Question 1

Oliver wants to start his own business. He should consider a sole proprietorship if he
A) expects rapid growth and wants to be able to raise a large sum of money.
B) wants to make it easy to attract qualified employees.
C) wants to be his own boss and can accept unlimited liability.
D) wants to minimize the financial risk he must accept as the owner of a business.

Accepted Answer

A sole proprietorship is a business that is owned and managed by a single individual. This form of business ownership appeals to people who want to be their own boss.

Question 2

A type of partnership called a ________ acts much like a corporation and is traded on stock exchanges, but it is taxed like a partnership with profits passing through to the owners and taxed as the owner's personal income.
A) limited partnership
B) combined general partnership
C) cooperative partnership
D) master limited partnership

Accepted Answer

The description given matches that of a master limited partnership (MLP). MLPs are traded on stock exchanges like corporations but are taxed like partnerships with profits passing directly through to the owners and taxed as personal income. Limited partnerships (A) and general partnerships (B) are not traded on stock exchanges and are taxed differently, while a cooperative partnership (C) is a specific type of partnership focused on achieving a common goal among its members, rather than generating profits.

Question 3

Amelia has a lot of business knowledge and is confident in her abilities to open a successful store. She recently opened a bakery as a sole proprietor. She is expecting a high level of profits and is looking forward to
A) the lower corporate tax rate paid by sole proprietorships.
B) keeping all of the money she earns except for the taxes she is required to pay.
C) keeping all of the money she earns since she does not have to pay taxes as a sole proprietor.
D) easily raising additional large sums of money from the capital markets since she is a sole proprietor.

Accepted Answer

One of the advantages of a sole proprietorship is the retention of company profit. The owner can earn as much as possible and not have to share that money with anyone else except the government, in taxes.

Question 4

Sung owns a dog-walking business that she started in high school. Her first goal was to earn money after school and supplement her allowance. Now that she has finished college and maintains a long client list, she's planning on running the business full time. She keeps all the profits and has kept things simple by posting fliers on the bulletin boards at local stores. Sung's business is a(n)
A) sole proprietorship.
B) franchise.
C) S corporation.
D) partnership.

Accepted Answer

Sung's simple form of business ownership is a sole proprietorship. She, alone, keeps the profits from her service.

Question 5

One difference between partnerships and sole proprietorships is that partnerships
A) take less effort to form.
B) are managed by an elected board of directors.
C) have the advantage of limited liability.
D) have a greater chance of long-term survival due to the accountability of each partner to the other.

Accepted Answer

Partners not only give the firm a stronger financial base and a broader range of expertise, they also watch over each other, thus providing a more disciplined environment.

Question 6

The limited liability provided to limited partners means that they are not responsible for the debts of the business beyond
A) the firm's total assets.
B) the amount they have invested in the company.
C) the percentage of profits they are entitled to earn.
D) their total personal assets.

Accepted Answer

Limited partners are not personally liable for the debts incurred by the business beyond the amount they have invested in the company. This means that their personal assets are not at risk in case the business incurs financial losses or is unable to pay off its debts.

Question 7

According to the Uniform Partnership Act, the three key elements of any general partnership are
A) a board of directors, a written partnership agreement, and a well-defined product or service.
B) two owners, an adequate financial base, and a written statement describing the manner in which profits and losses will be divided.
C) common ownership, shared profits and losses, and right to participate in managing the operations.
D) common stock, a board of directors, and a statement of limited liability.

Accepted Answer

The Uniform Partnership Act states that a general partnership must have common ownership, shared profits and losses, and the right for each partner to participate in managing the operations. The other options listed do not accurately reflect the requirements of a general partnership under the Uniform Partnership Act.

Question 8

Which of the following is an advantage of a partnership?
A) Ease of starting and ending the business
B) Unlimited liability
C) Shared management and pooled skills
D) Little time commitment

Accepted Answer

The advantage of a partnership is that it allows for shared management and pooled skills. This can lead to a higher overall level of expertise and decision-making ability within the business. A partnership also allows for the sharing of risks and rewards, which can be beneficial for both parties involved. However, partnerships can be difficult to start and end, and partners have unlimited liability for the business's debts and obligations. Additionally, partnerships require a significant time commitment from all partners involved.

