Question 1

The owners of a ________ have a separate legal distinction from the business.

Accepted Answer

The owners of a corporation have a separate legal distinction from the business, as the corporation is considered a separate legal entity. Partnerships and sole proprietorships do not have this separation, as the owners are personally responsible for the business's liabilities.

Question 2

A sole proprietorship is

Accepted Answer

A sole proprietorship is the easiest type of business to set up because it does not require any formal legal documentation or registration. The owner simply starts operating the business as an individual, without any separate legal entity or formal structure.

Question 3

As a form of business, a partnership

Accepted Answer

A partnership cannot issue stock as it is not a publicly traded company.

Question 4

How does the owner of a sole proprietorship relate to the business?

Accepted Answer

In a sole proprietorship, the owner and the business are not separate legal entities. This means that the owner is personally responsible for all aspects of the business, including any debts or liabilities incurred by the business. Additionally, the assets of the owner and the business are considered the same, and can be used to pay off any debts or obligations of the business.

Question 5

Which type of business has the least government rules and regulations affecting it?

Accepted Answer

Sole proprietorships are the simplest form of business entity, and they have the least amount of government regulations and rules affecting them. Because a sole proprietorship is usually run by a single person, the government doesn't need to regulate it as much as other forms of business.

Question 6

Which of the following must a firm in a market economy do today to succeed?

Accepted Answer

To succeed in a market economy, firms must produce goods and services that consumers want at a lower cost than consumers can produce themselves, organize their factors of production efficiently, and have access to sufficient funds. Therefore, option D is the correct answer.

Question 7

Which of the following is an advantage of starting a new business as a proprietorship?

Accepted Answer

Starting a new business as a proprietorship has the advantage of having few government rules and regulations to comply with, making it easier for the owner to get started and operate the business. However, the other options are not valid advantages. 
A) While the owner has complete control over the business, they also have unlimited personal liability, meaning their personal assets may be at risk. 
C) Business profits are taxed as personal income for the proprietor and D) a proprietorship may have difficulty attaining additional funding as it is limited to the owner's personal finances or loans.

Question 8

Jeremy is thinking of starting up a small business selling NASCAR memorabilia. He is considering setting up his business as a sole proprietorship. What is one advantage to Jeremy of setting up his business as a sole proprietorship?

Accepted Answer

As a sole proprietor, Jeremy would have both ownership and control over the business. This means he would have the freedom to make all decisions regarding the business and would not have to share profits with any shareholders. However, he would also be personally liable for any debts or legal issues that arise, which is a disadvantage of a sole proprietorship. A and B are incorrect because sole proprietors do not have limited liability and do not have shareholders to share risk with.

Question 9

Jeremy is thinking of starting up a small business selling NASCAR memorabilia. He is considering setting up his business as a sole proprietorship. What is one disadvantage to Jeremy of setting up his business as a sole proprietorship?

Accepted Answer

One disadvantage of setting up a business as a sole proprietorship is that the owner faces unlimited liability. This means that the owner is personally responsible for all debts and legal issues related to the business, and their personal assets could be at risk in the event of a lawsuit or other financial problems.

Question 10

Organizing a successful firm in a market economy has become ________ over the last century.

Accepted Answer

With the increasing competition and globalization, organizing a successful firm has become more difficult over the last century. Companies need to adapt and innovate to stay ahead in the market, which requires more effort and resources. Additionally, there are more regulations and legalities to follow, making it more challenging to establish and maintain a successful business.

Question 11

Who controls a sole proprietorship?

Accepted Answer

The owner controls a sole proprietorship as it is a business owned and operated by one individual. Stockholders and bondholders are not applicable in this situation as they are related to ownership and financing of corporations.

Question 12

Assume you set up a sole proprietorship and your lawyer tells you that as the owner, you could stand to lose your personal wealth if the business goes bankrupt. This means a sole proprietorship

Accepted Answer

A sole proprietorship is not a separate legal entity from its owner, and therefore the owner is personally liable for all debts and obligations of the business. This means that if the business goes bankrupt, the owner's personal wealth could be at risk, leading to unlimited liability.

Question 13

A corporation is owned by its

Accepted Answer

Stockholders own a corporation through their ownership of shares or stock. The board of directors is elected by stockholders to oversee the management and direction of the corporation. Employees may have some ownership through stock options or employee stock ownership plans (ESOPs), but the majority of ownership typically resides with the stockholders. The CEO is an employee of the corporation and does not necessarily own any part of the company.

Question 14

Which type of business is the most difficult to set up?

Accepted Answer

Corporations require significant amounts of legal and financial resources to establish and maintain, including registering with the state, drafting bylaws and articles of incorporation, and raising capital through stock offerings. Additionally, corporations are subject to more regulatory requirements and oversight than sole proprietorships or partnerships, making the establishment process more complex.

Question 15

In a typical year, ________ of new jobs are created by small firms.

Accepted Answer

The answer of In a typical year, ________ of new...

Question 16

Eighty-five percent of all firms employ ________ workers.

Accepted Answer

According to the given information, 85% of all firms employ fewer than 20 workers. This means that option B is the correct choice.

Question 17

A corporation is the type of business has ________ government rules and regulations affecting it.

Accepted Answer

Corporations are highly regulated by both federal and state governments. They must comply with many laws and regulations related to taxation, financial reporting, employment, environmental impact, and more.

Question 18

How do a sole proprietorship and a corporation differ?

Accepted Answer

The answer of How do a sole proprietorship and a...

Question 19

Unlike firms that sell stock in financial markets, which are known as ________ firms, companies which do not sell stock in financial markets are known as ________ firms.

Accepted Answer

Public firms sell their stocks in financial markets for public investors to purchase, while private firms do not offer stocks for sale and are owned by a group of private individuals or a single entity. Option B is incorrect because open and closed are not typically used to describe firms in this context. Option C is incorrect because corporate and proprietary do not accurately describe the distinction between publicly-traded and privately-held firms. Option D is incorrect because both stock market and bond market describe different types of financial markets rather than the type of firm.

Question 20

What does limited liability mean?

Accepted Answer

Limited liability means that the personal assets of the owners cannot be claimed if the business is bankrupt. Option A is incorrect as limited liability means the owners are not personally responsible for paying expenses incurred by the business. Option B is incorrect as employees do not necessarily have a claim on the assets of the business. Option D is also incorrect as it does not fully explain limited liability.

Quiz 8: Firms, the Stock Market, and Corporate Governance