Deck 6: Forms of Business Ownership

Question 1

Few people today start their own business.

Answer 1

False

Question 2

Once a business is established,it's almost impossible to change from one form of business ownership to another.

Answer 2

False

Question 3

If a sole proprietorship fails,the owner may lose whatever was invested in the business,but the owner's personal assets are not at risk.

Answer 3

False

Question 4

Dann is convinced that he has a great idea for a new business.Unfortunately,the type of business he wants to start would require a fairly high initial investment and Dann has a poor credit rating and very little personal wealth.Dann would be unlikely to find success if he organized his business as a sole proprietorship.

Question 5

It is usually easy to start and end a sole proprietorship.

Question 6

Jim wants to start a business.He is attracted by the idea of being his own boss,and wants to get started with a minimum of expense and hassle.He is very confident in his abilities,so he is not particularly worried about financial risks.All of these factors suggest that Jim would favour starting his business as a sole proprietorship.

Question 7

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

Question 8

The first step in starting a sole proprietorship is to fill out a proprietorship charter application form and file it with the provincial government.

Question 9

Sandy is a talented fashion designer who wants to start her own women's sportswear company.However,she is concerned about some problems she might face.She knows little about actual production methods or the financial aspects of running a business,and has little personal wealth to put into the company.In order to overcome these problems,Sandy should start her business as a sole proprietorship.

Question 10

Partnerships have the largest share of business revenue in Canada.

Question 11

An advantage of forming a sole proprietorship is that it allows the owner to have more time for leisure activities.

Question 12

The three major forms of business ownership in Canada are sole proprietorships,partnerships,and corporations.

Question 13

A general partner can take an active role in the management of the business.

Question 14

One of the strengths of the sole proprietorship is its ability to sustain rapid growth by raising large amounts of financial resources.

Question 15

The sole proprietorship form of ownership tends to be attractive to people who want to invest in a company without taking an active role in management.

Question 16

A major advantage of sole proprietorships is that an owner has limited liability for the debts of his or her business.

Question 17

The corporation is the most common form of business ownership.

Question 18

The debts of a business operated as a sole proprietorship are considered to be the personal debts of the owner of the business.

Question 19

A comparison of the three major forms of business ownership shows that sole proprietorships are usually the most difficult type of business to establish.

Question 20

A drawback of sole proprietorships is that they usually have limited access to additional financial resources.

Question 21

Compared to sole proprietorships,partnerships offer the advantage of shared management and pooled knowledge.

Question 22

Limited partnerships are just like general partnerships,except that they are organized to operate as a going concern for only a limited time period.

Question 23

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

Question 24

A recent study showed that partnerships are more likely to fail than sole proprietorships.

Question 25

Setting up a partnership under the terms of a written agreement is a bad idea,because written agreements tend to be too inflexible and impersonal.

Question 26

One advantage of a partnership is that there is a simple process for partners to terminate their business.

Question 27

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

Question 28

Marco is a limited partner in an e-commerce company.As a limited partner,Marco can be involved with the company for a maximum of five years.

Question 29

One of the major disadvantages of a partnership is that profits must be divided according to very specific legal guidelines.

Question 30

Ted and Mark have been partners in a dry cleaning business for the past three years.They would like their brother Todd to join them.Unfortunately,partnership law states that only two partners can participate in a partnership.

Question 31

In a general partnership,all owners share in both management of the business and in the assumption of liability for the firm's debts.

Question 32

Alphonzo has agreed to become a partner in his brother's new clothing store and has provided 30 percent of the start-up capital for Remora's Clothiers.Since he provided 30 percent of the money to start the firm,he is entitled to 30 percent of any the profits the firm earns during its first year of operations.

Question 33

All of the partners in a general partnership have limited liability for the debts of their firm.

Question 34

A limited partnership refers to a partnership set up for a temporary purpose,such as a real estate development project.

Question 35

Two of Rolanda's friends have approached her to see if she would like to join them in starting a new business.Rolanda is willing to invest money in the business and share in its profits,but she has no desire to be involved in the day-to-day management of the company.She is also very nervous about the risk of losing her personal assets.Rolanda's preferences suggest that she would like to see the business operated as a general partnership.

Question 36

Compared to sole proprietorships,an advantage of partnerships is their ability to obtain more financial resources.

Question 37

A general partner has unlimited liability for the debts of the partnership only if he or she personally approved the decisions that resulted in those debts.

