Deck 3: Choosing a Form of Ownership

Question 1

Which of the following is true about the content of a standard partnership agreement?

A)It does not specify how profits and losses will be distributed.
B)It includes the Certificate of Incorporation.
C)It specifies how the partnership may be dissolved and assets divided.
D)While it specifies the location of the business and its purpose,it does not name the partners or their legal addresses in order to maintain privacy for the partners.

Answer 1

C

Question 2

While a sole proprietorship gives the owner maximum flexibility in running the business,it also:

A)makes the company a prime target for an acquisition or merger.
B)creates a sense of isolation.
C)makes it difficult to hire management talent to help grow the business.
D)makes it difficult to sell.

Answer 2

B

Question 3

If a partnership is formed without an agreement,the partnership is automatically subject to the:

A)Certification of Incorporation laws.
B)Uniform Partnership Act.
C)Limited Liability Company Act.
D)Revised Uniform Limited Partnership Act.

Answer 3

B

Question 4

The Uniform Partnership Act outlines a number of general obligations that partners have such as the obligation to:

A)give other partners complete information about all business affairs.
B)share in the management and operation of the business.
C)be compensated for personal expenses incurred.
D)have access to the business's books and records.

Question 5

The most common form of business ownership is the:

A)sole proprietorship.
B)partnership.
C)corporation.
D)0S-corporation.

Question 6

A partnership agreement sets how the partners will be compensated.Normally:

A)partners are not entitled to salaries or wages,but are compensated by a share of the profits of the business.
B)the general partner's salary is set at 2 times the salaries of the limited partners.
C)both general and limited partners are permitted salaries,but all silent or dormant partners are compensated only by sharing in the profits.
D)while the agreement establishes payout schedules,it does not spell out what constitutes profit.

Question 7

All partnerships must have:

A)at least three limited partners.
B)no dormant partners.
C)at least one general partner.
D)at least one silent or money partner.

Question 8

The most critical disadvantage of the sole proprietorship is:

A)unlimited personal liability.
B)limited access to capital.
C)lack of continuity.
D)limited skills and capacities of the owner.

Question 9

The three key elements of any partnership are:

A)common ownership in the business,sharing the business' profits or losses,and the right to participate in managing the business.
B)equal ownership in the business,sharing its profits and losses,and the right to participate in managing the business.
C)equal ownership in the business,sharing its profits and losses,and the right to limited liability for all partners.
D)common ownership in the business,sharing its profits and losses,and the right to limited liability for all partners.

Question 10

Common ownership interest in a business,sharing profits (or losses)of a business,and the right to participate in managing the operations of the business are characteristics of a(n):

A)corporation.
B)sole proprietorship.
C)partnership.
D)S-corporation.

Question 11

Partnerships have a number of advantages over other forms of ownership,such as:

A)a larger pool of capital and little government regulation.
B)very easy liquidation of owners' investment.
C)limited liability for all partners.
D)they may be easily formed by an individual.

Question 12

Which form of ownership generally has the least ability to accumulate capital?

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

Question 13

Antonio is a limited partner and is neither active nor generally openly associated with the firm.He is the ________ partner.

A)limited
B)secret
C)honorary
D)dormant

Question 14

Probably the most important feature of a partnership agreement is:

A)that it identifies the name of the partnership.
B)that it states the purpose and location of the business.
C)that it determines how the partnership will pay taxes and fees.
D)that it resolves potential sources of conflict.

Question 15

In her partnership,Ana has unlimited liability for the partnership's debts.She would be the ________ partner.

A)limited
B)dormant
C)nominal
D)general

Question 16

Juan is starting a software writing company.He is the owner and has only 3 employees.He wants a simple inexpensive form of ownership that leaves him in control and that he can quickly dissolve if he decides to change to another business.His best choice of form of ownership would be:

A)S-corporation.
B)partnership.
C)corporation.
D)sole proprietorship.

