Question 1

Selena has a talent for making attractive but inexpensive jewellery and wants to set up a small business to sell some of her creations. She asks for your advice about setting up her firm, telling you that she wants to start her business as quickly and inexpensively as possible. In addition, she doesn't want to share control (or profits) with anyone else. Which form of business ownership would you suggest for Selena?
A) corporation
B) limited liability company (LLC)
C) sole proprietorship
D) general partnership

Accepted Answer

A sole proprietorship is the simplest and cheapest form of business ownership, and Selena can have full control over her business without sharing profits or decision-making.

Question 2

Which of the following is a legal entity created by permission of a provincial or federal government?
A) corporation
B) general partnership
C) limited partnership
D) sole proprietorship

Accepted Answer

A corporation is a legal entity created by permission of the government either provincial or federal, which binds the corporation as a distinct legal person, responsible for its debts and obligations. General partnerships, limited partnerships, and sole proprietorships are not created by permission of the government and have different legal structures.

Question 3

Dana wants to open her own business after completing college. As a fine arts student, she is planning to provide services as a graphic artist. Although she is nervous about risking her personal assets, she is thinking about forming a proprietorship. Which of the following provides the best advice for Dana?
A) Forming a sole proprietorship can help you protect your personal assets, but it is a poor choice for individuals who want to be their own boss because this form of business is heavily regulated.
B) Forming a sole proprietorship is a great idea. It gives you the ability to be your own boss while also protecting your personal assets from loss.
C) Forming a sole proprietorship is a bad choice. Not only is a sole proprietorship subject to extensive government regulation that will limit your ability to run your business, it also exposes you to unlimited liability.
D) Forming a sole proprietorship will enable you to be your own boss. But if you are really nervous about risking your personal assets, you might want to consider some other form of ownership because it will also expose you to unlimited liability.

Accepted Answer

While a sole proprietorship can offer the advantage of being your own boss, it also comes with the risk of unlimited liability. Since Dana is nervous about risking her personal assets, she should consider other forms of ownership that can offer more protection.

Question 4

Which statement best describes limited partners?
A) They risk their personal wealth in exchange for a controlling share of ownership.
B) They agree to invest their money in the company for a limited time period.
C) They have limited liability for the debts of their company as long as they do not actively participate in management.
D) They cannot own more than 10 percent of the company's stock.

Accepted Answer

Limited partners have limited liability, which means they are only responsible for the debts of their company up to the amount of their investment. This protection is only afforded to them if they do not actively participate in the management of the company. A) is incorrect because limited partners do not typically have a controlling share of ownership. B) is partially correct in that limited partners typically agree to invest their money for a fixed amount of time, but this is not their defining characteristic. D) is incorrect because limited partners can own more than 10 percent of the company.

Question 5

Sue has a great idea for a business but has limited financial assets. She wants to retain control over the management of the company, but she needs someone to provide additional financing. Her friend Tom has some money to invest and likes Sue's idea. He would like to share in any profits, but he doesn't have the time for or interest in managing the company and is nervous about the liability involved in running a business. What type of ownership structure would best suit both Sue and Tom?
A) foreign corporation
B) general partnership
C) sole proprietorship
D) limited partnership

Accepted Answer

A limited partnership would be the best choice for Sue and Tom. Sue can be the general partner with control over management, while Tom can be the limited partner who provides additional financing but has no role in management and is not personally liable for the company's debts. This allows both parties to fulfill their desired roles and protects Tom from excessive liability.

Question 6

What are the three types of partnerships?
A) specific, general, and generic
B) general, unlimited, and general liability
C) general, limited, and limited liability
D) sole, general, and specific

Accepted Answer

The three types of partnerships are general partnership, limited partnership, and limited liability partnership. Option A and D are incorrect as they do not list the correct types of partnerships. Option B is partially correct in listing general and general liability partnerships, but the third type listed, "unlimited," is not a type of partnership.

Question 7

Why do most sole proprietorships remain relatively small?
A) because their shareholders would rather receive dividends than have earnings reinvested to finance growth
B) because the owners often disagree about the need to take on additional risk associated with growth
C) because they have limited ability to raise funds needed to finance growth
D) because government regulations limit their ability to expand into new areas of business

Accepted Answer

Most sole proprietorships have limited ability to raise funds, which makes it difficult to finance growth. Therefore, they remain relatively small.