Question 38

Sharon,Lois and Sam have just formed a business partnership.Under their arrangement,Sharon will actively manage the company and assume unlimited liability for the firm's debts.Sam and Lois will invest several thousand dollars of their money and will share in the profits,but will not actively manage the firm and will not have liability for losses beyond their initial investment.This describes a limited partnership.

Question 39

In order to protect all parties and minimize misunderstandings among partners,all terms of the partnership should be spelled out in writing.

Question 40

Ron and Jon want to go into business together.They do not want to bring in other partners,but they both want to avoid unlimited liability for any debts incurred by their new company.Ron and Jon can achieve their aims by organizing the firm as a limited partnership.

Question 41

A disadvantage of corporations is that an owner must get the approval of all other owners before selling his or her interest in the firm to another investor.

Question 42

The stockholders in a corporation elect a board of directors to oversee the company's major policy issues.

Question 43

Stockholders in a corporation have limited liability for the debts of the corporation.

Question 44

Dr.Wright is interested in incorporating as an individual.While this is legally possible,there are really no advantages to doing so.

Question 45

Corporations are easy to start and easy to terminate.

Question 46

Most provinces have legal restrictions that prevent individuals from incorporating.

Question 47

Stockholders in a corporation normally exert a significant degree of control over the company's daily operations.

Question 48

A disadvantage of corporations is that their charters are only valid for 99 years,so corporations are less permanent than other types of businesses.

Question 49

A corporation is a federally or provincial-chartered legal entity,with authority to act and have liability separate from its owners.

Question 50

When one of the owners of a corporation dies,the corporation legally ceases to exist.

Question 51

Nutty Dough is a small chain of donut shops that is currently owned and operated by a group of seven partners.The owners think that their chain has the potential for rapid growth.One way the partners could deal with this would be to incorporate their business.

Question 52

One advantage of corporations is that the initial cost of setting them up is usually lower than for other forms of ownership.

Question 53

A corporation can raise financial capital by selling shares of stock to interested investors.

Question 54

In today's economy,only large business enterprises should operate as corporations.

Question 55

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

Question 56

Stockholders in a corporation must accept unlimited liability for the corporation's debts.

Question 57

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

Question 58

One reason individuals incorporate is to obtain the advantage of limited liability.

Question 59

Corporations are subject to double taxation.

Question 60

Connie is a general partner in a retail cookie store.Her personal assets are protected from the debts of the business.

Question 61

One of the major reasons for the wave of mergers in the last decade was the desire of firms to expand within their own markets to save on costs.

Question 62

A horizontal merger refers to a merger between two companies that are in entirely different markets.

Question 63

The process and policies that determine how an organization interacts with its shareholders is known as corporate governance.

Question 64

An acquisition is when one company buys the property and obligations of another company.

Question 65

A leveraged buyout is an attempt by top management to gain control of a company by issuing a large amount of new stock.

Question 66

The legal authorization for a company to use the corporate format is known as the articles of incorporation.

Question 67

When a group of investors take a firm private,they obtain all of the stock for themselves.

Question 68

Though popular during the early and middle 1900s,mergers and acquisitions were quite rare in the last decade.

Question 69

A merger between two businesses in different stages of related businesses is known as a vertical merger.

Question 70

The three major types of mergers are rectangular,triangular,and circular.

Question 71

The purpose of a conglomerate merger is to diversify operations and investments.

Question 72

In a merger,two firms combine to form one company.

Question 73

Wilson Office Supplies has announced plans to purchase all of the property and assume the obligations of Brown & Craft Stationery,Inc.,a firm that has been one of its major competitors.Wilson's plans are an example of a vertical merger.

Question 74

A private corporation is limited to 50 or fewer shareholders.

Question 75

Owners/shareholders in a public corporation have no control over the daily operations.

Question 76

Wizbang Computers,Inc.,a major producer of personal computers,is considering a merger with MBI,a leading producer of microprocessors and other computer chips.Wizbang believes such a merger would give them a guaranteed source of needed components,and would enable them to have better control over quality.If this merger occurs,it would be an example of a horizontal merger.

Question 77

Taking a firm private involves converting a firm from a corporation into a general partnership.

Question 78

In the past,the ABC's Markets and XYZ's Groceries have been fierce competitors in the grocery market.However,they recently issued a joint announcement stating their decision to merge.The announcement justified the proposed merger by claiming that the resulting firm would have more financial resources,which would enable it to expand services and broaden offerings to consumers.This proposed merger is an example of a horizontal merger.

Question 79

In a conglomerate merger,firms in the same industry merge to expand their share of the market.

Question 80

Jim Wilson,a professional accountant,could choose to set up a professional corporation.