BUSN LAW
Which of the following statements about the operation of a corporation is correct? A. A corporation receives its charter from a state government B. A corporate charter automatically expires in 99 years and must be renewed if the corporation wants to remain in business C. Owners of a corporation have unlimited liability for any claims against their company D. A corporation tends to be much easier to set up than a sole proprietorship or partnership
A corporation receives its charter from a state government.
Jenna plans to invest in a cleaning service franchise called "Spare Time". At her first interview with the franchisor's selling agent, she learned that the parent company expects royalties of 5%. These are:
A share of profits or a percentage share of revenues (net sales)
Compared to a sole proprietorship, which of the following is considered an advantage of a general partnership? A. Ability to pool financial resources B. Unlimited liability for all owners C. Division of profits among owners D. Ease and flexibility in transferring shared of ownership to others
Ability to pool financial resources
Which of the following statements is the most accurate? Sole proprietorships: A. Are well suited for people who want to own a business and share in its profits without taking an active role in management B. Are taxed at the owner's personal rate C. Is the least risky form of business ownership D. Must receive a state charter before they can legally conduct business
Are taxed at the owner's personal rate
A franchise can be formed:
As a corporation, partnership or sole proprietorship
A major advantage of S corporations is that they:
Avoid the problem of double taxation associated with conventional corporations.
One reason limited liability companies have become so popular is that they:
Can be taxed either as a corporation or as a partnership, so owners can choose the tax treatment that is most advantageous for their situation.
According to the Uniform Partnership Act, the 3 key elements of any general partnership are:
Common ownership, shared profits and losses, and right to participate in management
Kim wants to invest her savings in a business but she wants to protect all her personal assets. What type of business ownership would you recommend to Kim?
Corporation
Which of the following is an attractive benefit of a corporation? A. Corporations can enjoy double taxation B. Unlike limited partnerships, all owners of corporations are passive investors C. Corporations can protect its owners with unlimited liability D. Corporations can attract employees by offering stock options
Corporations can attract employees by offering stock options.
"Double taxation" means:
Corporations pay taxes on their profits. If they distribute after-tax profits to the stockholders, the stockholders also pay taxes on the distribution
Which of the following is normally considered a disadvantage of the corporate form of business? A. Unlimited liability of owners B. Difficult transfer of ownership C. Limited life D. Double taxation of earnings
Double taxation of earnings.
A(n) ______ is a company that has a proven business model and is willing to sell its rights to use the business model to others so that they can sell the same product or service within a given territory.
Franchisor
Which of the following is a benefit of owning your own business? A. Freedom to keep the profits from your business B. Government supported health insurance C. More camaraderie with employees D. Shorter work hours
Freedom to keep the profits from your business
In a partnership, a(n) _______ partner (owner) actively manages the company and has unlimited liability for claims against the firm.
General
Kim and Scott are brother and sister and both CPAs. Upon their dads death they received a substantial inheritance. They would like to use the inheritance to open their own CPA firm. Both Kim and Scott will be active participants in the operation of the firm. What type of business formation would you recommend to them?
General partnership
Compared to partnerships and sole proprietorships, a major advantage of the C (conventional) corporation as a form of business ownership is that it:
Has the ability to raise more money.
In a limited liability partnership, each partner's risk of losing personal assets is:
Limited to losses that result from her/her own acts of omissions and the acts and omissions of those who work under his/her supervision
Dane is a stockholder in SmallWorld, Inc., a C corporation that manufactures amusement park rides. The company recently lost a major court decision and will probably be forced into bankruptcy. In fact, the damages awarded are so great that, even if all company assets are sold and the proceeds are used to pay its debts, SmallWorld is likely to still owe money to its creditors. If SmallWorld goes bankrupt, Dane and the other stockholders will:
Lose their investment but nothing else
A significant disadvantage of owning a sole proprietorship is the:
Overwhelming time commitment often required of the owner.
With respect to taxes, the sole proprietorship:
Pays taxes on the profits of the business, at the owner's personal tax rate.
When entering into a new partnership, a good strategy is to:
Put the partnership agreement in writing.
A _____ is the share of profits it percentage of sales a franchisee pays to a franchisor.
Royalty
Which of the following is advantage of partnership? A. Ease of starting and ending the business B. Unlimited liability C. Shared management and pooled skills D. Little time commitment
Shared management and pooled skills
An entrepreneur who wishes to start a business with little delay or hassle, and wants to be his or her own boss, should organize a business as a:
Sole proprietorship
The organizational structure of a corporation permits:
Stockholders to elect the Board of Directors.
Earnings of C (conventional) corporations can be:
Taxed twice if they are distributed as dividends to stockholders.
