Deck 8: Firms, the Stock Market, and Corporate Governance

Question 1

The owners of a ________ have a separate legal distinction from the business.

A) corporation
B) partnership
C) sole proprietorship
D) All of the above are correct.

Answer 1

A

Question 2

A sole proprietorship is

A) the easiest type of business to set up.
B) the most difficult type of business to set up.
C) the most expensive type of business to set up.
D) the least profitable type of business to set up.

Answer 2

A

Question 3

As a form of business, a partnership

A) has limited liability.
B) has only one owner.
C) cannot issue stock.
D) has the most government rules and regulations affecting it.

Answer 3

C

Question 4

How does the owner of a sole proprietorship relate to the business?

A) The owner and the business are separate legal entities.
B) The owner and the business are not separate legal entities.
C) The assets of the owner are considered separate from the asset of the business.
D) None of these describe the legal relationship of the owner to the business.

Question 5

Which type of business has the least government rules and regulations affecting it?

A) sole proprietorship
B) partnership
C) corporation
D) They all have the same set of rules and regulations affecting them.

Question 6

Which of the following must a firm in a market economy do today to succeed?

A) Produce the goods and services that consumers want at a lower cost than consumers themselves can produce.
B) Organize the factors of production into a functioning, efficient unit.
C) Have access to sufficient funds.
D) Market firms today must do all of these things.

Question 7

Which of the following is an advantage of starting a new business as a proprietorship?

A) The owner has limited personal liability.
B) A proprietorship has few government rules and regulations to comply with.
C) Business profits are not taxed.
D) A proprietorship can easily attain additional funding.

Question 8

Jeremy is thinking of starting up a small business selling NASCAR memorabilia. He is considering setting up his business as a sole proprietorship. What is one advantage to Jeremy of setting up his business as a sole proprietorship?

A) As a sole proprietor, Jeremy would face limited liability.
B) As a sole proprietor, Jeremy would have the ability to share risk with shareholders.
C) As a sole proprietor, Jeremy would have both ownership and control over the business.
D) All of the above would be advantages of setting up his business as a sole proprietorship.

Question 9

Jeremy is thinking of starting up a small business selling NASCAR memorabilia. He is considering setting up his business as a sole proprietorship. What is one disadvantage to Jeremy of setting up his business as a sole proprietorship?

A) As a sole proprietor, Jeremy would be taxed twice.
B) As a sole proprietor, Jeremy would not have control of the business.
C) As a sole proprietor, Jeremy would face unlimited liability.
D) As a sole proprietor, Jeremy would be subject to significant rules and regulations.

Question 10

Organizing a successful firm in a market economy has become ________ over the last century.

A) legally impossible
B) politically impossible
C) less difficult
D) more difficult

Question 11

Who controls a sole proprietorship?

A) stockholders
B) bondholders
C) the owner
D) all of these

Question 12

Assume you set up a sole proprietorship and your lawyer tells you that as the owner, you could stand to lose your personal wealth if the business goes bankrupt. This means a sole proprietorship

A) faces limited liability.
B) faces unlimited liability.
C) has little chance of succeeding.
D) is not a good type of business to set up.

Question 13

A corporation is owned by its

A) board of directors.
B) stockholders.
C) employees.
D) CEO.

Question 14

Which type of business is the most difficult to set up?

A) sole proprietorship
B) partnership
C) corporation
D) There is no difference in the difficulty of establishment.

Question 15

In a typical year, ________ of new jobs are created by small firms.

A) less than 5 percent
B) 10 percent
C) 40 percent
D) 75 percent

Question 16

Eighty-five percent of all firms employ ________ workers.

A) only one or two
B) fewer than 20
C) 50 or more
D) over 100

Question 17

A corporation is the type of business has ________ government rules and regulations affecting it.

A) no
B) the fewest
C) the most
D) only federal

Question 18

How do a sole proprietorship and a corporation differ?

A) Proprietorships have unlimited liability while corporations have limited liability.
B) Corporations can issue stocks and bonds, while proprietorships cannot.
C) Corporations face more taxes than do proprietorships.
D) All of these are differences between the two types of businesses.

Question 19

Unlike firms that sell stock in financial markets, which are known as ________ firms, companies which do not sell stock in financial markets are known as ________ firms.

A) public; private
B) open; closed
C) corporate; proprietary
D) stock market; bond market

Question 20

What does limited liability mean?

A) The owners of the business are personally responsible for paying expenses incurred by the business.
B) Only employees can have a claim on the assets of the business.
C) The personal assets of the owners cannot be claimed if the business is bankrupt.
D) Anybody with a liability against a firm can claim only what their liability refers to.

Question 21

Which of the following statements is false?

A) Corporations can issue stocks and bonds, while proprietorships cannot.
B) Corporations have one owner, while proprietorships have many owners.
C) Corporations face more taxes than do proprietorships.
D) Proprietorships have unlimited liability, while corporations have limited liability.

Question 22

Which of the following is not an advantage of starting a new business as a corporation?

