Chapter 5

58) Which form of ownership is the least costly to form? A) Sole proprietorship B) Corporation C) Partnership D) Limited liability corporation

A) Sole proprietorship

13) A partnership agreement sets 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 2 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.

A) partners are not entitled to salaries or wages, but are compensated by a share of the profits of the business.

44) A limited liability company differs from an S-corporation in: A) that it is not subject to the same amount of restrictions. B) its ability to attract and accumulate capital. C) that ownership is not transferable through the sale of stock. D) that it is limited to only one class of stock.

A) that it is not subject to the same amount of restrictions.

6) The most critical disadvantage of the sole proprietorship is: A) unlimited personal liability. B) limited access to capital. C) lack of continuity. D) limited skills and capacities of the owner.

A) unlimited personal liability.

4) Juan is starting a software writing company. He is the owner and has only 3 employees. He wants a simple inexpensive form of ownership that leaves him in control and that he can quickly dissolve if he decides to change to another business. His best choice of form of ownership would be: A) S-corporation. B) partnership. C) corporation. D) sole proprietorship.

D) sole proprietorship.

31) The "Das Spelunker" corporation, formed in Germany and conducting business in the United States, is considered to be a(n) ________ corporation. A) alien B) domestic C) foreign D) local

A) alien

3) The most popular form of business ownership is the: A) sole proprietorship. B) partnership. C) corporation. D) S-corporation.

A) sole proprietorship.

29) A corporation receives its authority to operate from: A) the federal government. B) the state. C) the board of certification. D) the stockholders.

B) the state.

33) Which of the following generally is not required by a Certificate of Incorporation? A) The names and the addresses of the incorporators B) A statement of the corporation's purpose C) A statement of how stock proceeds will be used D) The corporation's bylaws

C) A statement of how stock proceeds will be used

11) Probably the most important feature of a partnership agreement is: A) that it identifies the name of the partnership. B) that it states the purpose and location of the business. C) that it determines how the partnership will pay taxes and fees. D) that it resolves potential sources of conflict.

D) that it resolves potential sources of conflict.

34) The primary reason entrepreneurs choose to incorporate is because of: A) the corporation's ability to attract capital. B) the need to attract top quality management talent to grow the business. C) the lower tax rates inherent in the corporate form of ownership. D) the limited liability of stockholders.

D) the limited liability of stockholders.

39) This form of ownership is the same as a corporation in terms of legal characteristics even though Congress is considering legislation that would further simplify its formation and running. Its distinction from a corporation is made for federal income tax purposes only. A) S-corporation B) Master limited partnership C) Sole proprietorship D) Limited liability company

A) S-corporation

41) An S-corporation form of ownership overcomes which disadvantage of the regular or "C" corporation form of ownership? A) The double taxation issue B) The expense and difficulty of formation C) The amount of regulation and red tape involved in its operation D) The potential loss of control by the founder

A) The double taxation issue

45) A limited liability company is formed under: A) a Certificate of Incorporation. B) a Partnership Agreement. C) Articles of Organization. D) the Revised Uniform Partnership Act.

C) Articles of Organization.

64) ________ have shares that are controlled by a relatively small number of people, often family members, relatives, or friends. A) International partnerships B) Publicly traded corporations C) Closely held corporations D) Privately held corporations

C) Closely held corporations

25) In a limited partnership, the limited partners are treated like ________ by the law. A) investors B) general partners C) sole proprietors D) honorary partners

A) investors

60) The ________ codifies the body of law dealing with partnerships in the United States. A) Small Business Partnership Agreement B) Uniform Partnership Act (UPA) C) Partnership Agreement D) None of the above

B) Uniform Partnership Act (UPA)

10) If a partnership is formed without an agreement, the partnership is automatically subject to the: A) Certification of Incorporation laws. B) Uniform Partnership Act. C) Limited Liability Company Act. D) Revised Uniform Limited Partnership Act.

B) Uniform Partnership Act.

27) The ________ is the most complex form of ownership and is a separate legal entity in the eyes of the law. A) sole proprietorship B) partnership C) corporation D) joint venture

C) corporation

32) 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

C) foreign

9) Common ownership interest in a business, sharing profits (or losses) of a business, and the right to participate in managing the operations of the business are characteristics of a(n): A) corporation. B) sole proprietorship. C) partnership. D) S-corporation.

C) partnership.

47) Traditionally, ________ were always set up as nonprofit corporations. A) businesses B) corporations C) social enterprises D) partnerships

C) social enterprises

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

B) Sole proprietorship

37) Which of the following is a disadvantage of the corporation form of ownership? A) An inability to accumulate capital B) The unlimited liability to the members of the board C) Double taxation on profits and individuals D) The lack of continuity

C) Double taxation on profits and individuals

53) Shares the corporation itself owns are called: A) preferred stock. B) bonds. C) treasury stock. D) common stock.

