Ch 5

Perpetual life for a corporation means that the death of one owner does not ___ the corporation.

terminate

Select the reasons a business might change ownership form.

Adding a partner to the firm Seeking limited liability Dropping a partner from the firm

What are some of the disadvantages of a corporation?

Double taxation Cost of forming a corporation

Which of these are considered an advantage of corporations?

Ease of transfer of ownership

Which are considered disadvantages of incorporating?

Extensive paperwork Double Taxation Initial Cost

In a limited partnership, the liability of the limited partners is unlimited and personal assets are at risk.

False

Which is an advantage of the corporate form of business ownership?

Limited liability

Select all advantages of the partnership form of business.

Longer survival More financial resources Pooled skills

Select reasons why management difficulties are considered a disadvantage of sole proprietorships.

One person is responsible to keep track of inventory, accounting operations and tax records People good at one skill like selling may not be good at another such as managing It is hard to attract employees to help run the business due to competition with larger companies offering better benefits

Which statements are accurate as related to corporate taxation?

Stockholders pay income tax on the dividends they receive Double taxation occurs

Select all attributes that make the initial cost of incorporating a disadvantage.

The high cost of hiring lawyers and accountants for the complex filings needed High start-up costs associated with documentation

A corporation is defined as:

a legal entity with authority to act apart from its owners

Because owners are only responsible for losses up to the amount they have invested in a corporation, limited liability is considered

a major advantage

An advantage of the separation of ownership from management in corporations is that the company can raise money from investors but the investors:

are not involved in daily operations

Select the reasons why size is an advantage of the corporation.

attract experts for hire acquire the latest equipment build modern facilities

A key advantage of a sole proprietorship is that:

controlling your own business is exciting

Many people do not like working for someone, so being your own ____ is an advantage of sole proprietorships.

boss

The ____ form of business allows people to become owners without having to work at the firm or being liable for its debts.

corporate

A legal entity with authority to act and have liability apart from its owners is a:

corporation

A state-chartered legal entity with authority to act and have liability separate from its owners is a:

corporation

Selling shares of stock to anyone allows a _________ to raise more money to grow.

corporation

is a state-chartered entity that exists in the eyes of the law and controls risk to the owners of the firm.

corporation

The form of business ownership that usually requires the most detailed record keeping is the

corporation.

The three major forms of business most common in the United States are

corporations. sole proprietorships. partnerships.

Partners can not only bring money into the business, but also ___which allows the business to borrow additional resources.

credit

It is important to have Articles of Partnership because problems between partners may occur due to

disagreements over dividing profits

Sharing risk means sharing rewards in a partnership. A partner expects to be rewarded for putting time and money into a firm through:

division of profits

When the corporation pays a tax on its profits and individual stockholders each pay tax on dividends distributed by the corporation, it is called:

double taxation

A corporation is a legal -- with authority to act and have liability separate from its owners.

entity

Partners can bring different ____ and perspectives into the business that can increase the chances for success of a partnership.

expertise

xcept for states like Delaware, _______ creates a disadvantage to incorporating.

extensive paperwork

Being your own boss is a disadvantage of a sole proprietorship.

false

One of the strengths of the sole proprietorship is its ability to sustain rapid growth by quickly raising large amounts of financial resources.

false

Partnerships are less likely to survive than sole proprietorships.

false

The fairest way to handle profits in any partnership arrangement is to divide things evenly. If there are two owners in the business, each gets 50%. If there are three owners (even if one is a limited partner), each gets one-third of any accumulated profits.

false

The first step in starting a sole proprietorship is to fill out a proprietorship charter application form and file it with the state government.

false

The owners of a corporation are known as general corporate partners.

false

there is a universal formula for all partnerships to divide profits.

false

In a general partnership, all partners are entitled to an equal share of the firm's profits.

fasle

It is useless to seek legal advice when forming a partnership.

fasle

A major factor to consider in forming a partnership is the ability of partners to provide additional ____ resources

financial

Having more _____-resources is an advantage of partnerships, so there is more money and credit available to the business.

financial

The paperwork needed to start a corporation is extensive and a corporation must also keep detailed _____ records documenting all financial transactions in detail.

financial

Partnerships have the advantage over sole proprietorships of pooled knowledge and

financial resources

Bruce owns his own company, but is having trouble working alone because he feels he needs additional expertise, management help, and an influx of money to stay afloat. Bruce should consider:

forming a partnership

If you are your own boss, you are responsible for paying your own wages/salary and for your own

fringe benefits

___partners participate in operating the business while limited partners do not.

general

A partnership where all owners share in operating the business and in assuming unlimited liability for the business's debts is a:

general partnership

Mark, Cal and Aidan have decided to form a business where all owners will share in operating the business and in assuming liability for the business debts. They are most likely forming a(n)

general partnership

Drew and Owen are business partners. Drew invested money and manages the business while Owen invested his money, but does not participate in the business management. Drew is considered a ____ partner while Owen is considered a ____

general, limited

A sole proprietorship has a limited life span unless:

it is taken over by an heir it is sold to someone else

Having carefully chosen partners with different skills and knowledge can help a partnership succeed because:

it provides for a more balanced life no one person has all of the skills needed

The start-up costs of filing for incorporation are high because:

lawyers and accountants are needed to do the complex filings

An advantage of the corporate form of business is that limited liability allows it to:

limit individual responsibility for losses

If the sole proprietor dies, is incapacitated, or retires, the business no longer exists. This disadvantage of a sole proprietorship is called ____ life span

limited

Stockholders' liability for losses only up to the amount they invest is called ___

limited liability

When there is one or more general partners and one or more limited partners, the firm is a(n):

limited partnership

partnership has partners who do not share in operating the business.