A) separation of ownership and business liability
B) enhanced ability to raise funds
C) ability to share risks
D) possibility of double taxation

Question 23

Of the different types of businesses, a corporation has the ________ government rules and the ________ government regulations affecting it.

A) least; least
B) least; most
C) most; least
D) most; most

Question 24

What is the primary difference between a sole proprietorship and a partnership?

A) Proprietorships have unlimited liability, while partnerships have limited liability.
B) Partnerships can issue stocks and bonds, while proprietorships cannot.
C) Partnerships have more owners than do proprietorships.
D) There is no real difference between the two types of firms.

Question 25

What type of business is the easiest to set up?

A) sole proprietorship
B) partnership
C) corporation
D) There is no difference in the ease of establishment.

Question 26

A firm in a market economy must do all of the following to succeed except

A) produce the goods and services that consumers want at a lower cost than consumers themselves can produce.
B) organize the factors of production into a functioning, efficient unit.
C) have access to sufficient funds.
D) be organized as a corporation.

Question 27

How are corporate profits taxed in the United States?

A) Earnings are taxed first by state sales taxes and then as corporate profits at the Federal level.
B) Earnings are taxed first as personal income then as corporate profits at the Federal level.
C) Earnings are taxed first as corporate profits then as personal income after dividends are paid.
D) Corporate profits are not taxed at all.

Question 28

Before its IPO, Facebook was an example of a private firm. As a private firm, Facebook was

A) not subject to government regulations and taxation.
B) run by stockholders and a board of directors.
C) run by its founder, Mark Zuckerberg.
D) not legally allowed to raise funds through venture capital firms.

Question 29

Who controls a partnership?

A) the owners
B) stockholders
C) bondholders
D) employees

Question 30

As a business type, corporations ________ in the United States.

A) earn the majority of revenues
B) are the most common
C) are the least common
D) are subject to the fewest taxes

Question 31

Who controls a partnership?

A) stockholders
B) bondholders
C) the owners
D) all of these

Question 32

Who owns a corporation?

A) the board of directors
B) the stockholders
C) the employees
D) the CEO

Question 33

How has organizing a successful firm in a market economy changed over the last century?

A) It has become easier as more and more firms discover how to do it.
B) As government intervention has decreased, firms now have more freedom.
C) There has been no change one way or the other over the last century.
D) It has become more difficult to organize an efficient and successful firm.

Question 34

Which is the least common type of business?

A) corporation
B) partnership
C) sole proprietorship
D) impossible to determine without further information

Question 35

Which type of business has the most government rules and regulations affecting it?

A) sole proprietorship
B) partnership
C) corporation
D) They all have the same set of rules and regulations affecting them.

Question 36

Sole proprietorships are ________ type of business.

A) the most profitable
B) the least common
C) the most common
D) the least risky

Question 37

A corporation is

A) the easiest type of business to set up.
B) the least expensive type of business to set up.
C) the most difficult type of business to set up.
D) the least profitable type of business to set up.

Question 38

Which type of businesses earns the majority of profits in the United States?

A) corporations
B) partnerships
C) sole proprietorships
D) none of these

Question 39

Assume you set up a sole proprietorship and your lawyer tells you that as the owner you will face unlimited liability. What does that mean?

A) You are liable for organizing the business.
B) You could stand to lose your personal wealth if the business goes bankrupt.
C) There is no legal responsibility of the business in case a customer sues, as the business is legally untouchable.
D) None of these explain what unlimited liability means.

Question 40

Anything of value owned by a person or a firm is

A) an asset.
B) a liability.
C) wealth.
D) owner's yield.

Question 41

On average, jobs at small firms pay ________ wages than jobs at large firms and are ________ likely to offer fringe benefits such as health insurance and retirement accounts.

A) higher; more
B) lower; more
C) higher; less
D) lower; less

Question 42

When a business is set up as a sole proprietorship, the owner of the business faces limited liability.

Question 43

Which of the following is an advantage of starting a new business as a corporation?

A) double taxation
B) ease in setting up
C) low expenses of legally organizing
D) greater ability to raise funds

Question 44

When a business is set up as partnership, the owner of the business faces unlimited liability.

Question 45

Jeremy is thinking of starting up a small business selling NASCAR memorabilia. He asks his friend, Carmen, if she'd like to join him in setting up a partnership to start the business. What is one disadvantage in joining the partnership that Carmen should consider?

A) Carmen should realize that profits in the partnership will be reduced by dividend payments to shareholders.
B) Carmen should realize that, as an owner of the business, she will be personally responsible for the debts of the business.
C) Carmen should realize that the profits of the business will also be taxed as dividend income, so she faces the potential for double taxation of that business income.
D) Carmen should realize that the Jeremy will have complete control over the business because it was his idea.

Question 46

As a business type, corporations ________ in the United States.

A) earn the majority of profits
B) are the most common
C) are the least common
D) are subject to the least amount of taxes

Question 47

Who controls a sole proprietorship?

A) owner
B) stockholders
C) bondholders
D) employees

Question 48

The only type of business that faces unlimited liability is a sole proprietorship.

