Deck 4: Choosing a Form of Business Ownership

Question 1

A banker or lender is more likely to make sizable loans to a sole proprietor than to a partnership.

Answer 1

False

Question 2

A common tactic of corporate raiders is to start a proxy fight.

Answer 2

True

Question 3

Since someone must be responsible for a partnership's debts, a limited partnership must have at least one general partner.

Answer 3

True

Question 4

A limited-liability company is taxed like a corporation.

Question 5

All corporations operate primarily for profit.

Question 6

Although a partnership pays no income tax, the Internal Revenue Service requires partnerships to file an annual information return that states the amount of distributions made to each partner.

Question 7

Preferred stockholders receive dividends before dividends are paid to common stockholders.

Question 8

Because there are two or more people in a general partnership, bankers, suppliers, and other creditors are not concerned about unlimited liability.

Question 9

Unlimited liability holds a sole proprietor personally responsible for all the debts of the business.

Question 10

Corporations are forbidden by law to enter joint ventures.

Question 11

The purchase of one corporation by another is called a merger.

Question 12

A syndicate is a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital.

Question 13

A general partner is responsible for any debts of the partnership, regardless of whether he or she was directly involved in the transaction that created the debt.

Question 14

As with a sole proprietorship, one disadvantage of a partnership is a lack of continuity.

Question 15

Because of unlimited liability, it is easy for sole proprietors to borrow large sums of money.

Question 16

A corporation chartered in Kansas and doing business in Kansas is known as a domestic corporation.

Question 17

Economists, financial analysts, corporate managers, and stockholders all agree that mergers are good for both the company and the economy.

Question 18

The Reader's Digest Association began as an open corporation and later changed to a closed corporation.

Question 19

Surplus funds of a not-for-profit organization are distributed to members of the board of directors.

Question 20

Compared to a corporation, a partnership is more difficult and expensive to establish.

Question 21

Corporate officers are elected by the stockholders.

Question 22

Experts predict that mergers in the first part of the twenty-first century will be the result of cash-rich companies looking to acquire businesses that will enhance their position in the marketplace.

Question 23

A corporation chartered in Canada and doing business in the United States is known as a foreign corporation in the United States.

Question 24

A tender offer is an offer to purchase stock from existing stockholders.

Question 25

Every partnership must have at least one limited partner.

Question 26

The courts have held that an oral partnership agreement is not legally binding and, therefore, cannot be enforced.

Question 27

Financial experts agree that takeovers enhance corporate profitability and productivity.

Question 28

Profits of a large corporation are taxed twice, once as corporate income and again as personal income of stockholders.

Question 29

Unlike a person, a corporation exists only on paper.

Question 30

A corporation is an artificial person created by law.

Question 31

A voluntary association of two or more people acting as co-owners of a business is known as a partnership.

Question 32

All not-for-profit corporations rely solely on volunteers to perform services of the organization.

Question 33

Corporations account for about 82 percent of all sales revenues.

Question 34

A limited-liability company extends the concept of personal-asset protection to small business owners.

Question 35

Common stockholders have the right to elect a corporation's board of directors and vote on corporate matters.

Question 36

If the owner of a sole proprietorship retires or dies, the owner's heirs may take over the business and either sell it or continue to operate it.

Question 37

Articles of partnership are a legal document issued by the secretary of state.

Question 38

About 85 percent of all business firms in the United States are sole proprietorships.

Question 39

In a limited partnership, a limited partner's name must be included in the partnership's name.

Question 40

A corporation is perhaps the easiest form of business to organize.

Question 41

A ____ invests money in the business but has no management responsibility.

A)general partner
B)limited partner
C)sole proprietor
D)nominal partner
E)stockbroker

Question 42

Which of the following is not a disadvantage of the corporate form of ownership?

A)Difficulty of formation
B)Limited liability
C)Expense of incorporation and selling stock
D)Lack of secrecy
E)Double taxation

Question 43

The weakness of one partner may be offset by another partner's strength.

Question 44

Quarrels among business associates have become common. The associates quarrel over what products the firm should sell, division of authority, selection of personnel, whether to bring family members into the business, whether to expand, and who is contributing most to the firm's success. Such feuding, which damages business relationships, occurs most frequently in what form of business?

A)Partnerships
B)Cooperatives
C)Corporations
D)Sole proprietorships
E)S-corporations

Question 45

The corporation, partnership, and sole proprietorship are the three most common forms of business ownership in the United States.