Question 17

A partnership is:

A)taxed like a corporation.
B)not subject to the double taxation of some other forms of business.
C)taxed at the lowest rate for an individual.
D)taxed under capital gains laws as all profits are considered to come from appreciated assets.

Question 18

The key to choosing the "right" form of ownership is:

A)knowing the cost factor in time and money.
B)understanding how each form affects both business and personal circumstances.
C)having an experienced attorney and accountant to advise you in the choice.
D)the fact you cannot change the form of ownership once your company is established.

Question 19

Sole proprietorships characteristically are:

A)fairly complex to create.
B)subject to special legal restrictions.
C)expensive to create.
D)easy to discontinue.

Question 20

When choosing a form of ownership,the entrepreneur should realize that:

A)it is difficult if not impossible to change forms of ownership once the company is established.
B)the expense of changing forms of ownership makes it prohibitively expensive to change.
C)the most common form of ownership is the partnership and is the least expensive to establish.
D)he/she will most likely change the form of ownership as the company grows in size and revenues.

Question 21

Carlos founded the "Taco Factory" 20 years ago as a family-oriented restaurant business.Over the years as he grew the business,he incorporated and sold stock.Recently the stockholders voted to seek liquor licenses and sell beer and hard liquor in the restaurants.Carlos opposed this,citing the history of the restaurant's "family" environment,but was voted down.Carlos experienced which drawback of the corporate form of ownership?

A)The inability to accumulate capital
B)The potential for diminished managerial incentives
C)Legal requirements and red tape
D)The potential loss of control

Question 22

Like a sole proprietorship,a partnership suffers from the disadvantage of:

A)poor capital accumulation.
B)unlimited liability for all owners.
C)double taxation of profits.
D)the complexity of regulations under which it must operate.

Question 23

A limited partnership is a modification of a(n)________ form of ownership.

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

Question 24

The ________ is the most complex form of ownership and is a separate legal entity in the eyes of the law.

A)sole proprietorship
B)partnership
C)corporation
D)joint venture

Question 25

In a limited partnership,the limited partners are treated like ________ by the law.

A)investors
B)general partners
C)sole proprietors
D)honorary partners

Question 26

In a limited partnership,limited partners are treated as:

A)sole proprietors.
B)investors.
C)stakeholders.
D)directors.

Question 27

Which of the following generally is not required by a Certificate of Incorporation?

A)The names and the addresses of the incorporators
B)A statement of the corporation's purpose
C)A statement of how stock proceeds will be used
D)The corporation's bylaws

Question 28

The "Das Spelunker" corporation,formed in Germany and conducting business in the United States,is considered to be a(n)________ corporation.

A)alien
B)domestic
C)foreign
D)local

Question 29

A corporation doing business in the state in which it is incorporated is considered to be a(n)________ corporation.

A)alien
B)domestic
C)foreign
D)local

Question 30

A corporation receives its authority to operate from:

A)the federal government.
B)the state.
C)the board of certification.
D)the stockholders.

Question 31

Which of the following is a disadvantage of the corporation form of ownership?

A)An inability to accumulate capital
B)The unlimited liability to the members of the board
C)Double taxation on profits and individuals
D)The lack of continuity

Question 32

Acme Corporation is chartered in Delaware,but its primary area of operation is in South Carolina.In South Carolina,Acme would be considered a(n)________ corporation.

A)alien
B)domestic
C)foreign
D)local

Question 33

The corporate form of ownership has a significant advantage in that:

A)it is easy to transfer ownership.
B)it has a lower tax rate than either partnerships or sole proprietorships.
C)there is little cost to its formation.
D)there is little regulatory oversight by the government.

Question 34

A significant disadvantage of a partnership is:

A)the unlimited personal liability for all partners.
B)the inability to attract either additional capital or new partners due to the complexity of rewriting the agreement.
C)the difficulty of disposing a partnership interest without dissolving the partnership.
D)the regulatory complexity under which a partnership must be formed and operated.

