Deck 8: The Organizational Plan: Teams, Legal Structures, Alliances, and Directors

Question 1

Creating a partnership allows a business to pool the managerial talents and capital of those individuals joining together as partners.

Answer 1

True

Question 2

A management team is often stronger than an individual entrepreneur because it provides a diversity of skills and assurance of continuity.

Answer 2

True

Question 3

The sole proprietorship is a business owned by two or more people but operated by only one person.

Answer 3

False

Question 4

Partners must contribute capital or assets to form a partnership.

Question 5

A partnership agreement states explicitly the rights and duties of partners with each party assuming joint and several liability.

Question 6

A partnership reports the income it earns to the Internal Revenue Service, but the partnership itself does not pay any taxes.

Question 7

Partners always share profits and losses equally.

Question 8

Incorporation will not protect a firm's owners from liability if it is used to perpetrate a fraud, skirt a law, or commit some wrongful act.

Question 9

The management team of a small business should focus on competent insiders as opposed to outside specialists.

Question 10

The LLC differs from the C corporation in that the LLC avoids financial complications from double taxation.

Question 11

The liability of owners is greater with a sole proprietorship than with a general partnership.

Question 12

A professional corporation shields owners from liability of other individuals in certain professional practices.

Question 13

Sole proprietors often benefit from fringe benefits such as tax-free insurance plans.

Question 14

S corporations can have nonresident alien stockholders but no more than 50 stockholders.

Question 15

The concept of balance on the management team means that the entrepreneur should not be wrapped up too much in one area, such as sales or production, but be well rounded.

Question 16

An ownership interest does not automatically confer a right to act for or to share in the management of a corporation.

Question 17

A limited partnership must have at least two general partners and one or more limited partners.

Question 18

There are no limits on the owner's personal liability in a sole proprietorship.

Question 19

Effective leadership is more important for prospective managerial personnel than for investors.

Question 20

A nonprofit corporation can be for civic, educational, charitable, or religious purposes and must pass the organizational test of not making a profit.

Question 21

The board of directors is elected by the stockholders of a corporation.

Question 22

The key to strong management in a new firm is

A) balance, with each member having competence in at least one area.
B) financial competence of the chief executive.
C) a strong marketing manager who understand financial statements.
D) close friendship among all members of the team.

Question 23

Webster is reviewing resumes looking for candidates for leadership positions in his very young company. Webster is putting together his:

A) business plan.
B) advisory board.
C) board of directors.
D) management team.

Question 24

Sometimes small business board members are given company stock in lieu of compensation.

Question 25

As it relates to new businesses, one function of a social network is to:

A) promote the enterprise during conversations with potential rivals.
B) provide a pool of candidates for leadership positions.
C) assure a steady flow of applicants for production positions.
D) connect the enterprise to a social network that provides access to a wide range of resources.

Question 26

For the best success, strategic alliance partners should sign contracts with stated expectations and an "easy out" clause.

Question 27

An advisory board functions like a board of directors does, except that the members are compensated for their services and the company must have Directors and Officers Liability insurance.

Question 28

An entrepreneur can best build social capital by

A) joining several social networking sites.
B) building contacts through community organizations.
C) letting others know when the company has done something well.
D) using reciprocation.

Question 29

By utilizing the experience of a board of directors, the chief executive of a small corporation may have to relinquish active control of its operations.

Question 30

After working together for a few months, disputes began to arise between two of the young company's leaders. Their differences seemed to be irreconcilable. The owner's best action would be:

A) to let one or both of the individuals go.
B) call in an arbitrator.
C) sell the business.
D) form a strategic alliance with a larger company.

Question 31

Reciprocation is

A) responding to competitor's marketing efforts.
B) a sense of obligation to repay what has been done for you.
C) not important when building social capital.
D) only important once you have established your business.

Question 32

Trevor is in his early 60s but still wants to "strike out on his own" by starting a new business. One roadblock he may face is:

A) resistance from creditors to lend money for the enterprise.
B) resistance from his heirs about the distribution of assets at his death.
C) resistance from customers who fear he may become ill and unable to fulfill their orders.
D) resistance from the federal government regarding his tax identification number.

Question 33

Among the advantages of hiring family for leadership positions in a new company is the fact that:

A) federal wage and hour laws do not apply to family members.
B) the owner does not have to provide fringe benefits for them.
C) they will often work for less compensation than non-family candidates.
D) they share liability in the event of a business failure.

Question 34

Vicenzo is the sole owner and manager of a startup company. As the business grows, he finds it more difficult to fulfill the needs of all the management positions. Although he is the creative genius behind the company, he lacks experience in other areas. At this point, Vicenzo should:

A) seek the advice of an investment banker.
B) hire a management team with expertise in complementary areas.
C) encourage his advisors to take an active role in managing the company.
D) form an alliance with another startup company.

Question 35

Typically strategic alliances are harder to set up than to maintain.

Question 36

Startup owners may increase their chances for success by seeking _____ over a management team with family and friends.

