Deck 8: The Organization of the Business

Question 1

An ownership interest does not automatically confer a right to act for or to share in the management of a corporation.

Answer 1

True

Question 2

A sole proprietorship is a business owned by one person.

Answer 2

True

Question 3

As in a partnership, ownership in a corporation is readily transferable.

Answer 3

False

Question 4

A partnership is a legal form of organization in which two or more individuals are forced to carry on, as co-owners, a business for profit.

Question 5

The sole proprietorship is usually the practical choice as a form of business organization for a new small business.

Question 6

Ownership in a corporation is evidenced by stock certificates.

Question 7

The sole proprietorship is a business owned by two or more people but operated by only one person.

Question 8

A corporation's charter should be brief, in accord with state law, and broad in the statement of the firm's powers.

Question 9

Partners always share profits and losses equally.

Question 10

Joint and several liability means that any partner may legally bind in good faith other partners in a contract or agreement.

Question 11

To transfer ownership in a corporation, it is only necessary to transfer shares of stock.

Question 12

A management team is often stronger than an individual entrepreneur because it provides a diversity of skills and assurance of continuity.

Question 13

The concept of balance on the management team means that the entrepreneur should not be wrapped up too much in one area, such as sales or production, but be well rounded.

Question 14

Sole proprietors often benefit from fringe benefits such as tax-free insurance plans.

Question 15

Creating a partnership allows a business to pool the managerial talents and capital of those individuals joining together as partners.

Question 16

There are no limits on the owner's personal liability in a sole proprietorship.

Question 17

Effective collaboration by members of a management team requires personal compatibility and cooperation of team members.

Question 18

Any weakness in the management of a new business will mean its certain failure, since no one outside the business will be able to provide management assistance.

Question 19

Partners must contribute capital or assets to form a partnership.

Question 20

In reviewing business plans, investors show great concern for the quality of venture leadership.

Question 21

Objectivity is a particularly valuable contribution of outside directors to the small firm.

Question 22

An S corporation may have no more than 35 stockholders.

Question 23

S corporations can have nonresident alien stockholders.

Question 24

The limited liability company differs from the C corporation in that the former avoids financial complications from double taxation.

Question 25

A strategic alliance is an organizational relationship that links two or more independent business entities in some common endeavor.

Question 26

A partnership reports the income it earns to the Internal Revenue Service, but the partnership itself does not pay any taxes.

Question 27

A sole proprietorship must be registered with the state to obtain its legal charter.

Question 28

Limited partners have limited personal liability.

Question 29

The name S corporation comes from the Internal Revenue Code, which permits corporations to retain the limited-liability feature of regular corporations while being taxed as partnerships.

Question 30

The desire for continuity of a business might be one reason to organize as a corporation rather than as a partnership.

Question 31

The form of ownership of a business has no effect on income taxes.

Question 32

Large manufacturing firms sometimes match their financial resources with the creativity of small manufacturing firms by means of strategic alliances.

Question 33

The death of a majority stockholder of a corporation results in the dissolution of the corporation.

Question 34

One of the disadvantages of the corporate form of organization is the limited liability of its owners.

Question 35

The board of directors is elected by the stockholders of a corporation.

Question 36

A limited partnership must have at least two general partners and one or more limited partners.

Question 37

A corporation's life span is equal to that of its owners.

Question 38

The liability of owners is not affected by the form of business organization selected.

Question 39

The death of the sole proprietor terminates the business entity.

Question 40

One of the advantages of a sole proprietorship is its continuity.

Question 41

A disadvantage of a sole proprietorship is

A) the complexity of the organization.
B) the cost of starting the business.
C) the lack of limits on personal liability.
D) the difficulty of distribution.

Question 42

The most rudimentary form of business organization among small businesses is the

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

Question 43

Which of the following best defines a partnership?

A) A business owned and operated by one person
B) A voluntary association of two or more persons to carry on, as co-owners, a business for profit
C) The governing body for corporate activity
D) An organization in which each owner has limited personal liability

Question 44

Which of the following legal forms of an organization allows owners to contribute no capital but still play a part in managing the business and share in its profits?

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

Question 45

A key characteristic of a partnership is that each partner

A) must contribute capital to the business.
B) shares in company assets upon the dissolution of the partnership.
C) is capable of legally contracting.
D) must manage the business.

Question 46

A sole proprietor

A) assumes all losses of the business.
B) assumes no profits.
C) receives tax-free fringe benefits.
D) assumes no losses.

Question 47

A corporate charter should be

A) very detailed.
B) prepared by an attorney.
C) brief in the statement of the firm's power.
D) lengthy and precise.

Question 48

Research evidence suggests team-founded businesses tend to outperform solo-founded firms.

Question 49

In many cases startup owners stack the management team with family and friends. They would increase their chances for success by seeking

A) a good CPA
B) an outstanding law firm
C) balanced expertise
D) a business consultant team

Question 50

For a corporate charter to be obtained,

A) one or more persons must apply to the secretary of state for permission to incorporate.
B) the owner(s) must agree to be interviewed by a state department official.
C) the owner(s) must negotiate an incorporation fee.
D) the partners involved must outline a division of assets.