Question 46

An S-corporation can have no more than twenty stockholders.

Question 47

The form of business organization that comprises about 19 percent of all businesses in the United States is the

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

Question 48

A vertical merger is a merger between firms that operate at different but related levels in the production and marketing of a product.

Question 49

The ____ is a legal document that lists and explains the terms of the partnership.

A)co-owners' agreement
B)charter
C)will
D)articles of partnership
E)formation contract

Question 50

A horizontal merger is a merger between firms in completely unrelated industries.

Question 51

Habitat for Humanity and Girl Scouts are both examples of

A)cooperatives.
B)quasi-government corporations.
C)limited-liability corporations.
D)cooperatives.
E)not-for-profit corporations.

Question 52

Shareholders of an S-corporation are taxed as if they were owners in a partnership.

Question 53

When a business incorporates, it receives articles of incorporation from the Internal Revenue Service.

Question 54

Amy owns 100 shares of General Electric preferred stock. She wants to attend the annual stockholder meeting to cast her vote on company issues. Based on your knowledge from school, you caution Amy that

A)people with fewer than 1,000 shares of stock cannot vote.
B)stockholders are not allowed to attend the annual meetings.
C)most preferred stock does not have voting rights.
D)only institutional investors are allowed to attend the meetings.
E)she can vote only by proxy and not in person.

Question 55

A limited-liability company is

A)taxed like a corporation.
B)taxed like a partnership.
C)similar to a cooperative.
D)always used to organize charitable organizations.
E)the result of a horizontal merger.

Question 56

Most stockholders attend a corporation's annual meeting and vote in person.

Question 57

Because of limited liability, individuals are more willing to invest in corporations than in other forms of business.

Question 58

Sears Holding Corporation is incorporated in Delaware, but when it operates in Illinois and Texas, it is considered a(n) ____ corporation in those states.

A)domestic
B)foreign
C)alien
D)small
E)mid-sized

Question 59

Joint ventures are created for a specific purpose and dissolved when that purpose is achieved.

Question 60

Walmart is incorporated in Arkansas, the state of its origins and headquarters. Within Arkansas, Walmart is classified as a(n) ____ corporation.

A)privately-held
B)foreign
C)alien
D)domestic
E)hometown

Question 61

B&G, Inc.
A year ago, Kevin went to work for B&G, Inc. He has worked for the finance department ever since he started. He noticed that the corporation was only taxed as though it were a partnership. This was something that he found very odd when he first started working for the company, but he later realized it was a fairly common practic
While the job was challenging, Kevin was not happy. He wanted to work for a company whose main goal was to provide service to the community, not to make a profit. However, Kevin felt that, considering his present financial situation, he had to continue working for B&G, Inc. A week later, Kevin discovered there was going to be a merger between B&G, Inc. and one of its major competitors. Kevin's boss informed him that he would be getting a promotion and a rais
Refer to B&G, Inc. What type of organization is B&G, Inc.?

A)Sole proprietorship
B)Limited-liability company
C)S-corporation
D)Not-for-profit corporation
E)Cooperative

Question 62

Which of the following has a restriction on the number of owners, members, or stockholders?

A)S-corporation
B)Not-for-profit corporation
C)Open corporation
D)Limited-liability company
E)Cooperative

Question 63

The retail card and gift shop chain that Heidi started has since been incorporated. Which of the following best describes the limited liability that Heidi has as the primary stockholder in this corporation?

A)Heidi has no responsibility if the business fails and will still be able to get her initial investment back.
B)Heidi may have to give up her car and house if the corporation fails in order to cover the debts of the corporation.
C)The other stockholders will be able to seize Heidi's personal money but not her primary residence in the event that the business fails.
D)Heidi's personal assets will be protected in the event that the corporation fails, although she could lose her entire investment.
E)Heidi will only be liable for losses that develop from decisions she made about the daily business operations.

Question 64

Which of the following statements is true?

A)Economists and financial analysts agree that mergers are good for the economy.
B)Takeovers always increase a firm's productivity.
C)Mergers in the first part of the twenty-first century will see an increase in debt financing.
D)Mergers in the first part of the twenty-first century will be driven by cash-rich companies looking to acquire businesses that will enhance their position in the marketplace.
E)There will be fewer mergers that involve investors from other countries.