Which of the following statements about S Corporations is the most accurate? A. The major attraction of S Corporations is they they avoid the problem of double taxation B. S Corporations are similar to C Corporations, except that the majority of owners are foreign investors C. Any corporation willing to pay the necessary fees and fill out the required paperwork can become an S Corporation D. Only large corporations with operations in more than one state can qualify to be classified as a S Corporation
The major attraction of S corporations is that they avoid the problem of double taxation.
Unlimited liability means:
When you own your own business you are responsible for all the business debts.
A good reason why partners should spell out the details of their partnership arrangements in writing is:
a written agreement will help reduce misunderstandings and disagreements among the partners
Joe Jackson operates a sole proprietorship, but he is in poor health and may be unable to continue running the business. If Joe becomes incapacitated, his business:
ceases to exist unless sold or taken over by Joe's heirs.
A separation between ownership and management is most likely to occur in a:
corporation
The form of business ownership best suited to raising large amounts of money for expansion is the:
corporation
The form of business ownership that usually requires the most detailed record keeping is the:
corporation
One disadvantage of _____ is the initial cost of formation
corporations
Taxes and government regulations are part of the ________________ environment of business.
economic and legal
A person who buys the right to use a business name and sell a product within a given territory is called a;
franchisee
Midas Muffler sells franchises to prospective business persons who want to use the Midas name and offer Midas products. In a franchise arrangement, Midas would be the _____________, and the buyer of the franchise is the ____________.
franchisor; franchisee
Zach and Mac own an auto repair business that they operate as co-owners. Both take an active role in the management of the business, and each accepts unlimited liability. Zach and Mac operate as a ________.
general partnership
One disadvantage of a limited liability company is that it:
has a limited life span.
One reason many companies do not organize themselves as an S Corporation is that this form of business:
has a special eligibility restriction, which many businesses are unable to meet.
Starting a new business as a sole proprietorship:
is usually simpler and less expensive than starting other forms of ownership.
____ are companies that are similar to S Corporations but are not restricted with similar eligibility requirements
limited liability companies
Which of the following is an advantage of the corporate form of business when compared to sole proprietorships and partnerships?
limited liability of owners
One way to eliminate some of the risk of your partners making costly mistakes that could jeopardize your personal assets is to set-up a:
limited liability partnership
A partner (owner) who invests money in a business, does not take an active role in managing the operation, and is only subject to losing the funds he/she invested.
limited partner
Travis has agreed to invest $16,000 in a partnership with his sister and brother-in-law. He does not intend to actively work in the partnership, nor does he wish to risk any of his own assets other than the $16,000 he initially invests. The partnership has agreed to permit him to share in the profits. As an expert on forms of business ownership, you know that Travis is a ______________ in this partnership.
limited partner
Jamie and Maria invested all their savings in a small pizzeria they opened outside the University of Western Kentucky. They operated the business as a general partnership. After 11 months, the business went broke and Jamie and Maria were left with outstanding bills of $37,500, which was more than their initial investment in the company. Jamie and Maria can:
lose their personal assets as the result of their company's financial problems.
Maria recently purchased 100 shares of stock in Idle time Gaming, Inc. Maria is a(n) ______ of this company
owner
The income generated by S-Corporations
passes through to its owners, and each is taxed individually for this income.
Although sole proprietors do not pay any special taxes, as the owner of the business you are also an employee of the business, which requires you to:
pay self-employment taxes
A _____ is a form of business that is owned, and usually managed, by one person
sole proprietorship
Cali owns Dog Trotters, a dog-walking business that she started to earn money after school and supplement her allowance. She planned to keep all the profits, and kept things simple, by putting a flier on the bulletin board at the local grocery store announcing that she was available to provide this service. Cali's business is a:
sole proprietorship
The ____ is the most common form of business ownership
sole proprietorship
The _____ is usually the easiest form of business to start and end.
sole proprietorship
An owner of a corporation is known as a(n):
stockholder
The board of directors for a corporation is elected by its:
stockholders
Javier is the sole proprietor of a golf shop. Because he is a sole proprietor, any profit Javier's business earns is:
taxed only as Javier's personal income.
Two important considerations when choosing a form of business ownership is:
taxes and liability
The limited liability provided to limited partners means that they are not responsible for the debts of the business beyond:
the amount they have invested in the company
In a sole proprietorship, the profits earned by the business are:
the property of the owner, except for taxes owed to the government.
Any debts or damages incurred by a firm organized as a sole proprietorship are:
the responsibility of the owner.
The reason a professional such as lawyer or doctor would incorporate his/her business is
to protect his/her other assets with limited liability.
One of the major disadvantages of a sole proprietorship is the:
unlimited liability the owner has for the debts of the firm.