Answer: A and B are incorrect 
 The issue of dividends and disagreements between owners may affect growth, but they are not the primary reasons why most sole proprietorships remain small. However, government regulations may limit their expansion in some cases.

Question 8

Which of the following is a voluntary agreement between two or more people to jointly own a business?
A) partnership
B) corporation
C) limited liability partnership
D) sole proprietorship

Accepted Answer

A partnership is a voluntary agreement between two or more people to jointly own a business. The other options are different types of business entities, but do not specifically involve a voluntary agreement between multiple individuals to jointly own and operate a business.

Question 9

Justin Lapierre decided to operate his own Web design firm and is leaning toward organizing it as a sole proprietorship. What is one factor Justin should realize in choosing this form of business?
A) He will be creating a business that is legally separate and distinct from himself.
B) He will be required to fill out special forms and pay proprietorship fees to get the company legally established.
C) He will incur the problem of double taxation.
D) He will be exposing himself to unlimited personal liability for the company's debts.

Accepted Answer

Justin should realize that as a sole proprietor, he will be personally liable for any debts and obligations of the business. This means that if the business cannot pay its debts, his personal assets (such as his home or car) could be at risk. This is a significant risk factor that should be carefully considered when choosing to operate as a sole proprietor.

Question 10

Anita Persaud has opened a new downtown boutique. She wants to pay minimal taxes and she wants to remain in complete control of her company and be her own boss. What form of ownership should she choose?
A) corporation
B) cooperative
C) partnership
D) sole proprietorship

Accepted Answer

A sole proprietorship is the simplest and most common form of ownership. It is a business owned and operated by one person, and there is no legal separation between the business and the owner. This means that Anita would have complete control over her company and would not have to share profits or decision-making with anyone else. Additionally, since the business is not a separate legal entity, any profits or losses are reported on Anita's personal tax return, which may result in lower taxes than if she were to form a corporation.

Question 11

Which of the following is a disadvantage of a sole proprietorship?
A) It is hard to attract and retain talented employees.
B) It is expensive and difficult to set up this type of business.
C) It is heavily regulated by most provincial and local governments.
D) There is limited liability.

Accepted Answer

Sole proprietorships often face challenges in attracting and retaining talented employees due to limited resources and growth opportunities compared to larger corporations.

Question 12

Marco Valez is comparing forms of business structure in order to make the best decision for the business he plans to form next month. He plans to be the only investor/owner, and he will also actively manage the business. He is convinced that the company will be profitable, so he wants to keep all of the after-tax earnings for himself. Which of the following forms of business ownership is Marco most likely to choose?
A) limited liability company
B) sole proprietorship
C) corporation
D) limited partnership

Accepted Answer

A sole proprietorship is the simplest and least expensive type of business structure. As the sole owner, Marco would have complete control over the business and would be able to keep all of the after-tax earnings for himself. Additionally, there is no legal or financial separation between the owner and the business, so income and expenses are reported on the owner's personal tax return. This type of structure would also allow Marco to avoid the legal formalities and costs associated with forming a corporation or limited liability company.

Question 13

Compared to a sole proprietorship, what would be a major advantage of a general partnership?
A) It is considered to be a permanent business organization.
B) It would be able to completely avoid the problem associated with unlimited liability.
C) It would be able to take advantage of complementary skills and shared workload.
D) It is easier and less expensive to form.

Accepted Answer

A major advantage of a general partnership compared to a sole proprietorship is the ability to take advantage of complementary skills and shared workload. In a partnership, each partner brings their own expertise and abilities to the table, allowing for a more efficient and effective business operation. This can lead to increased innovation and the ability to tackle more complex projects.

Question 14

Basil Pappas spent his youth working in the restaurants of several of his close relatives. Now, he wants to venture into his own business and has decided that he will open his own restaurant. Basil needs more money than he can come up with on his own, so he plans to ask his two brothers to put up some money in exchange for a share of ownership. Such an arrangement means that the company CANNOT be formed as which of the following?
A) general partnership
B) corporation
C) limited partnership
D) sole proprietorship

Accepted Answer

A sole proprietorship is a business owned and operated by one person. Since Basil plans to ask his two brothers to invest in exchange for a share of ownership, the business cannot be a sole proprietorship, as it would involve multiple owners.

