Deck 6: Forms of Business Ownership

Question 1

The biggest difference between general and limited partnerships involves who accepts most of the business liability.

Answer 1

True

Question 2

Like partnerships, shareholders in an S corporation pay income taxes based on their proportionate share of the business profits.

Answer 2

True

Question 3

A company with 200 shareholders can establish itself as an S corporation.

Answer 3

False

Question 4

S corporations are similar to C corporations because they both pay corporate income taxes.

Question 5

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

Question 6

A corporation is a specific form of business that is legally formed under state laws and is considered a separate entity.

Question 7

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

Question 8

One disadvantage of a sole proprietorship is they usually have limited access to additional financial resources.

Question 9

S corporations are restricted to a limited number of owners, whereas limited liability companies can have an unlimited number of owners.

Question 10

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

Question 11

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

Question 12

To protect partnerships and minimize misunderstandings among partners, all terms of a partnership should be spelled out in writing.

Question 13

A sole proprietorship can have only one owner, but it can have any number of employees.

Question 14

A sole proprietorship is a common form of business ownership for startup businesses.

Question 15

The organizational structure of a corporation allows for shareholders to have control over the company's daily operations.

Question 16

Partnerships are taxed at the lowest corporate tax rate.

Question 17

If you want to terminate your ownership in a publicly traded corporation, you simply sell your shares.

Question 18

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

Question 19

When establishing a sole proprietorship, it may be necessary to obtain local licensing or permits.

Question 20

Tom has agreed to become a partner in a business. Since he will provide 30% of the capital to start the company, he is entitled to 30% of any profits the company earns during its first year of operation.

Question 21

Not-for-profit organizations are NOT required to incorporate.

Question 22

Lucia owns her own dog walking business and has several employees. She filed no legal paperwork and has no partners. Lucia's business is a ________.

A)limited liability company
B)corporation
C)sole proprietorship
D)separate legal entity

Question 23

A conglomeration occurs when two companies selling different but related products in the same market combine.

Question 24

Unlimited liability with respect to business ownership means ________.

A)to have an obligation to pay all business debt
B)to have an obligation to pay only the money you invest in a business
C)to be liable for expenses incurred only by you, not your employees
D)to be liable for estimated business expenses only

Question 25

All of the following are advantages of sole proprietorship EXCEPT ________.

A)single ownership
B)no special forms
C)ease of formation
D)limited liability

Question 26

Not-for-profit organizations may NOT earn a profit.

Question 27

All mergers and acquisitions are mutually desired by both companies.

Question 28

A sole proprietor's income and expenses flow through ________.

A)shareholders' tax returns
B)individual partners' tax returns
C)his or her personal tax returns
D)corporate tax returns

Question 29

Jenny and Rose are hairstylists that have decided to open their own salon by starting a general partnership. The first step to ensuring a successful partnership would be to ________.

A)insure they each have 25 clients to bring into the partnership
B)submit the partnership formation fee to the state
C)draw up a partnership agreement
D)submit the limited liability forms before they see clients

Question 30

Arthur is a truck driver who owns his own business. He has been on the road for several months, and the constant wear and tear on his truck results in the need for several major mechanical repairs. This generates a loss for his business. Which of the following reflects how this will affect Arthur's tax obligation?

A)Arthur's tax obligation will be increased.
B)Arthur's tax obligation will be reduced.
C)Arthur's tax obligation will not change at all.
D)Arthur will not be required to pay his tax obligation.

Question 31

Dan is excited to start marketing and selling his new indoor practice hockey tarps and would like to start today. He already has several hockey associations waiting to make purchases. Dan's best option for starting his business quickly and hassle free is a(n)________.

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

Question 32

In order to expand more quickly and remain competitive, companies integrate other established businesses through the process of mergers or acquisitions.

Question 33

The most significant difference between a partnership and a sole proprietor is the ________.

A)amount of liability of owners
B)taxation process used by owners
C)number of government forms required for establishment
D)number of people contributing resources

Question 34

Paula is thinking of making homemade perfumes and selling them to her relatives. She has not filed any legal documents to start her business. Paula would be operating as a(n)________.

A)S corporation
B)corporation
C)sole proprietor
D)limited liability company

Question 35

One disadvantage of sole proprietorship is the ________.

A)possibility of disagreements between different owners
B)unlimited liability the owner has for the debts of the company
C)fact that any income earned by this type of business is taxed twice
D)cost of starting or ending the company is higher than other businesses

Question 36

In a sole proprietor ownership, if business assets are not enough to pay business debts, then personal assets, such as the sole proprietor's house, personal investments, and retirement plans can be used to pay the debt. This is called ________.

A)unlimited liability
B)limited liability
C)non-liability
D)double taxation

Question 37

Members are the most important part of a cooperative.

Question 38

A good reason why partners should spell out the details of their partnership arrangements in writing is because ________.

A)the partnership is not a legally recognized business until the arrangement is in writing
B)a written agreement will help reduce misunderstandings and disagreements among the partners
C)putting the agreement in writing will limit the liability of each partner to a specified level
D)doing so will make it easier to convert the business to a corporation at a later date

Question 39

More than one-half of all mergers do not succeed in achieving greater market value.

