Question 1

The most important benefit of incorporation is the limited liability to which the owners are exposed.

Accepted Answer

When a company is incorporated, it becomes a separate legal entity from its owners/shareholders. This means that the owners' personal liability is limited to the amount they have invested in the company, and they cannot be held responsible for any debts or legal issues faced by the company beyond their investment. This is known as limited liability and is one of the main benefits of incorporation.

Question 2

Corporations account for _____percent of all U.S. businesses but generate almost _____percent of the revenues.

Accepted Answer

According to recent data, Corporations account for 18% of all U.S. businesses but generate almost 82% of the revenues.

Question 3

The most important benefit of incorporation is the _____ feature of corporations.

Accepted Answer

The most important benefit of incorporation is the limited liability feature of corporations. This means that the shareholders' liability is limited to the amount of their investment in the company, and their personal assets are not at risk. This provides a layer of protection for shareholders that is not available to sole proprietors or partnerships.

Question 4

A disadvantage of a corporation is that managers and shareholders may have goals that conflict.

Accepted Answer

Managers may prioritize long-term growth and investment, while shareholders may prioritize short-term profits and dividends. This can create tension and conflicts of interest within the corporation.

Question 5

Any corporation can raise more money than a partnership because it has better credit.

Accepted Answer

The answer of Any corporation can raise more money than...

Question 6

Which of the following is a disadvantage of the corporate form of organization

Accepted Answer

The corporate form of organization often involves a separation of ownership and management, meaning that the owners/shareholders may not have direct control over day-to-day operations. This can lead to conflicts of interest and a lack of accountability on the part of management.

Question 7

A major reason many people choose not to incorporate is because of the costs involved and double taxes that must be paid.

Accepted Answer

This statement is true. The costs of incorporating, such as filing fees and legal fees, can be significant. Additionally, corporations are subject to double taxation, meaning they pay taxes on their profits at both the corporate level and the personal level when dividends are distributed to shareholders. This can make incorporation less desirable to some individuals or small businesses.

Question 8

A _____ is entirely separate from the parties who own it.

Accepted Answer

A corporation is a separate legal entity from its owners, meaning that it can conduct business, enter into contracts, and own assets completely independently of its shareholders. Limited partnerships and general partnerships involve direct ownership by the partners, while an unlimited proprietorship is not a recognized legal structure.

Question 9

Grainger Company is a major automotive parts manufacturer operating in six countries. It has no restrictions on stock sales and the stock is available to the general public. Grainger Company is a _____ corporation.

Accepted Answer

Grainger Company is a public corporation because its stock is available to the general public with no restrictions on sales. Private corporations and closely-held corporations have restrictions on stock sales and ownership, while a limited liability corporation is a different legal entity altogether.

Question 10

In corporations, the individuals who own and manage a business are the same people.

Accepted Answer

In corporations, ownership and management are often separated. The owners are the shareholders, while the management is handled by a board of directors and executive officers.

Question 11

Continuity is an advantage of a corporation; however, ease in transferability is a disadvantage.

Accepted Answer

The answer of Continuity is an advantage of a corporation;...

Question 12

When it distributes a portion of its income to shareholders in the form of cash payments, a corporation pays out _____.

Accepted Answer

When a corporation distributes a portion of its income to shareholders in the form of cash payments, it is called a dividend.

Question 13

The most important benefit of incorporation is the continuity to which shareholders are exposed.

Accepted Answer

The answer of The most important benefit of incorporation is...

Question 14

The board of directors of a corporation sets the company's policies, goals and decisions, and approves the distribution of dividends.

Accepted Answer

This is the typical role of the board of directors in a corporation.

Question 15

One drawback to incorporation-one that often discourages small businesses from incorporating-is the fact that corporations are costly to set up.

Accepted Answer

Incorporating a business involves legal fees, filing fees, and ongoing compliance costs, which can add up and make it a more expensive option for small businesses.

Question 16

Some corporate founders of Smith Company want to restrict the transferability of their stock and hold it in the hands of only a few individuals who are not allowed to sell it to the general public. What type of company is Smith Company

Accepted Answer

Since the corporate founders of Smith Company want to restrict the transferability of their stock and hold it in the hands of only a few individuals who are not allowed to sell it to the general public, it is clear that they want to maintain control over the company and not have it open to public ownership. This is a characteristic of a private corporation, as opposed to a public corporation where shares can be bought and sold by anyone on the open market.

Question 17

The shareholders elect a board of directors, primarily from within the corporation, who manage the company.

Accepted Answer

The answer of The shareholders elect a board of directors,...

Question 18

CEO, Jack Yates oversees the operations of Johnson Company, a corporation with 1,200 employees. Yates reports to the company's board of directors. Who owns Johnson Company

Accepted Answer

Shareholders are the owners of the company as they are the ones who invest in it by buying shares. The board of directors is responsible for overseeing the management of the company, and the CEO is an employee of the company who reports to the board of directors. The employees work for the company but do not own it.

Question 19

_________are earnings distributed to shareholders by a corporation..

Accepted Answer

Dividends are payments made by corporations to shareholders as a portion of the company's profits.

Question 20

The shareholders elect a ___________, a group of people who are legally responsible for governing the corporation.

Accepted Answer

The term "board of directors" is commonly used to refer to the group of people elected by shareholders to govern the corporation. Option A and C are closely related to the board of directors, but they are not the correct term used in business context. Option D is not commonly used to refer to this group.

Quiz 4: Selecting a Form of Business Ownership