Question 35

The primary reason entrepreneurs choose to incorporate is because of:

A)the corporation's ability to attract capital.
B)the need to attract top quality management talent to grow the business.
C)the lower tax rates inherent in the corporate form of ownership.
D)the limited liability of stockholders.

Question 36

This form of ownership is the same as a corporation in terms of legal characteristics even though Congress is considering legislation that would further simplify its formation and running.Its distinction from a corporation is made for federal income tax purposes only.

A)S-corporation
B)master limited partnership
C)sole proprietorship
D)limited liability company

Question 37

________ occurs when a general partner ceases to be associated with the business;________ is the final act of winding up the business.

A)Dissolution;termination
B)Expulsion;dissolution
C)Termination;dissolution
D)Agency;dissolution

Question 38

The ________ is a separate legal entity apart from its owners and may engage in business,make contracts,sue and be sued,and pay taxes.

A)sole proprietorship
B)corporation
C)partnership
D)joint venture

Question 39

Jeff is forming a company.If he chooses a(n)________ form of ownership,he can have no more than 75 stockholders and must have only one class of stock.

A)partnership
B)corporation
C)S-corporation
D)master limited partnership

Question 40

The form of ownership with the greatest ability to accumulate capital is the:

A)sole proprietorship.
B)partnership.
C)joint venture.
D)corporation.

Question 41

A joint venture is different from a partnership in that the joint venture:

A)can be formed only by two individuals.
B)is formed for a specific purpose.
C)continues indefinitely.
D)requires that profits be shared equally.

Question 42

Which of the following is true about choosing a limited liability company form of ownership?

A)It has no disadvantages except its newness.
B)It is ideal for a new company but difficult to convert to with an existing company.
C)It is inexpensive,easy to form,and covered by little regulation due to its newness.
D)It's an excellent conversion vehicle for existing businesses that are suffering from double taxation but problematic for sole proprietorships.

Question 43

________ partners are not active in a business but generally are known to be members of the partnership.

A)Dormant
B)General
C)Silent
D)Limited

Question 44

Shares the corporation itself owns are called:

A)preferred stock.
B)bonds.
C)treasury stock.
D)common stock.

Question 45

The ________ is a document that states in writing all of the terms of operating the partnership for the protection of each partner involved.

A)Certificate of Incorporation
B)Partnership agreement
C)Certificate for Conducting Business as Partners
D)Partnership document

Question 46

Corporations can also stimulate managers' and employees' incentive on the job by creating an ________ (ESOP).

A)Entrepreneur Stock Ownership Plan
B)Employee Stock Ownership Plan
C)Employee Shares Ownership Plan
D)Entrepreneur Shares Ownership Plan

Question 47

A limited liability company differs from an S-corporation in:

A)that it is not subject to the same amount of restrictions.
B)its ability to attract and accumulate capital.
C)that ownership is not transferable through the sale of stock.
D)that it is limited to only one class of stock.

Question 48

An S-corporation form of ownership overcomes which disadvantage of the regular or "C" corporation form of ownership?

A)The double taxation issue
B)The expense and difficulty of formation
C)The amount of regulation and red tape involved in its operation
D)The potential loss of control by the founder

Question 49

To maintain control over their ownership,many closely held corporations exercise this right,known as:

A)right of first refusal.
B)right of refusal.
C)control rights.
D)corporate rights.

Question 50

________ corporations have shares that are controlled by a relatively small number of people - family members,relatives,or friends.

A)Closely held
B)Domestic
C)Foreign
D)Alien

Question 51

A limited liability company is formed under:

A)a Certificate of Incorporation.
B)a Partnership Agreement.
C)Articles of Organization.
D)the Revised Uniform Partnership Act.

Question 52

Which form of ownership is the least costly to form?

A)Sole Proprietorship
B)Corporations
C)Partnership
D)Limited Liability Corporation

Question 53

In a closely held corporation,one of the steps that should be taken to avoid legal difficulties is:

A)hold annual meetings to elect officers are directors.
B)make sure that the stockholders make all the major decisions.
C)mingle corporate assets and the personal assets.
D)None of the above

Question 54

The ________ is a document that states in writing all of the terms of operating a business among the partners.