Question 40

All of the following EXCEPT ________ would be an advantage to partnership.

A)pooled skills
B)increased financial resources
C)increased available time
D)unlimited liability

Question 41

A partner who invests money in a business but is not involved in the day-to-day operation and is only risking capital equal to what they have contributed is called a ________.

A)general partner
B)limited partner
C)partial partner
D)corporate investor

Question 42

Traci and Sally have considered starting their own business but are concerned about the possibility of losing their personal assets if the business fails. One way for Traci and Sally to avoid this risk would be to organize their company as a ________.

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

Question 43

Alex and Bailey opened a dance studio together as general partners. They each invested $10,000 of their personal savings. After one year in business, they decided to close the doors. Their partnership agreement said they would divide profits and losses 50/50. They have more debt than assets. Alex and Bailey will each ________.

A)lose only $10,000, the amount they invested since they agreed to share profits and losses 50/50
B)lose personal assets to repay the debt since a partnership is not considered to be a separate entity from the partners who own it
C)collect the debt from their former customers since the customers accepted responsibility for the business when they purchased services
D)avoid any liability for the debt since a partnership is considered to be a separate entity from the partners who own it

Question 44

Which of the following statements about the operation of a corporation is correct?

A)A corporation is a separate entity and is legally formed under state laws.
B)A corporation automatically expires in 99 years and must be renewed if a corporation wants to remain in business.
C)Owners of a corporation have unlimited liability for any claims against their company.
D)A corporation tends to be much easier to set up than a sole proprietorship or partnership.

Question 45

In a partnership, the type of partner that is responsible for all claims against the company is called a(n)________.

A)investor
B)general partner
C)unlimited partner
D)limited partner

Question 46

Jaden and Noel are starting a computer repair business together. Jaden insists on outlining rules for the departure of partners in the partnership agreement, although Noel does not think it is necessary. Which of the following statements might Jaden use to explain his insistence to Noel?

A)Provisions to remove a partner's ownership interest are necessary so the business would not have to liquidate.
B)Determining the allocation of profits to new, junior partners is important to eliminate future potential conflicts.
C)Responsibilities must be clearly delineated to avoid the possibility of one partner overstepping his or her bounds.
D)As the partnership matures and ages, defining how profits and losses will be distributed must be made.

Question 47

Management and ownership roles would most likely be separate in what type of business structure?

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

Question 48

Owners of limited liability companies are referred to as ________, while owners of corporations are called ________.

A)partners; shareholders
B)shareholders; partners
C)shareholders; members
D)members; shareholders

Question 49

In a partnership, all profits and losses flow through each partner's ________.

A)tax returns
B)savings
C)liabilities
D)investments

Question 50

The Sarbanes-Oxley Act of 2002 was enacted to provide a new set of standards of accountability for ________.

A)corporate officers
B)board of directors
C)shareholders
D)business owners

Question 51

Which of the following parts of a partnership agreement spells out the policy regarding partners entering into key financial or contractual agreements?

A)addition of partners
B)departure of partners
C)responsibilities of partners
D)decision-making process

Question 52

Kris and Amy own a workout facility in which they are co-owners. Both take an active role in the management of the business and each accepts unlimited liability. Kris and Amy operate as a ________.

A)joint venture
B)general partnership
C)limited partnership
D)cooperative

Question 53

Which of the following is the limit of liability of a limited partner?

A)the amount of their investment
B)the amount of business capital
C)the amount of their shared profits
D)the amount of their personal assets

Question 54

Policies regarding all of the following points should be included in a partnership agreement EXCEPT ________.

A)division of stock
B)capital contribution
C)shares of profits or losses
D)decision-making process

Question 55

All of the following are advantages of forming a corporation EXCEPT ________.

A)extended life
B)capitalization
C)separated liability
D)ease of set up

Question 56

Nick is investing $25,000 in a partnership with his sister and brother. Nick does not want to be an active part of the partnership and can only afford to risk the $25,000 he is investing. His brother and sister agree to let him share a proportionate amount of the profits. Nick is a ________ in this partnership.

A)limited partner
B)junior partner
C)general partner
D)sole partner

Question 57

Ben recently purchased 100 shares of stock in Feger's Sports, Inc. Ben is a(n)________ of Feger's Sports, Inc.

A)owner
B)manager
C)director
D)partner

Question 58

If a corporation provides medical insurance, it will actually lower the company's taxes because ________.

A)medical insurance benefits are legally deductible expenses
B)its employees will be healthy, creating higher productivity because of lower absenteeism
C)it increases the company's profits
D)IRS regulations allows medical benefits to be filed as a business loss

Question 59

Which of the following is the MOST compelling argument for incorporating a business?

A)to hire more employees
B)to avoid paying federal taxes
C)to protect the owners' personal assets
D)to complete minimal legal requirements

Question 60

In a large corporation, shareholders responsibilities include ________.