Question 9

Compared to a sole proprietorship, which of the following is considered an advantage of a general partnership?
A) Ability to pool financial resources
B) Unlimited liability for all owners
C) Division of profits among owners
D) Ease and flexibility in transferring shares of ownership to others

Accepted Answer

General partnerships allow partners to pool their financial resources, which can lead to a stronger financial base for the business. This is an advantage over sole proprietorships, where the owner must supply all the capital.

Question 10

Which of the following statements about partnerships is most accurate?
A) A partnership is a corporation with fewer than 100 owners.
B) A major advantage of a partnership is that it offers all owners limited liability.
C) A major drawback of a partnership is that it is difficult to terminate.
D) Partnerships are taxed at the lowest corporate tax rate.

Accepted Answer

Once partners commit to a partnership, the arrangement is often difficult to terminate. Questions of who gets what and what happens next are usually hard to resolve when the business is closed.

Question 11

In a limited liability partnership, each partner's risk of losing personal assets is
A) unlimited.
B) limited to losses that result from his/her own acts and omissions and the acts and omissions of those who work under his/her supervision.
C) determined entirely by the maximum loss provision established by the articles of co-partnership.
D) nonexistent.

Accepted Answer

In a limited liability partnership, each partner's risk of losing personal assets is limited to losses that result from his/her own acts and omissions and the acts and omissions of those who work under his/her supervision. This means that the personal assets of a partner cannot be used to pay off the debts and liabilities of the partnership, except in cases where the partner's actions or negligence resulted in the loss.

Question 12

Although sole proprietors do not pay any special taxes, as the owner of the business you are also an employee of the business, which requires you to
A) pay income tax only one time each year.
B) pay self-employment taxes.
C) pay for the right to get an employee identification number.
D) file an income tax return for the business.

Accepted Answer

Sole proprietors pay self-employment taxes such as Social Security and Medicare.

Question 13

A partner (owner) who invests money in a business does not take an active role in managing the operation, and is only subject to losing the funds he/she invested is known as a(n) ________ partner.
A) implied
B) limited
C) partial
D) corporate

Accepted Answer

A limited partner is a partner who has limited liability and does not participate in the management of the business. This means that they can potentially lose their investment but are not responsible for any debts or lawsuits incurred by the company.

Question 14

When entering into a new partnership, a good strategy is to
A) avoid putting the agreement in writing since this would limit the flexibility of the partnership.
B) put the partnership agreement in writing.
C) plan to incorporate as soon as possible.
D) agree to put the first year's profits back into the partnership.

Accepted Answer

Putting the partnership agreement in writing is essential for establishing clear expectations, responsibilities, and boundaries between partners. This can help prevent misunderstandings and conflicts down the line. Avoiding a written agreement may seem more flexible, but it also leaves the partnership more vulnerable to disputes and disagreements. Incorporation and profit-sharing are separate issues that may or may not be relevant depending on the specific circumstances of the partnership.

Question 15

Ramses owns a roofing business. He enjoys being his own boss, but it comes at a price. Often, his days are filled with organizing the activities of the employees and seeking out new customers. He often misses events with friends and family because of the obligations of running his own business. He also knows that he has unlimited personal liability for any of his firm's debts. Ramses's business is organized as a(n)
A) joint venture.
B) C corporation.
C) S corporation.
D) sole proprietorship.

Accepted Answer

A key advantage of sole proprietors is that the owner is his or her own boss, and can run the business the way he or she likes. However, this freedom comes with a great deal of responsibility. Sole proprietors have no one else to share the burdens of ownership and often must work very long hours to keep the company on course. Another disadvantage of a sole proprietorship is that the owner has unlimited liability.

