Question 1

Unlimited liability means

Accepted Answer

Unlimited liability means the owner is fully responsible for all business debts and obligations, and there is no limit on the amount of debt that the owner may be responsible for. This means that in the event of nonpayment of debt or legal action against the business, the owner's personal assets can be used to satisfy the debt.

Question 2

Which of the following is necessary for starting a sole proprietorship?

Accepted Answer

A sole proprietorship is the simplest business form and does not require formal legal documents or registration with the state, unlike corporations or LLCs.

Question 3

Which of the following is not a disadvantage of sole proprietorships?

Accepted Answer

Double taxation is a disadvantage of corporations, not sole proprietorships. The other options listed are disadvantages of sole proprietorships.

Question 4

Michelle wants to start a business,but she is unsure of the legal form best for her.Short of cash,she has decided to take the form that is the least expensive and most flexible in terms of decision making and implementation.Which would you recommend?

Accepted Answer

A sole proprietorship is the least expensive and most flexible legal form of business. It does not require any formal registration with the government and the owner has complete control over decision making and implementation. This form also allows for the owner to keep all profits without having to share with any partners or shareholders. Although there are some risks involved with unlimited liability, it is still the best choice for someone who is short on cash and wants a simple, low-cost way to start a business.

Question 5

Which form of business is the easiest to start?

Accepted Answer

Sole proprietorship is the easiest form of business to start because it involves one individual who owns and operates the business. It requires minimal legal paperwork and fees, and the owner has complete control over the business. Other forms of business may require more legal formalities and have additional expenses associated with them.

Question 6

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

Accepted Answer

A partnership is a business structure in which two or more individuals own and run a business together for profit.

Question 7

When the owner of a sole proprietorship dies,what becomes of the business?

Accepted Answer

In a sole proprietorship, there is no legal distinction between the owner and the business itself. Therefore, when the owner dies, the business ceases to exist unless the heirs take it over or sell it. Unlike corporations or partnerships, there is no separate legal entity that can continue to operate the business after the owner dies.

Question 8

Local residents have always thought the mom-and-pop store on the corner of Locust and Congress was a partnership between Mr.and Mrs.Davis.But Mr.Davis is the real owner.This probably means that the store is a

Accepted Answer

The fact that Mr. Davis is the sole owner of the store indicates that it is a sole proprietorship, where a single individual owns and operates the business.

Question 9

To close a sole proprietorship,the owner must

Accepted Answer

When closing a sole proprietorship, the owner must pay off all outstanding debts, including creditors. While it is important to notify the secretary of state if there is a change in business ownership or structure, it is not required to close a sole proprietorship. Publishing an out-of-business statement and revoking licenses may be necessary in some states, but it is not a universal requirement for closing a sole proprietorship.

Question 10

How might a sole proprietorship have a possible tax advantage?

Accepted Answer

As a sole proprietorship, the business owner is not subject to special state and federal taxes that corporations pay, such as the corporate income tax and the corporate franchise tax. This can result in a tax advantage for the sole proprietor as they are only taxed on their personal income, rather than the business income being taxed separately like in a corporation (which results in double taxation).

Question 11

The major reason why businesses change from sole proprietorships to other forms of ownership is to

Accepted Answer

The answer of The major reason why businesses change from...

Question 12

In the United States,approximately 72 percent of all businesses are

Accepted Answer

According to the Small Business Administration, approximately 72 percent of all businesses in the United States are sole proprietorships. These businesses are owned and operated by a single individual, who is personally responsible for any financial obligations or liabilities incurred by the business.

Question 13

Jonathan inherited a large amount of money from his uncle.Jonathan wishes to start his own business,and his lawyers encourage him to make it a corporation.What disadvantage of a sole proprietorship are the lawyers trying to avoid?

Accepted Answer

By forming a corporation, Jonathan would avoid unlimited liability, which is a disadvantage of sole proprietorships. As a sole proprietor, Jonathan would be personally liable for any debts or legal issues related to the business, putting his personal assets at risk. By forming a corporation, Jonathan would have limited liability, protecting his personal assets.

Question 14

Julio decides his business will begin staying open until 7 p.m.instead of 6 p.m.The next day,the shop stays open until 7 p.m.This environment of flexibility to quickly change is characteristic of what form of business organization?

Accepted Answer

Flexibility to quickly change hours of operation is a characteristic of a sole proprietorship, as the owner has complete control over the business and can make decisions quickly without consulting with anyone else. Corporations and S-corporations generally require more formal decision-making processes, and partnerships may require agreement from multiple owners before making a change like extending business hours.

Question 15

Which of the following is not an advantage of a sole proprietorship?

Accepted Answer

Unlimited liability means that the business owner is personally responsible for all debts and legal obligations of the business. This can lead to financial ruin for the owner if the business incurs large amounts of debt or faces a lawsuit.

Question 16

Sandy is tired of her boss as well as corporate America in general.She decides she would like to start a business where no one tells her what to do,and she can always make the decisions.The best form of business for Sandy is a(n)

Accepted Answer

A sole proprietorship is a business owned by one individual and is the simplest and most common form of business ownership. As the sole owner, Sandy would have complete control and decision-making power over the business.

Question 17

Nick wants to make money,so he starts his own business as a sole proprietor.He likes this form of business because

Accepted Answer

As a sole proprietor, Nick would be the only owner of the business, and therefore, he would get to keep all of the profits that the business makes. This is a significant advantage of being a sole proprietor, as opposed to being in a partnership or corporation where profits have to be shared with other owners.

Question 18

When compared to partnerships and corporations,sole proprietorships account for ____ percent of total annual sales.

Accepted Answer

The answer of When compared to partnerships and corporations,sole proprietorships...

Question 19

Which of the following is an advantage of a sole proprietorship?

Accepted Answer

Profits in a sole proprietorship are taxed as individual income, which often results in a lower tax rate than other types of business structures.

Question 20

According to the text,which of the following statements is false?

Accepted Answer

The text does not mention that the lure of employee benefits is one reason why people go to work for sole proprietorships. Instead, it states that small businesses often cannot afford to offer competitive benefits like larger businesses do.

Quiz 4: Choosing a Form of Business Ownership