A)making major business and financing decisions
B)authorizing the issuance of stock
C)electing corporate officers
D)electing a board of directors

Question 61

Mr. Gonzales wants to help fellow farmers in his community, but he is not interested in making a personal profit. His main goal is to join with other farmers so they can have better bargaining power when purchasing supplies. Which of the following business types will Mr. Gonzales MOST likely form?

A)general partnership
B)sole proprietorship
C)cooperative
D)not-for-profit corporation

Question 62

Which of the following is a disadvantage of forming a corporation?

A)unlimited liability of owners
B)difficult transfer of ownership
C)limited life
D)double taxation

Question 63

Which of the following methods do not-for-profit corporations primarily use to generate revenues?

A)withholding employees' salaries
B)scaling down big-budget projects
C)organizing fund-raising events
D)issuing shares of corporate stock

Question 64

Which of the following statements about S corporations is MOST accurate?

A)S corporations enable owners to avoid the problem of double taxation.
B)S corporations can have an unlimited number of owners.
C)S corporations must have fewer than 5 employees.
D)S corporation are easier to set up than sole proprietorships and partnerships.

Question 65

Compared to the C corporation, the limited liability company is an attractive form of business ownership because ________.

A)a limited liability company may be more expensive to form but it has a longer life than a C corporation
B)a limited liability company allows only one owner, whereas a C corporation requires over 100 owners
C)a limited liability company provides owners with protection of their personal assets; whereas C corporation owner's personal assets are at risk
D)a limited liability company does not require the firm to hold annual meetings and it can avoid double taxation

Question 66

All of the following are reasons business owners consider using a corporation structure of ownership EXCEPT ________.

A)the appearance of stability and legitimacy
B)protection from significant loss of personal assets
C)ease of forming and setting up the structure
D)eased ability of raising capital

Question 67

Which of the following types of ownership is limited to 100 owners?

A)C corporation
B)S corporation
C)sole proprietor
D)limited liability company

Question 68

Limited liability companies are unable to offer stock options or stock bonus incentives to their employees because ________.

A)benefits such as these are too costly for these types of startup companies
B)extra profits are reinvested into the company, not into company stocks
C)limited liability companies do not have shareholders or stock
D)approval of stock benefits is difficult due to the number of members

Question 69

A cooperative is a type of business that is owned by ________ who use its products or services.

A)members
B)shareholders
C)directors
D)partners

Question 70

A disadvantage of a limited liability company is that it ________.

A)requires earnings to be taxed at the corporate rate
B)must dissolve when an owner leaves the company
C)requires the division of profits in a fixed proportion
D)has more restrictive ownership rules than S corporations

Question 71

Becca and Bob own a car rental business. Becca contributes 75 percent of the capital but does only 20 percent of the work, while Bob contributes 25 percent of the capital but does 80 percent of the work. Both decide on a 50/50 allocation of profits. In which types of business structures would this arrangement be possible?

A)limited liabilities and partnerships
B)S corporations and partnerships
C)sole proprietorships and limited liabilities
D)S corporations, limited liabilities and partnerships

Question 72

A(n)________ occurs when two companies of about the same size mutually agree to create a new combined company.

A)merger
B)acquisition
C)takeover
D)synergy

Question 73

When a not-for-profit corporations dissolves, its assets are ________.

A)transferred to the government
B)distributed among major donors
C)passed to the owners' families
D)given to a similar not-for-profit group

Question 74

Leslie is excited to begin a personal shopping business. She is planning on having employees and is concerned about losing personal assets should something happen to the business. She would like to focus on profits and building a business but she does not want her business to pay its own taxes. What ownership structure is Leslie's best choice?

A)sole proprietor
B)C corporation
C)S corporation
D)cooperative

Question 75

Which of the following is a benefit of forming a corporation?

A)Corporations can be double taxed.
B)Owners of a corporation are passive investors.
C)Owners of a corporation are subject to unlimited liability.
D)Corporations can offer stock options to employees.

Question 76

Many new business owners prefer a limited liability structure because there are ________.

A)fewer corporate formalities
B)fewer lawsuits
C)typically higher profits than other forms of ownership
D)more informal agreements

Question 77

The following are characteristics shared by both for-profit and not-for-profit corporations EXCEPT ________.

A)electing a board of directors to run the organization
B)offering employee fringe benefits
C)having limited liability protection
D)issuing shares of stock

Question 78

Which of the following tasks is NOT the responsibility of the board of directors?

A)setting policies for the corporation
B)authorizing the issuance of stock
C)electing corporate officers
D)managing the company's daily operations

Question 79

Which of the following statements BEST describes the distinction between a not-for-profit corporation and a for-profit corporation?

A)Not-for-profits do not pay their employees.
B)Not-for-profits cannot be organized for any person's private gain.
C)Not-for-profits have to dissolve when the owner leaves or dies.
D)Not-for-profits cannot hire executive officers to run the business.

Question 80

A not-for-profit corporation such as a church or ministry may be exempt from ________.

A)inheritance tax
B)property tax
C)dividend tax
D)value-added tax