Question 49

If the personal assets of the owners cannot be claimed if the business is bankrupt, the owners are said to have

A) unlimited liability.
B) a proprietorship type of business.
C) limited liability.
D) a partnership type of business.

Question 50

Which of the following is not an advantage of starting a new business as a proprietorship?

A) The owner has complete control over the business.
B) A proprietorship has few government rules and regulations to comply with.
C) Business profits are only taxed once, not twice.
D) A proprietorship can easily attain additional funding.

Question 51

Which type of businesses earns the majority of revenues in the United States?

A) corporations
B) partnerships
C) sole proprietorships
D) none of these

Question 52

How does the owner of a corporation relate to the business?

A) The owners of the business have a separate legal distinction from the business.
B) The owners of the business have no separate legal distinction from the business.
C) The personal assets are part of the corporation's assets.
D) None of these describe the legal relationship of corporate owners to the business.

Question 53

In the United States, corporate profits are taxed

A) only at the corporate level.
B) only when investors receive dividends.
C) at both the corporate level and when investors receive dividends.
D) neither at the corporate level nor when investors receive dividends.

Question 54

In the United States, corporate profits are taxed at the corporate level and then are taxed again as personal income in the form of dividend payments.

Question 55

What is the most common type of business?

A) corporation
B) partnership
C) sole proprietorship
D) They are equally represented because of federal laws.

Question 56

A partnership is ________ type of business.

A) the most common.
B) the least common
C) the least risky
D) the most profitable

Question 57

How do the owners of a partnership relate to the business?

A) The owners and the business are not separate legal entities.
B) The owners and the business are separate legal entities.
C) The assets of the owners are considered separate from the asset of the business.
D) None of these describe the legal relationship of the owners to the business.

Question 58

The only type of business that faces limited liability is a corporation.

Question 59

Jeremy is thinking of starting up a small business selling NASCAR memorabilia. He is considering setting up his business as a corporation. What is one advantage to Jeremy of setting up his business as a corporation?

A) By setting up the business as a corporation, Jeremy would not face double taxation.
B) By setting up the business as a corporation, Jeremy would have the ability to share risk with shareholders.
C) By setting up the business as a corporation, Jeremy would have both ownership and control over the business.
D) All of the above would be advantages of setting up his business as a corporation.

Question 60

In a typical year, ________ new firms open in the United States.

A) more than 600,000
B) more than 1 million
C) less than 200,000
D) approximately 125,000

Question 61

In the United States, partnership profits are taxed at the business level and then are taxed again as personal income in the form of dividend payments.

Question 62

Stockholders

A) select the board of directors of a corporation.
B) select the employees of a corporation.
C) select the managers of a corporation.
D) all of the above

Question 63

A member of a corporate board of directors that is also a manager of the business is known as

A) a shareholder.
B) an inside director.
C) a partner.
D) a corporate governor.

Question 64

The existence of the principal-agent problem

A) increases the risk of buying stock in a corporation.
B) increases the risk of becoming the sole proprietor of a business.
C) implies that managers that have the same incentives as the board of directors.
D) does all of the above.

Question 65

Define a corporation.

Question 66

The way in which a corporation is structured and the impact a corporation's structure has on the firm's behavior is referred to as

A) corporate taxation.
B) structure composition theory.
C) structural behavior.
D) corporate governance.

Question 67

Corporate governance involves the way in which

A) the government nationalizes corporations.
B) the government licenses corporations.
C) a corporation is subject to government regulations.
D) a corporation is structured.

Question 68

The person hired by a corporation's board of directors to run the day-to-day operations of the corporation is known as the

A) chairman of the board.
B) chief executive officer.
C) owner-manager.
D) corporate governor.

Question 69

Define a partnership.

Question 70

What do economists call the situation where a hired manager does not have the same interests as the owners of the business?

A) conquest and control
B) a financial problem
C) a principal-agent problem
D) a financial intermediary problem

Question 71

Define a sole proprietorship.

Question 72

What is an inside director?

A) a movie director who also appears in the movie
B) a member of a corporate board of directors that is also a manager of the business
C) the CEO that is selected by the corporation's board of directors
D) a board of director chair who has been in the job for at least three years

Question 73

What are the advantages of setting up a proprietorship or partnership as opposed to a corporation?

Question 74

What are the advantages of setting up a corporation as opposed to a proprietorship or partnership?

Question 75

Who operates and controls a corporation in its day-to-day activities?

A) the board of directors
B) stockholders
C) employees
D) management

Question 76

How do unlimited and limited liability differ?

Question 77

By tying the salaries of top corporate managers to the price of the corporation's stock, corporations hope to avoid

A) corporate governance.
B) conflict between the CFO and the CEO.
C) the principal-agent problem.
D) paying high salaries to their managers.

Question 78

A corporation's board of directors

A) hires the managers of the corporation.
B) controls the day-to-day activities of the corporation.
C) is personally liable for the debts of the corporation.
D) is the sole owner of the corporation.

Question 79

In which types of business do owners have unlimited personal liability and in which do owners have limited personal liability?

Question 80

What type of business has the potential for double taxation of profits and why?