Question 1

A ________ partner is a person who makes financial investments in a partnership, does not take an active role in managing the business, and whose liability for the partnerships' debts is limited to the amount they have invested.
A) limited
B) master
C) dormant
D) silent

Accepted Answer

A limited partner fits this description. The term "limited" refers to the fact that their liability is limited to their investment, and they are not actively involved in managing the partnership. "Master" and "dormant" are not commonly used terms in this context, and a "silent" partner may or may not be actively involved in managing the business.

Question 2

The most common form of business ownership that is also the simplest to create is the ________.
A) sole proprietorship
B) partnership
C) corporation
D) S corporation

Accepted Answer

A sole proprietorship is the most common and simplest form of business ownership as it is owned and operated by a single individual. It requires minimal legal documentation and the owner has complete control over the business. However, the owner is also personally liable for any legal issues or debts incurred by the business.

Question 3

In a general partnership, ________.
A) each partner is held responsible for an agreement/decision made by any one of the partners
B) partners can be held responsible only for decisions they make personally
C) no partner can be held legally responsible for decisions since the partnership itself is a legal entity
D) no decision is binding unless all partners agree to it in writing

Accepted Answer

In a general partnership, all partners are jointly and individually liable for the decisions made by any one of the partners. This means that each partner can be held responsible for the partnership's debts, obligations, or any legal issues that may arise, even if they did not make the decision themselves.

Question 4

In a partnership, the ________ partner(s) has (have) unlimited liability for the partnership's debts.
A) limited
B) dormant
C) nominal
D) general

Accepted Answer

In a partnership, the general partner(s) has (have) unlimited liability for the partnership's debts. Limited partners, on the other hand, have limited liability and are only responsible for the amount of money they have invested in the partnership. Dormant and nominal partners do not participate in the management or operations of the partnership and therefore do not have any liability.

Question 5

Which of the following is not true of a limited liability partnership?
A) All partners are limited partners.
B) Most states restrict this form of ownership to certain types of professions such as attorneys, physicians, dentists, accountants, etc.
C) Although LLPs have many of the characteristics of partnerships, they are taxed as a corporation.
D) It must involve a general partner, a limited partner, a silent partner, and a dormant partner.

Accepted Answer

The answer of Which of the following is not true...

Question 6

Which form of ownership generally has the least ability to accumulate capital?
A) Partnership
B) Sole proprietorship
C) Corporation
D) S corporation

Accepted Answer

Sole proprietorship has the least ability to accumulate capital because the owner has limited resources and is personally liable for all debts and obligations of the business. Partnerships and corporations have more ability to accumulate capital through the pooling of resources from multiple owners or the sale of stocks and bonds. S corporations are similar to partnerships in terms of capital accumulation.

Question 7

Which of the following issues would influence an entrepreneur's choice of a form of business ownership?
A) Tax considerations
B) Management succession plans
C) Liability exposure
D) All of the above

Accepted Answer

All of the concerns listed (tax considerations, management succession plans, and liability exposure) are important factors that can influence an entrepreneur's choice of a business ownership structure. For example, if an entrepreneur is concerned about personal liability for business debts and lawsuits, they may opt for a limited liability company (LLC) or corporation instead of a sole proprietorship or partnership. Alternatively, if an entrepreneur is looking to pass the business down to family members or sell it in the future, they may want to consider a structure that allows for stock ownership and transferability. Finally, tax considerations, such as the ability to deduct business expenses or take advantage of certain tax benefits, can also play a role in deciding which type of business ownership structure is the best fit.

Question 8

Acme Corporation is chartered in Delaware, but its primary area of operation is in South Carolina. In South Carolina, Acme would be considered a(n) ________ corporation.
A) alien
B) domestic
C) foreign
D) local

Accepted Answer

Acme is chartered in Delaware, which means it is a foreign corporation in South Carolina where it operates outside of its state of incorporation.

Question 9

Which of the following issues would a typical partnership agreement address?
A) The contributions of each partner to the business.
B) How the partnership profits (or losses) will be distributed.
C) How a partner can sell her/his ownership in the business.
D) All of the above

Accepted Answer

A typical partnership agreement would address all of the above issues, including the contributions of each partner to the business, how the partnership profits and losses will be distributed, and how a partner can sell their ownership in the business. Other issues that a partnership agreement may address include decision-making authority, dispute resolution, and the management structure of the partnership.

Question 10

Marco is opening a new computer repair shop. He is owner and sole employee. He has paid the appropriate fees and licensing costs and begun his business. This is an example of a(n) ________.
A) S corporation
B) partnership
C) corporation
D) sole proprietorship

Accepted Answer

Marco owning and operating the business alone points towards a sole proprietorship, which is a business entity that is owned and managed by a single person.

Question 11

The key to choosing the right form of ownership is ________.
A) envisioning where your business will be in 10 years
B) understanding the characteristics of each form and knowing how they affect your business and personal circumstances
C) forming either an S corporation or a limited liability company since they are the only forms that offer owners liability protection
D) irrelevant since choosing a form of ownership is merely a technicality and has little impact on the business and its owner(s)

Accepted Answer

Understanding the characteristics of each form and knowing how they affect your business and personal circumstances is crucial in choosing the right form of ownership. Envisioning where your business will be in 10 years is also important, but it should not be the only factor in deciding the form of ownership. Forming either an S corporation or a limited liability company may offer liability protection, but they may not be the best choice for every business. It is also not true that choosing a form of ownership is merely a technicality and has little impact on the business and its owner(s).