A)Sole Proprietorship Agreement
B)Articles of Corporations
C)Partnership Agreement
D)Limited Liability Corporation Agreement

Question 55

One major advantage of the ________ is that once the owner has paid all of the company's expenses,he/she can keep the remaining profits (less taxes,of course).

A)Partnership
B)Corporation
C)Sole Proprietorship
D)Limited Liability Company

Question 56

The ________ codifies the body of law dealing with partnerships in the United States.

A)Small Business Partnership Agreement
B)Uniform Partnership Act (UPA)
C)Partnership Agreement
D)None of the above

Question 57

One disadvantage of the proprietorship is:

A)the least regulated form of business ownership.
B)limited personal liability.
C)excessive access to capital.
D)limited skills and abilities.

Question 58

The limited liability company is most like a(n):

A)general partnership.
B)master partnership.
C)sole proprietorship.
D)S-corporation.

Question 59

An owner should choose an S-corporation form of ownership when he/she:

A)has an established company that is suffering losses due to double taxation.
B)is starting up a company and anticipating either net losses or high profits with large dividends.
C)owns a company in which net profits before any compensation to shareholders are less than $100,000 per year.
D)has an existing sole proprietorship and wants to lower the tax bill through deducting fringe benefits as business expenses.

Question 60

In a joint venture,individuals join together in co-ownership for:

A)continuous operation.
B)six to twelve months.
C)a given limited purpose.
D)perpetuity.

Question 61

The sole proprietorship is the simplest and least expensive form of ownership to begin.

Question 62

In a sole proprietorship,the owner has limited liability.

Question 63

Corporations that are formed in other countries but do business in the United States are:

A)international partnerships.
B)domestic corporations.
C)foreign corporations.
D)alien corporations.

Question 64

Bylaws are the rules and regulations the officers and directors establish for the corporation's internal management and operation.

Question 65

While the sole proprietorship is the easiest type of business to get into,it is the most heavily regulated.

Question 66

By choosing certain forms of ownership,an entrepreneur does not give up some control over the company.

Question 67

Factors an entrepreneur should consider when choosing a form of ownership should include but not be limited to: tax considerations,liability exposure,business goals,managerial ability,etc.

Question 68

Which type of ownership is not subject to federal taxation?

A)Sole Proprietorship
B)Corporations
C)Partnership
D)Limited Liability Corporation

Question 69

Closely held corporations have shares that are controlled by a relatively small number of people,often family members,relatives,or friends.

Question 70

If stockholders in a corporation are displeased with the business's progress,they can sell their shares to someone else.

Question 71

While there are many forms of ownership,the three major forms are: proprietorship,partnership,and S-corporation.

Question 72

A corporation can sell its stock to a limited number of private investors in a private placement.

Question 73

Shares the corporation itself owns are called:

A)treasury stock.
B)common stock.
C)preferred stock.
D)bonds.

Question 74

LLP does pay taxes as a corporation and its income is not passed through to the limited partners.

Question 75

The complementary skills refers to:

A)the sole proprietorship skills.
B)partner's skills that complement one another.
C)complementary skills offered by the employees.
D)None of the above

Question 76

A distinct disadvantage of the corporate form of ownership is:

A)treasury stock.
B)double taxation.
C)stockholder's liability.
D)All of the above

Question 77

The form of ownership can impact an entrepreneur's ability to raise start-up capital.

Question 78

Silent partners are active in a business but generally are known to be members of the partnership.

Question 79

One of the first and most fundamental decisions an entrepreneur faces is choosing a form of ownership.

Question 80

________ have shares that are controlled by a relatively small number of people,often family members,relatives,or friends.

A)International partnership
B)Publicly traded corporations
C)Closely held corporations
D)Privately held corporations