Question 1

The sole proprietorship form of ownership gives owners the most control of business operations.

Accepted Answer

In a sole proprietorship, the owner has complete control over business operations and decision-making. They do not have to consult with other owners or shareholders before making any decisions.

Question 2

In a limited partnership,the limited partners are equally liable for the debts of the partnership.

Accepted Answer

In a limited partnership, the limited partners have limited liability and are not personally responsible for the debts and obligations of the partnership beyond their invested capital. The general partner(s), however, have unlimited liability and are fully responsible for the debts, obligations, and actions of the partnership.

Question 3

In a partnership,the general partners usually share the amount of personal liability according to their capital contributions.

Accepted Answer

In a partnership, general partners share unlimited personal liability equally or according to a pre-agreed formula, not necessarily based on their capital contributions.

Question 4

Method Products,Inc.is expected to surpass $110 million in sales in 2011.

Accepted Answer

The statement indicates that Method Products, Inc. is expected to surpass $110 million in sales in 2011.

Question 5

The decision regarding the legal form of organization should be made by the entrepreneur before request for venture capital.

Accepted Answer

The legal form of organization is an important consideration when seeking venture capital. Investors will want to know if the entrepreneur has established a legal entity for the business such as a corporation or limited liability company (LLC). This decision should be made before seeking funding.

Question 6

In a partnership,the death of a general partner generally does not result in termination of the partnership.

Accepted Answer

The answer of In a partnership,the death of a general...

Question 7

Sole proprietors can access two sources of capital-personal contributions from the entrepreneur and sale of stock.

Accepted Answer

Sole proprietors cannot sell stock as they are the sole owners of the business. The only source of capital is personal contributions from the entrepreneur.

Question 8

In a limited liability partnership (LLP),the death or withdrawal of a partner dissolves the partnership.

Accepted Answer

In an LLP, the death or withdrawal of a partner does not necessarily dissolve the partnership. The partnership agreement should specify the procedure to be followed in such situations, including the redistribution of profits and losses among the remaining partners.

Question 9

In order for a corporation to be legally formed the owners have to register the name and articles of incorporation and meet statutory requirements.

Accepted Answer

This is true. In order for a corporation to be legally formed, the owners must register the name and articles of incorporation with the state in which they wish to incorporate, and comply with various statutory requirements set out by that state.

Question 10

Transferability of interest is easiest in a limited partnership.

Accepted Answer

In a limited partnership, the transferability of interest is subject to the partnership agreement and may require the consent of other partners, making it not the easiest form of business ownership in which to transfer interest. Corporations typically offer easier transferability of interest through the sale of stock.

Question 11

The corporation has the most continuity of the forms of business.

Accepted Answer

The corporation is a legal entity separate from its owners, which allows for perpetuity and continuity of business operations even if the owners change or pass away.

Question 12

Investors usually insist that the management team not operate the business as a part-time venture.

Accepted Answer

Investors want a committed and dedicated management team for their investments and therefore, they usually insist that the management team does not operate the business as a part-time venture.

Question 13

In an LLP,the transfer of interest of one limited partner is typically not allowed.

Accepted Answer

In an LLP, the transfer of interest of one limited partner is typically not allowed without the consent of all other partners. However, the transfer of interest of a general partner may be allowed depending on the terms of the LLP agreement.

Question 14

The only source of capital for a corporation is the sale of shares of stock.

Accepted Answer

Corporations can also raise capital through borrowing, issuing bonds, and obtaining loans from banks or other financial institutions.

Question 15

The most expensive type of business to start is the partnership.

Accepted Answer

The most expensive type of business to start is typically the corporation, not the partnership. Corporations require more legal and accounting fees, as well as higher start-up costs, than partnerships.

Question 16

The corporation can be created only by statute.

Accepted Answer

A corporation is a legal entity created by a state or federal statute. It is recognized as a separate legal entity from its owners, with its own rights and liabilities.

Question 17

Investors accept that the management team draws a large salary for their contributions in early operations.

Accepted Answer

Investors typically prefer that the management team draws reasonable salaries, especially in early-stage companies, to ensure that most of the capital is invested back into the company's growth and development rather than in high salaries.

Question 18

The corporation is considered a legal person that is taxable and absorbs liability.

Accepted Answer

A corporation is a legal entity separate from its owners and is capable of paying taxes and incurring liabilities.

Question 19

The proprietor is only personally liable for all aspects of the business when gross negligence occurs.

Accepted Answer

The proprietor is personally liable for all aspects of the business regardless of negligence. They are responsible for any debts or legal issues that arise from the business.

Question 20

In an S Corporation,ownership can be freely transferred as long as the buyer is an individual.

Accepted Answer

The answer of In an S Corporation,ownership can be freely...

Quiz 9: The Organizational Plan