Question 1

Bianca owns a company that provides laundry services.She ensures that only her family members are the stockholders of her company.She also allows them to control and manage all of the company's activities.In this scenario,Bianca owns a _____.

Accepted Answer

Bianca's company is a closed corporation because it is owned and operated by a few individuals, specifically her family members, and does not sell shares to the general public.

Question 2

Which of the following statements regarding family-owned businesses is true?

Accepted Answer

Family-owned businesses often struggle with succession planning, which results in only a small percentage surviving into the second or third generation. This is due to various factors including family dynamics, interest, and capability of the next generation to run the business.

Question 3

Alternatives to private ownership include _____.

Accepted Answer

Public ownership and collective ownership are alternatives to private ownership, where resources or enterprises are owned by the state or collectively by a group rather than by private individuals.

Question 4

The maximum number of shareholders is limited to _____ for a firm to qualify as a subchapter S corporation.

Accepted Answer

A firm must have 100 or fewer shareholders to qualify as a subchapter S corporation. This allows the company to pass corporate income, losses, deductions, and credits directly to their shareholders for federal tax purposes.

Question 5

Mateo is the owner of a small mushroom farm in Pennsylvania.He would like to join hands with other growers to create an organization that will promote and distribute mushrooms.The form of ownership that would be most suited for Mateo and other growers will be a(n)_____.

Accepted Answer

A cooperative (co-op) is the most suited form of ownership for Mateo and other growers looking to join hands to promote and distribute mushrooms. Cooperatives are organizations owned and operated by a group of individuals for their mutual benefit. This structure allows members to pool resources, share profits, and make decisions democratically, making it ideal for small producers like mushroom growers who want to collaborate for better market access and efficiency.

Question 6

An acquisition occurs when _____.

Accepted Answer

An acquisition is defined as the process where one company purchases the property and assumes the obligations of another company, effectively taking it over.

Question 7

Three members of Santiago's family work at BioTechno,a multi-national drug manufacturer.Each of them owns 5% shares of the company respectively.In fact,most of the employees of BioTechno,like Santiago and his family members,are stockholders of the company.BioTechno can be regarded as a _____.

Accepted Answer

BioTechno is an employee-owned corporation because most of its employees, including Santiago and his family members, are stockholders of the company. This means that the employees own shares in the company, which is characteristic of an employee-owned corporation.

Question 8

Which of the following statements is true regarding employee-owned corporations?

Accepted Answer

Employee-owned corporations allow employees to buy shares of stock in the company that employs them, providing them with an ownership stake. This can align the interests of the employees with the financial success of the company.

Question 9

Luciana is a chief financial officer in a large corporation.She has the full financial authority to make appropriations and authorize expenditures.Luciana is likely to be a member of _____ management.

Accepted Answer

As a chief financial officer with full financial authority to make appropriations and authorize expenditures, Luciana is part of the top management team. Top management is responsible for making the overarching decisions and setting the strategic direction of the company.

Question 10

Alejandro is a stockholder in a software consulting firm.He gets a share of the earnings of the firm,on which he has to pay taxes.Moreover,the firm pays taxes on its earnings.As an individual,Alejandro is not legally liable to pay off the debts that might be incurred by the firm.In this scenario,the software consulting firm can be regarded as a _____.

Accepted Answer

The firm is described as having a separate legal identity from its owners (shareholders like Alejandro), where it pays taxes on its earnings and the shareholders also pay taxes on dividends. This double taxation and limited liability for shareholders are characteristic of a corporation.

Question 11

PUR Water is a company that designs and implements innovative water purification solutions using simple and inexpensive methods.All its decision-making focuses on a better environment.While the company manages to make profits,its vision is set beyond financial gains.Its adherence to its goals is verified by a third-party auditor.Which of the following types of corporations does this scenario illustrate?

Accepted Answer

A B corporation (Benefit Corporation) is designed to balance purpose and profit, focusing on positive impacts on society, workers, the community, and the environment, in addition to profit. This is in line with PUR Water's focus on innovative water purification for a better environment and its commitment to goals beyond financial gains, verified by third-party auditors.

Question 12

Who elects the board of directors of a corporation?

Accepted Answer

Stockholders (or shareholders) of a corporation are the ones who elect the board of directors. The board is responsible for overseeing the corporation's activities and making major decisions.

Question 13

Which of the following is a function of the board of directors of a corporation?

Accepted Answer

The board of directors of a corporation is responsible for making high-level decisions and overseeing the management of the company. One of their key functions is hiring (and if necessary, firing) the chief executive officer (CEO), who then manages the day-to-day operations of the company. The other tasks listed are typically handled by the company's management and HR department, not the board of directors.

Question 14

The arrangement,when a government unit owns and operates an organization,is known as _____.

Accepted Answer

When a government unit owns and operates an organization, it is known as public ownership. This contrasts with private ownership, where individuals or companies own the organization.

Question 15

_____ must verify in writing the accuracy of their corporation's financial statements.

Accepted Answer

Chief operating officers (COOs) and chief financial officers (CFOs) are typically responsible for the accuracy of their corporation's financial statements. This responsibility includes verifying in writing that the financial statements are accurate, a requirement that stems from regulations such as the Sarbanes-Oxley Act in the United States, which was enacted to protect investors from fraudulent financial reporting by corporations.

Question 16

Sushma established a corporation in Nebraska,but she recently moved to Colorado where she now conducts her business.What type of corporation does Sushma own?

Accepted Answer

Since Sushma's corporation was established in Nebraska but now operates in Colorado, it is considered a foreign corporation in Colorado. A foreign corporation is one that conducts business in a state other than where it was incorporated.

Question 17

Isabella owns 100 _____ stock of NxtGen Solutions,a software firm.It means that she has voting rights on company decisions at NxtGen Solutions,but only residual claims on the company's assets.

Accepted Answer

Common stock provides shareholders with voting rights on corporate matters but only residual claims on assets, which means they are paid after debt holders and preferred shareholders in the event of liquidation.

Question 18

An example of public ownership is:

Accepted Answer

The city sewer system is typically owned and operated by the government or public entities, making it an example of public ownership.

Question 19

Brady decides to start a trust-run hospital to help the poor get expensive treatments for free.Which of the following is most likely to be true of the hospital?

Accepted Answer

Trust-run hospitals, especially those aimed at helping the poor and providing free treatments, are often set up as non-profit organizations. As such, they may qualify for tax-exempt status, meaning they would not have to pay corporate taxes. This is in contrast to for-profit entities that issue stock, pay dividends, and aim for high profit margins.

Question 20

The board of directors usually includes some individuals who are not employed by the corporation.These people are referred to as _____.

Accepted Answer

Outside directors are individuals on a company's board of directors who are not employees of the company. They are often brought in for their expertise, independence, and to provide unbiased perspectives.

Quiz 5: Forms of Business Ownership and Organization