Deck 3: Selecting a Form of Business Ownership

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

False

Question 4

It is necessary to decide if the business should survive the owner(s) in the
startup stage.

Question 5

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

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

Question 6

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

Question 7

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 8

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

Question 9

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

Question 10

"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 11

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

Question 12

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 13

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 14

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 15

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

Question 16

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

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.

Question 17

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 18

Scenario-Based
Rock City is a community in the Midwest with a population of 23,000 people.
Three dental clinics serve the city and the surrounding area.Perfect Smile is
owned and operated by the newest dentist in town, Dr.Martin Harris, who employs
one dental assistant and a secretary/receptionist.Drs.Joan Bennett and Joseph
Young jointly operate Teeth for Life and provide a few more services than Dr.
Harris.Rock City Dental Clinic has been in business for 58 years, employs 38
people, and offers a range of services that include dentures, orthodontics,
and minor oral surgery.
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 19

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 20

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

Question 21

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

Question 22

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

Question 23

A sole proprietorship is a legal form of business ownership.

Question 24

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

Question 25

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 26

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

Question 27

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

Question 28

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

Question 29

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

Question 30

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 31

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

Question 32

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 33

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 34

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

Question 35

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

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

Question 36

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
D)it makes financing more difficult

Question 37

Identify and define three types of business ownership.
(1) A sole proprietorship is a business owned by only one person.(2) A partnership is a business owned jointly by two or more people.(3) A corporation is a
legal entity that's entirely separate from the parties who own it and which is
responsible for its own debts.
(Easy)

Question 38

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 39

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

Question 40

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

Question 41

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 42

Which of the following statements is 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 43

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

Question 44

Scenario-Based
Jerry Foster is a sole proprietorship who owns a canoe renting business.Jerry's
employee, Terry Gibbs, greets customers at the company's office, loads the
customers and their rented canoes onto a van, provides them with safety
instructions and drives them upstream.Once unloaded the canoers are on their
own to float back to the company's office to check in.Although there have been
minor accidents, no one has drowned in the nine years the business has been in
operation.Jerry plans to add kayaks and rubber rafts next year.The scenery is
beautiful and each day people see wild animals come down to the water.
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 45

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

Question 46

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

Question 47

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 48

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

Question 49

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 50

What is a sole proprietorship?

Question 51

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

Question 52

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

Question 53

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 54

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 55

Scenario-Based
Jerry Foster is a sole proprietorship who owns a canoe renting business.Jerry's
employee, Terry Gibbs, greets customers at the company's office, loads the
customers and their rented canoes onto a van, provides them with safety
instructions and drives them upstream.Once unloaded the canoers are on their
own to float back to the company's office to check in.Although there have been
minor accidents, no one has drowned in the nine years the business has been in
operation.Jerry plans to add kayaks and rubber rafts next year.The scenery is
beautiful and each day people see wild animals come down to the water.
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 56

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

Question 57

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

Question 58

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 59

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

Question 60

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 61

The problem with general partnerships is:

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

Question 62

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

Question 63

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 64

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

Question 65

Corporations are limited to large, well-known companies.

Question 66

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 67

The most important benefit of incorporation is the continuity to which
shareholders are exposed.

Question 68

Studies show that partnerships are more successful than sole proprietorships.

Question 69

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 70

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

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

Mary and Diane drafted a partnership agreement for their apparel business. Which element below should 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 73

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

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

Question 74

Which of the following is 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 75

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 76

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 77

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

Question 78

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

Question 79

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 80

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 accountan