A) a good CPA
B) an outstanding law firm
C) members with a balance of expertise
D) a business consultant team

Question 37

Unlimited liability for business debts is imposed on

A) shareholders in a C corporation.
B) shareholders in an S corporation.
C) sole proprietors.
D) limited partners.

Question 38

Max chose to operate his production studio as a sole proprietorship even though his attorney cautioned that he was

A) reducing its overall profit potential.
B) increasing his taxable income.
C) exposing himself to unlimited personal liability.
D) violating an existing partnership agreement.

Question 39

Sam does not want to share the fruits of his labor with anyone. It is important to him that he have total control over his new business. Which form of ownership would you recommend for Sam?

A) Partnership
B) Sole proprietorship
C) Corporation
D) Limited liability partnership

Question 40

Robbie's financial advisor referred a customer to Robbie's new business. Under the concept of ___________, Robbie is now obligated to return the favor.

A) reciprocation
B) social capital
C) social networking
D) unlimited liability

Question 41

What legal form has the smallest percentage of new businesses?

A) Sole Proprietorship
B) Partnership
C) C Corporations
D) S Corporations

Question 42

Becky wants to organize her startup as a regular corporation. One of the first steps Becky should take is:

A) hire the officers (president, treasurer, etc.) of her company.
B) file her corporate charter with the secretary of state
C) apply for permission to incorporate in her state.
D) obtain financing for her venture.

Question 43

Dylan has purchased stock in a new corporation. As proof of ownership, Dylan will receive:

A) a dividend
B) a stock certificate.
C) a corporate charter.
D) a pre-emptive right.

Question 44

A corporation

A) is chartered under state laws.
B) is chartered under federal laws.
C) remains in existence only as long as its owners are alive.
D) shifts liability of its debts to its owners.

Question 45

Abby, Adam, and Arnold are partners. They have planned to continue the partnership even after the death of any one partner. To this end, the partners have:

A) stipulated in their wills that their share of the partnership is bequeathed to the other two partners.
B) purchased life insurance policies naming the other two partners as beneficiaries.
C) created trust funds that can be used to pay off the heirs of the deceased partner.
D) secretly signed documents to be opened only after the death that the deceased partner relinquishes all claims to the partnership.

Question 46

Upton was surprised to find his partner had signed an agreement to sell product to a customer at below cost. He tried to cancel the contract but found out that:

A) partners have legal power of attorney to do as they please.
B) each partner is in essence a sole proprietor.
C) partners are seldom trustworthy.
D) any partner can legally bind the company without the consent of any other partner.

Question 47

Millie has a sole proprietorship which is her only source of income What legal action should she take to prevent the business from being ruined if she became incapacitated?

A) Give someone who is competent power of attorney to continue the business.
B) State in her will what she would like done with the company.
C) Find a partner and change the legal organization of the company
D) Tell her heirs to sell as she can't prevent ruin with a sole proprietorship

Question 48

As she considered becoming a partner in a new business venture, Valerie asked her potential partner about a(n) ___________ in the event that the partnership did not work out as expected.

A) liquidation plan
B) equity split
C) exit strategy
D) asset distribution plan

Question 49

A corporate charter should be

A) very detailed.
B) prepared by the founder.
C) broad in the statement of the firm's power.
D) lengthy and precise.

Question 50

Which group best defines a partnership?

A) A business owned and operated by one person who hires part time employees
B) A voluntary association of two persons to have a business for profit
C) The governing body for a corporation
D) A group of three persons in which each person has limited personal liability

Question 51

For a corporate charter to be obtained,

A) one or more persons must apply to the secretary of state for permission to incorporate.
B) the owner(s) must agree to be interviewed by a state department official.
C) the owner(s) must negotiate an incorporation fee.
D) the partners involved must outline a division of assets.

Question 52

A key characteristic of a partnership is that each partner

A) must contribute capital to the business.
B) shares in company assets upon the dissolution of the partnership.
C) is capable of legally contracting.
D) must manage the business.

Question 53

The legal document that spells out the partners' rights and duties is called the

A) articles of incorporation.
B) partnership agreement.
C) partnership by-laws.
D) SS-4 form.

Question 54

Which entity is liable for a corporation's debts?

A) Stockholders
B) Board of Directors
C) The corporation itself
D) The corporation's president

Question 55

Any person capable of ____ may legally become a business partner.

A) assenting to liability
B) contracting
C) contributing capital
D) having a claim on assets

Question 56

A corporate charter should

A) be detailed.
B) be in accord with state law.
C) include bylaws.
D) indicate profit potential.

Question 57

Which legal form allows owners to contribute no capital but still play a part in managing the business and share in its profits?

A) S corporation
B) C Corporation
C) Partnership
D) Sole proprietorship

Question 58

Zeno, Zella, and Zorro wish to form a partnership. Zeno is putting up 60 % of the capital; Zella is putting up 40%, and Zorro is putting in no capital but will manage the business. In the absence of a provision in the partnership agreement, how will the liability and profits be distributed?