Question 65

Not-for-profit organizations must meet specific guidelines in order to obtain tax-exempt status. These guidelines are structured by the

A)board of directors.
B)U.S.Uniform Partnership Act.
C)U.S.Bureau of the Census.
D)Chamber of Commerce.
E)Internal Revenue Service.

Question 66

The simplest form of business owned and operated by one person is called a(n)

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

Question 67

If Avon and Merck joined together to produce a cream that slows down the aging process, this would be called a(n)

A)cooperative.
B)joint venture.
C)combined corporation.
D)S-corporation.
E)partnership.

Question 68

Unless specified in the charter, a corporation has a

A)legal life of one decade.
B)life of seventeen years, which is renewable.
C)life of fifty years.
D)perpetual life.
E)legally recognized life, which varies from state to state.

Question 69

When starting a corporation, people submit articles of incorporation to

A)a county judge.
B)the secretary of state.
C)the U.S.Attorney General.
D)the Department of Commerce.
E)the Small Business Administration.

Question 70

What do experts believe is likely to become one of the most popular types of business organizations?

A)Limited-liability companies
B)S-corporations
C)Partnerships
D)Sole proprietorships
E)Corporations

Question 71

Wade Comer and Tom Busby decide to start a partnership and offer accounting services. Which of the following is the best way to start this partnership?

A)They should orally discuss how they want the partnership to work and who is responsible for certain areas.
B)They should determine the exact way the business should be run and have a witness listen to their oral discussion.
C)They should let a third party, such as a consultant or an attorney, draft whatever agreement the consultant or attorney thinks is appropriate.
D)They should carefully draft an articles of partnership together, outlining each partner's responsibilities and other important information.
E)With the help of an attorney, they should draft a partnership agreement that states each partner's duties and investments.

Question 72

Recently there have been several mergers involving Big Four accounting firms. One such merger involved the firms of Arthur Young and Ernst & Whinney, who combined to form Ernst & Young. This is an example of a

A)joint venture.
B)horizontal merger.
C)vertical merger.
D)syndicate.
E)conglomerate merger.

Question 73

Mark owns stock in Walgreens. He has the right to vote on company issues and examine corporate records, and he receives dividends from Walgreens' profits. What type of stock does Mark own?

A)Common
B)"A" class
C)Proxy
D)Dividend
E)Preferred

Question 74

Mercedes-Benz, which is chartered as a corporation in Germany but conducts much of its business in the United States, is known as a(n) ____ in the United States.

A)foreign corporation
B)alien corporation
C)domestic corporation
D)S-corporation
E)private corporation

Question 75

Lisa and John own a partnership that provides rental equipment for parties and special occasions. Which of the following is true about the way Lisa and John would handle company profits?

A)Automatically split the profits, with 50 percent for Lisa and 50 percent for John.
B)They would do nothing because partnerships require that profits remain in the business.
C)Divide the profits according to each person's investment in the business.
D)Distribute the profits according to the terms of the partnership agreement.
E)Split the profits according to how many hours each person worked.

Question 76

How can the following quotation best be explained: "Stockholders control the activities of a corporation"?

A)All stockholders vote on all the major issues and problems that a company faces on a monthly basis.
B)Stockholders are intricately involved in the daily operations of a corporation.
C)Stockholders elect the board of directors, and this board is responsible for appointing corporate officers who manage the daily business of the corporation.
D)Stockholders vote for the members of the board of directors, and this board makes all the daily business decisions for the corporation.
E)Stockholders usually call company management and tell executives better ways to run the organization.

Question 77

Which of the following states offers the lowest organizational costs for corporations?

A)Delaware
B)Georgia
C)Michigan
D)New York
E)Alaska

Question 78

When Compaq and Hewlett-Packard decided to become one company, this was an example of a(n)

A)acquisition.
B)hostile takeover.
C)horizontal merger.
D)conglomerate merger.
E)joint venture.

Question 79

Corporate officers are

A)listed in the corporate charter.
B)elected by stockholders.
C)appointed by the board of directors.
D)appointed by management.
E)elected by incorporators.

Question 80

Unlimited liability means

A)there is no limit on the amount an owner can borrow.
B)creditors will absorb any loss from nonpayment of debt.
C)the business can borrow money for any type of purchase.
D)the owner is responsible for all business debts.
E)stockholders can borrow money from the business.