Question 12

The most critical disadvantage of the sole proprietorship is ________.
A) the owner's unlimited personal liability
B) limited access to capital
C) lack of continuity
D) limited skills and abilities of the owner

Accepted Answer

The most critical disadvantage of the sole proprietorship is the owner's unlimited personal liability. As a sole proprietor, the business owner is personally responsible for all debts and legal obligations of the business, which puts their personal assets at risk.

Question 13

A special type of partnership in which all partners, who in many states must be professionals, are limited partners is called ________.
A) general partnership
B) limited partnership
C) silent partnership
D) limited liability partnership

Accepted Answer

A special type of partnership in which all partners (who in many states must be professionals), are limited partners is called a limited liability partnership. This type of partnership provides limited liability protection to all partners and allows them to participate in management and decision-making.

Question 14

________ is a special type of limited partnership in which all partners who, in many states must be considered to be professionals, are limited partners.
A) Limited liability partnership (LLP)
B) Master limited partnership (MLP)
C) General partnership
D) Limited partnership

Accepted Answer

In a limited liability partnership (LLP), all partners are considered limited partners and have limited liability for the actions and debts of the partnership. This type of partnership is typically reserved for professional services, such as lawyers, accountants, and doctors. In many states, all partners in an LLP must be professionals in the same field.

Question 15

A partnership agreement defines how the partners will be compensated. Normally, ________.
A) partners are not entitled to salaries or wages, but are compensated by a share of the profits of the business
B) the general partner's salary is set at two times the salaries of the limited partners
C) both general and limited partners are permitted salaries, but all silent or dormant partners are compensated only by sharing in the profits
D) while the agreement establishes payout schedules, it does not spell out what constitutes profit

Accepted Answer

A partnership agreement typically states that partners will be compensated by a share of the profits of the business. This means that they are not entitled to salaries or wages, but will instead receive a portion of the profits based on their percentage of ownership in the partnership. The agreement may also specify how profits are calculated and distributed among partners.

Question 16

A ________ partnership is composed of at least one general partner and at lease one limited partner.
A) general
B) limited
C) silent
D) passive

Accepted Answer

A limited partnership is composed of at least one general partner who manages the business and is personally liable for the partnership's debts and at least one limited partner who invests in the partnership but has limited legal liability for the partnership's debts.

Question 17

All of the following are advantages of a partnership except ________.
A) partnerships are relatively easy and inexpensive to establish
B) partnerships avoid double taxation since the partnership itself is not subject to federal taxation
C) partnerships have the greatest ability to accumulate capital of all of the forms of ownership
D) partnerships offer the ability to combine the management and business skills of two or more people in a complementary and powerful fashion

Accepted Answer

Partnerships do not have the greatest ability to accumulate capital of all forms of ownership. This is typically an advantage of corporations.

Question 18

Probably the most important reason to have a partnership agreement is that ________.
A) it identifies the name of the partnership and protects that name from infringement by others
B) it states the location and the purpose of the business
C) it determines how the partnership and the partners will pay taxes
D) it resolves potential sources of conflict that, if not addressed in advance, could later result in partnership battles and dissolution of an otherwise successful business

Accepted Answer

While all the options presented are important considerations in a partnership agreement, the most crucial reason is to address potential sources of conflict between partners that could arise in the future. This could include disputes over decision-making, profit-sharing, or partner departures, and having a comprehensive partnership agreement can prevent these conflicts from escalating and potentially leading to the dissolution of the business.

Question 19

Which of the following is required to form a partnership?
A) A general partner
B) A limited partner
C) A secret partner
D) A silent partner

Accepted Answer

A general partner is required to form a partnership as they are responsible for the management and operations of the business. While having limited partners, secret partners, or silent partners may be beneficial, they are not required for the formation of a partnership.

Question 20

Changing from one form of ownership to another once a business is up and running can be difficult, expensive, and complicated.

Accepted Answer

Changing ownership of a business can involve legal and financial hurdles such as filing paperwork and paying taxes, which can be expensive and complicated. Additionally, it may require renegotiating contracts and leases, transferring licenses and permits, and notifying customers and suppliers, which can be difficult.

Quiz 6: Forms of Business Ownership and Buying an Existing Business

A ________ partner is a person who makes financial investments in a partnership, does not take an active role in managing the business, and whose liability for the partnerships' debts is limited to the amount they have invested.

The most common form of business ownership that is also the simplest to create is the ________.

In a general partnership, ________.

In a partnership, the ________ partner(s) has (have) unlimited liability for the partnership's debts.

Which of the following is not true of a limited liability partnership?

Which form of ownership generally has the least ability to accumulate capital?

Which of the following issues would influence an entrepreneur's choice of a form of business ownership?

Acme Corporation is chartered in Delaware, but its primary area of operation is in South Carolina. In South Carolina, Acme would be considered a(n) ________ corporation.

Which of the following issues would a typical partnership agreement address?

Marco is opening a new computer repair shop. He is owner and sole employee. He has paid the appropriate fees and licensing costs and begun his business. This is an example of a(n) ________.

The key to choosing the right form of ownership is ________.

The most critical disadvantage of the sole proprietorship is ________.

A special type of partnership in which all partners, who in many states must be professionals, are limited partners is called ________.

________ is a special type of limited partnership in which all partners who, in many states must be considered to be professionals, are limited partners.

A partnership agreement defines how the partners will be compensated. Normally, ________.

A ________ partnership is composed of at least one general partner and at lease one limited partner.

All of the following are advantages of a partnership except ________.

Probably the most important reason to have a partnership agreement is that ________.

Which of the following is required to form a partnership?

Changing from one form of ownership to another once a business is up and running can be difficult, expensive, and complicated.