Question 51

A corporation

A) is chartered under state laws.
B) is chartered under federal laws.
C) remains in existence only as long as its owners are alive.
D) shifts liability of its debts to its owners.

Question 52

A social network includes the web of relationships that an entrepreneur has with other people.

Question 53

The management team consists of individuals with supervisory and non-supervisory personnel.

Question 54

In a partnership, each partner has agency power, which means that

A) upon the death of one partner, the remaining partners can operate the business.
B) a partner can legally bind all members of the firm.
C) an executor can act as a partner.
D) a partner can compete in business and remain a partner.

Question 55

Social capital is the advantage created by an individual's connections within a web of social connections.

Question 56

Which of the following entities is liable for a corporation's debts?

A) Stockholders
B) Board of directors
C) The corporation itself
D) The corporation's president

Question 57

The owner of a new venture wants to supplement the managerial talent of its management team by drawing on outside assistance. Which of the following would be the least likely source of help?

A) A commercial bank
B) A certified public accounting firm
C) An attorney
D) The Small Business Administration

Question 58

The owner of a sole proprietorship

A) owns the business.
B) bears no risks.
C) is an employee of the business.
D) shares profits.

Question 59

The key to strong management in a new firm is

A) balance, with each member having competence in at least one area.
B) financial competence of the chief executive.
C) a strong marketing manager.
D) close friendship among all members of the team.

Question 60

The management team of a small business should not include outside specialists.

Question 61

Which of the following reflects how a partnership pays taxes?

A) It doesn't pay any taxes.
B) It pays taxes as a partnership.
C) The partners each pay taxes on the total income.
D) The partners do not pay taxes if they own Section 1244 stock.

Question 62

The legal document that spells out the partners' rights and duties is called the

A) articles of incorporation
B) partnership agreement
C) partnership by-laws
D) SS-4 form

Question 63

Any person capable of ____ may legally become a business partner.

A) assenting to liability
B) contracting
C) contributing capital
D) having a claim on assets

Question 64

A basic legal principle involving stockholders is that

A) an ownership interest in a corporation does not confer a legal right to manage the firm.
B) the board of directors cannot elect the principal owner as president.
C) all dividends are nontaxable.
D) stockholders cannot buy new stock until it is offered for public sale.

Question 65

Permission to incorporate a business comes from the

A) board of directors.
B) stockholders.
C) government, usually through a secretary of state.
D) corporate officers.

Question 66

A strong partnership requires that partners who

A) are honest, healthy, capable, and contribute assets to the partnership.
B) honest, healthy, capable, and compatible with the other partners.
C) honest, healthy, capable, and legally unencumbered.
D) honest, healthy, capable, and willing to participate actively in the partnership.

Question 67

Some of the benefits of a partnership form of business include the following except

A) sharing workload
B) sharing financial burdens
C) adding companionship
D) reducing personal conflicts

Question 68

Stockholders have limited liability unless they

A) are active in the management of the corporation.
B) personally endorse company notes.
C) own preferred stock.
D) convert their shares to partnership status.

Question 69

Unlimited liability for business debts is imposed on

A) shareholders in a C corporation.
B) shareholders in an S corporation.
C) sole proprietors.
D) limited partners.

Question 70

The right to buy new shares of stock in proportion to stock already owned is called a

A) stock right.
B) stock option.
C) Section 1244 right.
D) pre-emptive right.

Question 71

Ownership in a corporation

A) is difficult to transfer.
B) is more easily transferable than ownership in other forms of organization.
C) is transferred in much the same way as stock in a partnership.
D) noticeably affects the operation of the business.

Question 72

A recent IRS report projects that ____ percent of businesses will be established as C corporations in 2009.

A) 7
B) 13
C) 21
D) 33

Question 73

A corporate charter should

A) be detailed.
B) be in accord with state law.
C) include bylaws.
D) indicate profit potential.

Question 74

If partners cannot resolve disputes between themselves they may be wise to hire a(n)

A) business mediator
B) arbitrator
C) business judge
D) business attorney

Question 75

In a limited partnership, which of the following remains bound by all debts of the business?

A) Limited partner
B) Special partner
C) Partner with the greatest capital investment
D) General partner

Question 76

The text provides the following suggestions in forming a partnership except

A) test-drive the relationship, if possible
B) create a combined vision for the business
C) choose only family or friends as partners
D) prepare for the worst

Question 77

A typical common stockholder of a corporation

A) has the right to act for the firm.
B) has the right to receive declared dividends.
C) can always buy new stock in proportion to stock already owned.
D) can fire employees of the corporation.

Question 78

Upon the death of the majority stockholder in a corporation, direct control may pass to

A) an heir's dependents.
B) an executor.
C) the founder of the firm.
D) employees as directed by an employee stock ownership plan.

Question 79

Characteristics of a corporation include which of the following:

A) artificial being
B) visible
C) tangible
D) immutable

Question 80

The residual assets of a sole proprietorship belong to the ____ after the owner's death.

A) owner's heirs
B) primary investors
C) general partners
D) creditors