Question 16

Autumn wants to start a business. She has two goals. First, she doesn't have much money but she's ready to get business up and running with the least possible hassle and expense. Second, she wants to minimize her personal risk in the event that her company experiences difficulties. If Autumn chooses a sole proprietorship, she would
A) achieve both goals since this form of ownership is both the easiest to form and the least risky.
B) meet her first goal since sole proprietorships are easy and inexpensive to form. However, she would expose herself to personal risk because owners of sole proprietorships have unlimited liability.
C) not achieve either goal since proprietorships are both costly to set up and subject to unlimited liability.
D) achieve her second goal, since the owners of sole proprietorships are legally protected from losing more than the amount they invest in their company. However, she would find that the start-up costs would be higher than if she had incorporated her business.

Accepted Answer

One advantage of sole proprietorships is that they are relatively easy and inexpensive to start. However, a major disadvantage is that the owner has unlimited personal liability for any debts of the firm. This unlimited liability means that the owner is exposed to a high level of risk.

Question 17

In a partnership, a(n) ________ partner (owner) actively manages the company and has unlimited liability for claims against the firm.
A) unlimited
B) limited
C) general
D) associate

Accepted Answer

A general partner actively manages the company and has unlimited liability for claims against the firm. Limited partners, on the other hand, do not participate in the management of the company and have limited liability. The terms "unlimited" and "associate" are not commonly used to describe types of partners in a partnership.

Question 18

Chipper is the sole proprietor of a golf shop. Because she is a sole proprietor, any profit Chipper's business earns is
A) totally tax-free.
B) taxed only as Chipper's personal income.
C) taxed twice, once as business income, then again as Chipper's personal income.
D) taxed only if and when it is distributed to investors.

Accepted Answer

A tax advantage of sole proprietorships is that their earnings are only taxed once, as personal income to the owner.

Question 19

Yoshi operates a shoe store as a sole proprietorship. However, he is in poor health and may be unable to continue running the business. If Yoshi becomes incapacitated, his business
A) automatically continues under new management as a sole proprietorship.
B) automatically converts into a public corporation with stock sold to interested investors.
C) ceases to exist unless sold or taken over by Yoshi's heirs.
D) becomes the property of the most senior employee who wishes to continue operating the firm.

Accepted Answer

A sole proprietorship ceases to exist if the proprietor dies, retires, or becomes incapacitated, unless it is sold or taken over by the owner's heirs.

Question 20

Being your own boss means
A) reducing your working hours.
B) having the freedom to set your own working hours and taking lots of vacations, particularly when just beginning the business.
C) accepting accountability for the mistakes of the business.
D) having limited financial resources to throw into the business.

Accepted Answer

When you are your own boss, you must accept all mistakes as your mistakes.

Quiz 5: How to Form a Business

Oliver wants to start his own business. He should consider a sole proprietorship if he

A type of partnership called a ________ acts much like a corporation and is traded on stock exchanges, but it is taxed like a partnership with profits passing through to the owners and taxed as the owner's personal income.

Amelia has a lot of business knowledge and is confident in her abilities to open a successful store. She recently opened a bakery as a sole proprietor. She is expecting a high level of profits and is looking forward to

One difference between partnerships and sole proprietorships is that partnerships

The limited liability provided to limited partners means that they are not responsible for the debts of the business beyond

According to the Uniform Partnership Act, the three key elements of any general partnership are

Which of the following is an advantage of a partnership?

Compared to a sole proprietorship, which of the following is considered an advantage of a general partnership?

Which of the following statements about partnerships is most accurate?

In a limited liability partnership, each partner's risk of losing personal assets is

Although sole proprietors do not pay any special taxes, as the owner of the business you are also an employee of the business, which requires you to

A partner (owner) who invests money in a business does not take an active role in managing the operation, and is only subject to losing the funds he/she invested is known as a(n) ________ partner.

When entering into a new partnership, a good strategy is to

In a partnership, a(n) ________ partner (owner) actively manages the company and has unlimited liability for claims against the firm.

Chipper is the sole proprietor of a golf shop. Because she is a sole proprietor, any profit Chipper's business earns is

Yoshi operates a shoe store as a sole proprietorship. However, he is in poor health and may be unable to continue running the business. If Yoshi becomes incapacitated, his business

Being your own boss means