have complete control over your business
B) you get all the income earned by the business
C) you have limited liability
D) any profits earned are taxed as personal income

Question 34

Identify and define three types of business ownership.

Question 35

How did Ben Cohen and Jerry Greenfield start one of the best-known ice cream companies in the country?

Question 36

As a sole proprietor, you can reduce your risks with insurance; however, you still carry a substantial liability.

Question 37

When the owner of a sole proprietorship dies, the business by law is allowed to continue to perpetuity.

Question 38

With a sole proprietorship, you -- the owner -- are, in effect, the business.

Question 39

Some of the advantages of a sole proprietorship business are that it is easy and inexpensive to form, there are few government regulations, and the owner has complete control over his/her business.

Question 40

The sole proprietor supplies all the different talents needed to make the business a success.

Question 41

A major problem with partnerships is limited liability. Each partner is personally liable for his or her own actions, but not for the actions of all the partners.

Question 42

If you have the talent to run a business, want to make all important business decisions, and are willing to finance the business with all your own resources, you should consider operating as a partnership.

Question 43

In a limited partnership the limited partners' losses are limited to their investment in the business and not their personal assets.

Question 44

Jane, Karla, and Brenda have set up an accounting firm. An essential part of their partnership agreement is the division of the business income.

Question 45

Discuss the disadvantages of owning a sole proprietorship.

Question 46

If Jerry wanted to bring Terry into the business, and he was concerned about the cost of changing his form of organization, what legal form of organization would he most likely switch to?

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

Question 47

Some people with substantial assets may hesitate to enter a partnership. They don't want to lose some or all of these assets because of the mistakes of other partners. To offset this possible loss they can form an unlimited partnership.

Question 48

The partnership agreement of the accounting firm of Baines & Sweeney should include conditions for dissolving the partnership.

Question 49

Under the ____ form of ownership, any money borrowed by the business is loaned to the owner personally.

A) partnership
B) corporation
C) sole proprietor
D) stewardship

Question 50

If someone does drown this year, who will be held liable?

A) Terry Gibbs
B) Jerry Foster
C) Terry and Jerry
D) the customer and/or his canoe partner

Question 51

In a limited partnership, although one partner runs the business, any number of the others may have partial involvement in the business.

Question 52

A limited partnership is restricted to joint ownership by two people.

Question 53

Major advantages of a partnership over a sole proprietorship include having diverse management talent and the ability to sell shares of stock to the public to raise operating funds.

Question 54

In a partnership one partner can be sued for unpaid debts incurred by another partner.

Question 55

A partnership is a business that is jointly owned by two or more people.

Question 56

What is a sole proprietorship?

Question 57

A partnership agreement specifies each owner's rights and responsibilities in the business.

Question 58

Ben Cohen and Jerry Greenfield started Ben & Jerry's as a corporation.

Question 59

What benefit will Jerry enjoy over the years as the sole owner of his canoe renting company?

A) He'll be able to make all of the management decisions.
B) He'll keep all of the business profits.
C) He'll avoid paying special taxes.
D) all of the above

Question 60

Which of the following statements is not true about sole proprietors?

A) They are willing to risk their own resources to start a business
B) They need a lot of money from others to start their business
C) They want to minimize the costs of getting started
D) They risk their personal assets for the business

Question 61

How does a limited partnership overcome the unlimited liability defect of a general partnership?

Question 62

A corporation is a legal entity that is entirely separate from the parties that own it.

Question 63

In a(n) _____ partnership, a single partner runs the business and any number of other partners have little involvement in it.

A) general
B) limited
C) unlimited
D) corporation

Question 64

About what percent of U.S. businesses are partnerships?

A) 1%
B) 10%
C) 30%
D) 50%

Question 65

The major problem with general partnerships is:

A) shared decision making
B) unlimited liability
C) continuity
D) disputes among partners

Question 66

Mary and Diane drafted a partnership agreement for their apparel business. Which element below should not have been included?

A) division of partnership income (or loss)
B) partner responsibilities; who does what
C) projected financial statements
D) conditions for dissolving the partnership

Question 67

The _____ in a limited partnership has(have) limited involvement in the business and suffer loss only to the extent of their business investments.

A) limited partners
B) general partner
C) senior partner
D) managing partner

Question 68

Explain and give an example of the concept of unlimited liability in a partnership.

Question 69

Under the ____ form of ownership, it's important to have an agreement about conditions for settling disputes.

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

Question 70

Corporations are limited to large, well-known companies.

Question 71

A _____ is a business owned and operated jointly by two or more people.

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

Question 72

Which statement is true about partnerships in the United States?.

A) about 10% of U.S. businesses are partnerships
B) most partnerships are very large
C) setting up a partnership is easier than setting up a sole proprietorship
D) It is possible to form a partnership without the help of a lawyer or an accountant

Question 73

Which of the following is not an advantage of a partnership (relative to a sole proprietorship)?

A) inexpensive to set up
B) makes financing easier
C) benefits from diverse management talents
D) limited liability

Question 74

Studies show that partnerships are more successful than sole proprietorships.

Question 75

Many people are reluctant to enter into partnerships because of _____.

A) limited liquidity
B) long work days
C) poor survival rates, especially compared to sole proprietorships
D) unlimited liability

Question 76

A major disadvantage of a partnership is that partners may disagree on how to operate the business and divide the profits.

Question 77

In a limited partnership, a single _____ runs the business and is responsible for all of the business liabilities.

A) senior partner
B) CEO
C) general partner
D) limited partner

Question 78

The number and severity of disputes between partners can be lessened if the partners have executed _______ that specifies everyone's rights and responsibilities.

A) a charter
B) a business plan
C) articles of incorporation
D) a partnership agreement

Question 79

In a corporation, all of the owners help run the business.

Question 80

Corporations are owned by shareholders who invest money in the business by buying shares of stock.