limited partnership

Sole proprietors think of their business as a way of life because:

long hours affect their family life they often work more hours than nonsupervisory employees

The various responsibilities of each partner, especially any issues involving_____ , should be agreed to in discussions and put in writing before agreeing to a partnership.

money

It is easy to start and end a sole proprietorship because:

only one person is involved in the decision to dissolve the business it may only require a simple permit or license to start

Select the disadvantages of a partnership.

partner disagreements unlimited liability division of profit

A legal form of business with two or more owners is a(n):

partnership

Of the various forms of business ownership, a______is an easy way for two individuals to conduct business.

partnership

When two or more people legally agree to become co-owners of a business, the organization is called a(n)

partnership

With respect to taxes, the sole proprietorship

pays taxes on the profits of the business, at the owner's personal tax rate.

When a corporation is separate from its owners and does not terminate with the death of one owner, the corporation has:

perpetual life

In a general partnership, no matter who creates the debt, all are liable for losses, lawsuits, or bankruptcy. All partners may lose their investments as well as:

personal assets

Owners of sole proprietorships not only retain all ____, but also benefit from the increasing value of the firm.

profits

Corporations shield their stockholders from unlimited liability and allow them to share in the:

profits generated by the firm

An advantage of a sole proprietorship is that the owner:

retains profits

Sole proprietors have pride of ownership in their business and they deserve all the credit for taking ______and providing needed goods and services.

risks

In developing a partnership agreement, it is recommended that you:

seek legal advice

Stockholders are---from the managers and employees of the firm because they are not actively involved in the operations of the firm.

separate

Corporations can raise large amounts of money, take advantage of economies of scale, and hire experts in all areas of operation. This can be summarized as ______ advantage.

size

A ______ is the most common form of business ownership.

sole proprietorship

A business that is owned and managed by one person is a(n)

sole proprietorship

Funds available to a business are limited to what one owner can gather which is a disadvantage to the form of business known as a(n)

sole proprietorship

The easiest type of business entity to form is a

sole proprietorship

The three major forms of business are:

sole proprietorship, partnership, corporation

A corporation can sell ___to anyone who is interested to raise more money for investment.

stock

Corporations issue ----to shareholders and this allows ownership to change when it is sold.

stock

Shareholders are not liable for the debts of a corporation beyond the money they invest in it by buying company

stock

An advantage of partnerships is a longer ___ rate than sole proprietorships, because they become more disciplined and the business's life is based on all the partners.

survival

People who own and manage their own businesses rightfully have pride of ownership because they:

take the risks and provide needed goods or services

A sole proprietorship often grows slowly because the owner is:

the major source of funding the main source of know-how the main source of creativity

Limited growth is considered a disadvantage of a sole proprietorship because:

the owner alone is relied upon for creativity, know-how and funding

It is often more difficult for sole proprietorships to attract and retain good employees because:

they cannot offer competitive pay and benefits

A business can start in one form of ownership, but does not have to stay in that form.

true

Compared to sole proprietorships, partnerships offer the advantage of shared management and pooled knowledge.

true

If a corporation distributes after-tax profits to its stockholders in the form of dividends, the government considers these distributions as part of each stockholder's personal income. Stockholders pay taxes on these distributions.

true

Stockholders in a corporation entrust control over the company's daily operations to managers selected by the board of directors to run the company

true

The main advantage of a sole proprietorship is ease of start up.

true

To end a sole proprietorship, you simply stop operations.

true

When each general partner is liable for the debts of the firm, no matter who was responsible for causing the debt, this is called ____ liability

unlimited

When you own a sole proprietorship you and the business are considered one, so you have_____ liability for financial obligations such as debt.

unlimited

A key disadvantage of a general partnership is:

unlimited liability

A key disadvantage of operating a sole proprietorship is:

unlimited liability

If your company's debts or damages are solely your responsibility you could be experiencing the disadvantage associated with owning a sole proprietorship called

unlimited liability

In a sole proprietorship, any debts or damages incurred by the business are your personal debts and you must pay them. This disadvantage is known as:

unlimited liability

The disadvantage of sole proprietorships is that any debts or losses incurred by the business are your debts because you and the business are legally one and you have:

unlimited liability

When any debts or damages incurred by the business are your debts or damages it is called

unlimited liability

Funds available for a sole proprietorship are limited to:

what the owner can provide

The owner of a sole proprietorship is responsible for developing any fringe benefits they have.

true