A) According to the input of capital.
B) According to the amount of work each does in the business
C) Equally
D) According to the laws of the state where the partnership is formed

Question 59

If partners cannot resolve disputes between themselves they may be wise to hire a(n)

A) business mediator.
B) arbitrator.
C) business judge.
D) business attorney.

Question 60

Cameron is creating the document that specifies the size of the board, the duties of the directors, voting rights, etc. This document is known as:

A) the articles of incorporation.
B) the partnership agreement.
C) the employment contract.
D) the stock certificate.

Question 61

Lauren, a partner in Jales & Jales Bonding Company, manages its day-to-day operations. She is considered to be a _____ partner.

A) directing
B) general
C) limited
D) operating

Question 62

One benefit of an S Corporation is that it allows shareholders to receive dividends without

A) paying taxes.
B) penalties and interest.
C) double taxation.
D) partnership taxation.

Question 63

A basic legal principle involving stockholders is that

A) an ownership interest in a corporation does not confer a legal right to manage the firm.
B) the board of directors cannot elect the principal owner as president.
C) all dividends are nontaxable.
D) stockholders cannot buy new stock until it is offered for public sale.

Question 64

Emile has very little money with which to start his business so he wants to keep the cost or forming his company as low as possible. Which for of ownership would you recommend for Emile?

A) sole proprietorship
B) partnership
C) C corporation
D) S corporation

Question 65

Ownership in a corporation

A) is difficult to transfer.
B) is more easily transferable than ownership in other forms of organization.
C) is transferred in much the same way as stock in a partnership.
D) noticeably affects the operation of the business.

Question 66

Stockholders have limited liability unless they

A) are active in the management of the corporation.
B) personally endorse company notes.
C) own preferred stock.
D) convert their shares to partnership status.

Question 67

Because the corporation is a legal entity, one of its responsibilities is to:

A) have its accounting records audited.
B) sell stock.
C) pay dividends.
D) file annual tax returns.

Question 68

Upon the death of the majority stockholder in a corporation, direct control may pass to

A) an heir's dependents.
B) an executor.
C) the founder of the firm.
D) employees as directed by an employee stock ownership plan.

Question 69

Jane and Randy have a partnership with their company of JR Enterprises. Which statements reflect how the partnership pays taxes?

A) JR Enterprises does not pay any taxes.
B) JR Enterprises pays taxes only as a partnership.
C) Jane and Randy each pay taxes on the total income.
D) Jane and Randy do not pay taxes since they are married.

Question 70

The two dimensions of management control of a small corporation usually involves which individuals?

A) Stockholders owning the majority of the voting common stock
B) Corporate officers in conducting daily operations
C) Both stockholders and corporate officers
D) Neither the stockholders or the corporate officers

Question 71

Frank would like to avoid personal financial loss if his business idea does not work. Which form of ownership would you suggest?

A) sole proprietorship
B) partnership
C) professional corporation
D) corporation

Question 72

Which organizational type results in the business owner having unlimited liability?

A) Sole proprietorship
B) LLC
C) Limited partnership
D) Corporation

Question 73

The right to buy new shares of stock in proportion to stock already owned is called a

A) stock right.
B) stock option.
C) Section 1244 right.
D) pre-emptive right.

Question 74

To maintain status as a corporation, the corporation must:

A) reapply for a charter annually.
B) submit its bylaws to the secretary of the state of incorporation every year.
C) hold annual meetings of both the shareholders and the board of directors.
D) properly declare annual dividends.

Question 75

In a limited partnership, which partner remains bound by all debts of the business?

A) Limited partner
B) Special partner
C) Partner with the greatest capital investment
D) General partner

Question 76

Evan has received permission from his state to form a corporation for his startup, expecting his liability would be limited to the amount of his investment. But his bank asked him to assume personal liability before it would grant him a business loan. Why would the bank make this demand?

A) Evan did not invest enough into the business.
B) Evan is the only stockholder.
C) Evan has more assets than the business.
D) Evan's business has no credit history.

Question 77

Ralph formed a corporation as a fund manager. He accepted money from his customers promising to invest it and build cash value for them. Instead he kept the money for himself to enjoy a lavish lifestyle. The court removed liability protection from his corporate entity because the incorporation had been used to perpetuate fraud. This is an example of:

A) piercing the corporate veil.
B) unlimited liability.
C) reciprocation.
D) a pre-emptive right.

Question 78

Harvey would like to support his friend's new business financially but also wants to protect his assets in case the business fails. Which form of ownership would you recommend?

A) Sole proprietorship
B) Partnership
C) Limited partnership
D) 501(c)(3) corporation

Question 79

Glenda, an employee of a corporation, caused a traffic accident while on company business. Who will pay for the damages?

A) The stockholders
B) The board of directors
C) The founder
D) The corporation

Question 80

A typical common stockholder of a corporation

A) has the right to act for the firm.
B) has the right to receive declared dividends.
C) can always buy new stock in proportion to stock already owned.
D) can fire employees of the corporation.