Question 15

Which term describes the shareholders of a corporation, who have the right to vote on issues affecting the operation of the business?
A) employees
B) owners
C) creditors
D) buyers

Accepted Answer

Shareholders are the owners of a corporation and have the right to vote on issues that affect the operation of the business. They can elect the board of directors and vote on important business decisions, such as mergers and acquisitions or changes to the company's bylaws. Employees are not typically shareholders and do not have the same voting rights as shareholders. Creditors are parties who lend money to the company and do not have voting rights. Buyers are individuals or organizations who purchase goods or services from the company and do not have ownership or voting rights.

Question 16

What is the name of the document that must be filed to form a corporation in most provinces?
A) prospectus
B) articles of incorporation
C) election of incorporation certificate
D) registration statement

Accepted Answer

The document that must be filed to form a corporation in most provinces is the articles of incorporation. This document sets out important information about the corporation, such as its name, purpose, share structure, and governing rules. The articles of incorporation must be filed with the relevant provincial or territorial government agency, along with any required fees.

Question 17

Which of the following is a form of business ownership that is considered to be separate from its owners, who are known as shareholders?
A) sole proprietorship
B) corporation
C) general partnership
D) limited partnership

Accepted Answer

A corporation is a type of business ownership that is separate from its owners (shareholders). Shareholders have limited liability and are not personally responsible for the corporation's debts or obligations. Additionally, a corporation can issue stock to raise capital and has perpetual existence, meaning it can continue to operate even if the ownership changes.

Question 18

Which of the following can be classified as an artificial person that can legally engage in almost any business activity a natural person can, including owning property, entering into binding contracts, and initiating legal actions?
A) enterprise
B) sole proprietorship
C) corporation
D) partnership

Accepted Answer

A corporation is an legal entity that can engage in almost any business activity a natural person can, including owning property, entering into binding contracts, and initiating legal actions. It is considered an artificial person under the law.

Question 19

In which of the following types of ownership do all partners have the right to actively participate in the management of the firm and to share in any profits or losses incurred by the business?
A) general partnership
B) limited liability partnership
C) limited partnership
D) sole proprietorship

Accepted Answer

In a general partnership, all partners have an equal say in the management of the business and share in any profits or losses. This type of ownership also means that each partner is responsible for the partnership's debts and obligations.

Question 20

In Canada, which of the following is the dominant form of business ownership?
A) corporations
B) limited liability partnerships
C) general partnerships
D) sole proprietorships

Accepted Answer

According to Statistics Canada, corporations are the dominant form of business ownership in Canada, accounting for 73.5% of total Canadian business operating revenue. Limited liability partnerships, general partnerships, and sole proprietorships all make up a smaller percentage of operating revenue.

Quiz 5: Business Formation: Choosing the Form That Fits

Which of the following is a legal entity created by permission of a provincial or federal government?

Which statement best describes limited partners?

What are the three types of partnerships?

Why do most sole proprietorships remain relatively small?

Which of the following is a voluntary agreement between two or more people to jointly own a business?

Justin Lapierre decided to operate his own Web design firm and is leaning toward organizing it as a sole proprietorship. What is one factor Justin should realize in choosing this form of business?

Anita Persaud has opened a new downtown boutique. She wants to pay minimal taxes and she wants to remain in complete control of her company and be her own boss. What form of ownership should she choose?

Which of the following is a disadvantage of a sole proprietorship?

Compared to a sole proprietorship, what would be a major advantage of a general partnership?

Which term describes the shareholders of a corporation, who have the right to vote on issues affecting the operation of the business?

What is the name of the document that must be filed to form a corporation in most provinces?

Which of the following is a form of business ownership that is considered to be separate from its owners, who are known as shareholders?

Which of the following can be classified as an artificial person that can legally engage in almost any business activity a natural person can, including owning property, entering into binding contracts, and initiating legal actions?

In which of the following types of ownership do all partners have the right to actively participate in the management of the firm and to share in any profits or losses incurred by the business?

In Canada, which of the following is the dominant form of business ownership?