Question 1

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

Accepted Answer

As a sole proprietor, you are considered both the owner and employee of the business. This means you must pay self-employment taxes, which include Social Security and Medicare taxes. You will also need to file an income tax return for the business to report your earnings and any applicable deductions. However, there is no special tax that sole proprietors have to pay beyond these standard taxes. You may also need to obtain an Employee Identification Number (EIN) for tax purposes, but there is no fee to do so.

Question 2

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

Accepted Answer

A sole proprietorship would be easy and inexpensive to set up, meeting Autumn's first goal. However, as the owner of a sole proprietorship, she would have unlimited liability and be personally responsible for any debts or legal issues the business may face, putting her personal assets at risk. Therefore, she would not meet her second goal of minimizing personal risk.

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

Accepted Answer

As a sole proprietor, Amelia is able to keep all of the profits earned from her bakery business except for the taxes she is required to pay. However, this does not mean she does not have to pay taxes. Sole proprietorships are still required to pay taxes on their profits, but the business income is reported on the owner's personal tax return rather than a separate corporate tax return. Option A is incorrect as there is no lower corporate tax rate for sole proprietorships. Option C is also incorrect as sole proprietorships are required to pay taxes on their profits. Option D is incorrect as sole proprietors may find it difficult to raise large sums of money from the capital markets, as they do not have access to the resources of a larger corporation.

Question 4

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

Accepted Answer

The answer of Compared to a sole proprietorship, which of...

Question 5

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

Accepted Answer

A general partner actively manages the company and has unlimited liability for claims against the firm. Limited partners, on the other hand, have no involvement in the management of the company and have limited liability for any claims against the firm. Unlimited and associate partners are not commonly used terms in partnership structures.

Question 6

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

Accepted Answer

As a sole proprietor, Chipper and her business are considered the same legal entity. Therefore, any profit the business earns is considered personal income for Chipper and will be taxed accordingly on her personal income tax return.

Question 7

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

Accepted Answer

The best strategy when entering into a new partnership is to put the partnership agreement in writing. This helps to establish clear expectations, rights, and responsibilities for each partner, and can help prevent misunderstandings or disputes down the line. Avoiding a written agreement can actually decrease flexibility because there is no record of what was agreed upon. Incorporation and profit-sharing strategies may be considered later on, but the first step should be a clear, written partnership agreement.

Question 8

Which of the following is an advantage of a partnership?

Accepted Answer

One of the advantages of a partnership is shared management and pooled skills, meaning that partners can bring their individual strengths and expertise to the business, which can lead to better decision-making and more efficient operations. A partnership also typically has less paperwork and fewer formalities compared to other business structures, but it does not necessarily require little time commitment. Additionally, unlimited liability is a disadvantage of a partnership, not an advantage.

Question 9

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.

Accepted Answer

A limited partner is a type of partner who invests money in a business but does not take an active role in managing the operation. This type of partner is only subject to losing the funds they invested if the business fails, and their liability is limited to the amount of their investment. The other options are not accurate descriptions of this type of partner.

Question 10

Which of the following statements about partnerships is most accurate?

Accepted Answer

The answer of Which of the following statements about partnerships...

Question 11

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

Accepted Answer

A sole proprietorship is a business owned and operated by an individual. The owner has complete control over the business and is also personally liable for any debts or legal actions taken against the business. Therefore, if Oliver wants to be his own boss and can accept unlimited liability, he should consider a sole proprietorship. This choice may not minimize the financial risk he must accept as the owner of a business, but it allows him to have complete control over his business.

Question 12

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

Accepted Answer

As a sole proprietorship, the business is not a separate legal entity from the owner. Therefore, if Yoshi becomes incapacitated, the business would cease to exist unless it is sold or taken over by someone else such as Yoshi's heirs.

Question 13

One difference between partnerships and sole proprietorships is that partnerships

Accepted Answer

One difference between partnerships and sole proprietorships is that partnerships have a greater chance of long-term survival due to the accountability of each partner to the other. This accountability fosters communication and compromise, which can lead to better decision-making and a greater chance of success.

Question 14

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)

Accepted Answer

Sung's business is a sole proprietorship since she is the only owner of the business and keeps all the profits. There is no indication that Sung has entered into any kind of partnership or franchise agreement with anyone else, nor is there any mention of her incorporating the business as an S corporation.

Question 15

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

Accepted Answer

Limited partners have limited liability and therefore are only responsible for the debts of the business up to the amount they have invested in the company. They are not personally responsible for the entire debt of the business or their total personal assets. Choices A and C are incorrect because they do not accurately reflect the extent of limited partners' liability, and choice D is incorrect because limited partners' personal assets are not at risk beyond their investment in the business.

Question 16

Being your own boss means

Accepted Answer

Being your own boss means taking on full responsibility for the success or failure of the business. This includes accepting accountability for any mistakes that may occur. While having more flexibility in terms of work schedule and vacations may be a perk of being your own boss, it is not the defining characteristic. Limited financial resources may or may not apply depending on the specific business and its financial situation.

Question 17

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

Accepted Answer

The Uniform Partnership Act defines a general partnership as an association of two or more individuals who carry on a business for profit as co-owners. The three key elements of a general partnership are common ownership, shared profits and losses, and right to participate in managing the operations. Choice A is incorrect because a board of directors is typically associated with a corporation, not a partnership. While a written partnership agreement is important, it is not one of the key elements defined by the Uniform Partnership Act. Choice B is incorrect because an adequate financial base and a written statement describing the manner in which profits and losses will be divided are not the key elements defined by the Uniform Partnership Act. Choice D is incorrect because common stock and limited liability are characteristics of a corporation, not a partnership.

Question 18

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.

Accepted Answer

A master limited partnership (MLP) is a partnership that is publicly-traded on a stock exchange and combines the tax benefits of a limited partnership with the liquidity of publicly traded securities. MLPs are taxed as pass-through entities, meaning that profits are only taxed as personal income for the partners or shareholders.

Question 19

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)

Accepted Answer

Ramses's business is organized as a sole proprietorship since he is the only owner and has unlimited personal liability for the company's debts.

Question 20

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

Accepted Answer

In a limited liability partnership, the personal assets of each partner are protected from being seized to pay for the partnership's debts or obligations, except for losses that result from the partner's own acts and omissions or the acts and omissions of those they supervise. This means that a partner's risk of losing personal assets is limited.

Quiz 5: How to Form a Business