C) treasury stock.

52) ________ corporations have shares that are controlled by a relatively small number of people—family members, relatives, or friends. A) Closely held B) Domestic C) Foreign D) Alien

A) Closely held

56) In a closely held corporation, one of the steps that should be taken to avoid legal difficulties is: A) hold annual meetings to elect officers and directors. B) make sure that the stockholders make all the major decisions. C) mingle corporate assets and the personal assets. D) None of the above

A) hold annual meetings to elect officers and directors.

55) Corporations can also stimulate managers' and employees' incentive on the job by creating an ________ (ESOP). A) Entrepreneur Stock Ownership Plan B) Employee Stock Ownership Plan C) Employee Shares Ownership Plan D) Entrepreneur Shares Ownership Plan

B) Employee Stock Ownership Plan

46) Which of the following is true about choosing a limited liability company form of ownership? A) It has no disadvantages except its newness. B) It is ideal for a new company but difficult to convert to with an existing company. C) It is inexpensive, easy to form, and covered by little regulation due to its newness. D) It's an excellent conversion vehicle for existing businesses that are suffering from double taxation but problematic for sole proprietorships

B) It is ideal for a new company but difficult to convert to with an existing company.

8) While a sole proprietorship gives the owner maximum flexibility in running the business, it also: A) makes the company a prime target for an acquisition or merger. B) creates a sense of isolation. C) makes it difficult to hire management talent to help grow the business. D) makes it difficult to sell.

B) creates a sense of isolation.

30) A corporation doing business in the state in which it is incorporated is considered to be a(n) ________ corporation. A) alien B) domestic C) foreign D) local

B) domestic

66) A distinct disadvantage of the corporate form of ownership is: A) treasury stock. B) double taxation. C) stockholder's liability. D) All of the above

B) double taxation.

24) A limited partnership is a modification of a(n) ________ form of ownership. A) sole proprietorship B) general partnership C) corporation D) S-corporation

B) general partnership

42) An owner should choose an S-corporation form of ownership when he/she: A) has an established company that is suffering losses due to double taxation. B) is starting up a company and anticipating either net losses or high profits with large dividends. C) owns a company in which net profits before any compensation to shareholders are less than $100,000 per year. D) has an existing sole proprietorship and wants to lower the tax bill through deducting fringe benefits as business expenses.

B) is starting up a company and anticipating either net losses or high profits with large dividends.

48) A ________ organization uses its revenues to pursue social value rather than create personal value for investors. A) business B) nonprofit C) venture D) corporate

B) nonprofit

19) A partnership is: A) taxed like a corporation. B) not subject to the double taxation of some other forms of business. C) taxed at the lowest rate for an individual. D) taxed under capital gains laws as all profits are considered to come from appreciated assets

B) not subject to the double taxation of some other forms of business.

43) The limited liability company is most like a(n): A) general partnership. B) master partnership. C) sole proprietorship. D) S-corporation.

D) S-corporation.

38) Carlos founded the "Taco Factory" 20 years ago as a family-oriented restaurant business. Over the years as he grew the business, he incorporated and sold stock. Recently the stockholders voted to seek liquor licenses and sell beer and hard liquor in the restaurants. Carlos opposed this, citing the history of the restaurant's "family" environment, but was voted down. Carlos experienced which drawback of the corporate form of ownership? A) The inability to accumulate capital B) The potential for diminished managerial incentives C) Legal requirements and red tape D) The potential loss of control

D) The potential loss of control

63) Corporations that are formed in other countries but do business in the United States are: A) international partnerships. B) domestic corporations. C) foreign corporations. D) alien corporations.

D) alien corporations.

35) The form of ownership with the greatest ability to accumulate capital is the: A) sole proprietorship. B) partnership. C) joint venture. D) corporation.

D) corporation.

20) Antonio is a limited partner and is neither active nor generally openly associated with the firm. He is the ________ partner. A) limited B) secret C) honorary D) dormant

D) dormant

5) Sole proprietorships characteristically are: A) fairly complex to create. B) subject to special legal restrictions. C) expensive to create. D) easy to discontinue.

D) easy to discontinue.

17) In her partnership, Ana has unlimited liability for the partnership's debts. She would be the ________ partner. A) limited B) dormant C) nominal D) general

D) general

2) When choosing a form of ownership, the entrepreneur should realize that: A) it is difficult if not impossible to change forms of ownership once the company is established. B) the expense of changing forms of ownership makes it prohibitively expensive to change. C) the most common form of ownership is the partnership and is the least expensive to establish. D) he/she will most likely change the form of ownership as the company grows in size and revenues.

D) he/she will most likely change the form of ownership as the company grows in size and revenues.

50) The ________ is a document that states in writing all of the terms of operating the partnership for the protection of each partner involved. A) Certificate of Incorporation B) Partnership Agreement C) Certificate for Conducting Business as Partners D) Partnership Document

B) Partnership Agreement

28) The ________ is a separate legal entity apart from its owners and may engage in business, make contracts, sue and be sued, and pay taxes. A) sole proprietorship B) corporation C) partnership D) joint venture

B) corporation

26) In a limited partnership, limited partners are treated as: A) sole proprietors. B) investors. C) stakeholders. D) directors.

B) investors.

61) Complementary skills refers to: A) the sole proprietorship skills. B) partner's skills that complement one another. C) complementary skills offered by the employees. D) None of the above

B) partner's skills that complement one another.

1) The key to choosing the "right" form of ownership is: A) knowing the cost factor in time and money. B) understanding how each form affects both business and personal circumstances. C) having an experienced attorney and accountant to advise you in the choice. D) the fact you cannot change the form of ownership once your company is established.

B) understanding how each form affects both business and personal circumstances.

12) Which of the following is true about the content of a standard partnership agreement? A) It does not specify how profits and losses will be distributed. B) It includes the Certificate of Incorporation. C) It specifies how the partnership may be dissolved and assets divided. D) While it specifies the location of the business and its purpose, it does not name the partners or their legal addresses in order to maintain privacy for the partners.

C) It specifies how the partnership may be dissolved and assets divided.

62) Which type of ownership is not subject to federal taxation? A) Sole proprietorship B) Corporations C) Partnership D) Limited liability corporation

C) Partnership

59) The ________ is a document that states in writing all of the terms of operating a business among the partners. A) Sole Proprietorship Agreement B) Articles of Corporations C) Partnership Agreement D) Limited Liability Corporation Agreement

C) Partnership Agreement

40) Jeff is forming a company. If he chooses a(n) ________ form of ownership, he can have no more than 100 stockholders and must have only one class of stock. A) partnership B) corporation C) S-corporation D) master limited partnership

C) S-corporation

18) Partnerships have a number of advantages over other forms of ownership, such as: A) a larger pool of capital and little government regulation. B) very easy liquidation of owners' investment. C) limited liability for all partners. D) they may be easily formed by an individual.

A) a larger pool of capital and little government regulation.

23) In a partnership, each partner acts as a(n) ________ for the business. A) agent B) manager C) supporter D) guarantor

A) agent

14) The three key elements of any partnership are: A) common ownership in the business, sharing the business' profits or losses, and the right to participate in managing the business. B) equal ownership in the business, sharing its profits and losses, and the right to participate in managing the business. C) equal ownership in the business, sharing its profits and losses, and the right to limited liability for all partners. D) common ownership in the business, sharing its profits and losses, and the right to limited liability for all partners.

A) common ownership in the business, sharing the business' profits or losses, and the right to participate in managing the business.

15) The Uniform Partnership Act outlines a number of general obligations that partners have such as the obligation to: A) give other partners complete information about all business affairs. B) share in the management and operation of the business. C) be compensated for personal expenses incurred. D) have access to the business's books and records

A) give other partners complete information about all business affairs.

36) The corporate form of ownership has a significant advantage in that: A) it is easy to transfer ownership. B) it has a lower tax rate than either partnerships or sole proprietorships. C) there is little cost to its formation. D) there is little regulatory oversight by the government.

A) it is easy to transfer ownership.

22) Like a sole proprietorship, a partnership suffers from the disadvantage of: A) poor capital accumulation. B) limited liability for all owners. C) double taxation of profits. D) the complexity of regulations under which it must operate.

A) poor capital accumulation.

54) To maintain control over their ownership, many closely held corporations exercise this right, known as: A) right of first refusal. B) right of refusal. C) control rights. D) corporate rights.

A) right of first refusal.

65) Shares the corporation itself owns are called: A) treasury stock. B) common stock. C) preferred stock. D) bonds.

A) treasury stock.

51) ________ partners are not active in a business but generally are known to be members of the partnership. A) Dormant B) General C) Silent D) Limited

C) Silent

16) All partnerships must have: A) at least three limited partners. B) no dormant partners. C) at least one general partner. D) at least one silent or money partner.

C) at least one general partner.

49) One major advantage of the ________ is that once the owner has paid all of the company's expenses, he/she can keep the remaining profits (less taxes, of course). A) partnership B) corporation C) sole proprietorship D) limited liability company

C) sole proprietorship

21) A significant disadvantage of a partnership is: A) the unlimited personal liability for all partners. B) the inability to attract either additional capital or new partners due to the complexity of rewriting the agreement. C) the difficulty of disposing a partnership interest without dissolving the partnership. D) the regulatory complexity under which a partnership must be formed and operated.

C) the difficulty of disposing a partnership interest without dissolving the partnership.

57) One disadvantage of the proprietorship is: A) it is the least regulated form of business ownership. B) limited personal liability. C) excessive access to capital. D) limited skills and abilities

D) limited skills and abilities