Chapter 9 - ENT2612

A disadvantage of an S corporation is that the maximum number of shareholders in an S corporation is limited to ______.

100

An advantage of an S corporation over a C corporation is that ______.

capital gains or losses from the S corporation are considered personal income or losses by the shareholders on a pro rata basis

An advantage of a limited liability company (LLC) over an S corporation is that an LLC

may have tax advantages depending on the state in which the business operates

Which is the most appealing form of business for raising capital due to its advantages regarding personal liability?

A corporation

Which of the following forms of business has the most continuity if one of the entrepreneurs dies or withdraws from the business?

A corporation

Which of the following forms of business has the most freedom in terms of selling one's interest in the business?

A corporation

Which of the following is the least expensive form of business to start?

A proprietorship

A proprietorship

Any new capital can be gained only from loans by any number of sources or by additional personal contributions by an entrepreneur.`

Identify a true statement about the ownership pattern of limited liability partnerships (LLPs).

In LLPs, a partnership is considered a legal entity.

Identify a true statement about a board of advisors in an organization.

It lacks a legal status.

A partnership

Loans can be obtained from banks but will likely need a change in the agreement involved in the business

What is the intention of Sarbanes-Oxley Act of 2002?

To introduce a more independent functioning board of directors in organizations

An S corporation integrates the tax advantages of ______.

a partnership and a corporation

A function served by a board of directors in an organization is that it ______.

finds solutions to conflicts among owners or shareholders

A corporation

New capital can be raised in a number of ways such as selling stocks or bonds.

Which of the following is an act passed due to irregularities in accounting, fraud, bankruptcy, insider trading, excessive management compensation, and other illegal or unethical practices that have become newsworthy in the years leading up to 2002?

Sarbanes-Oxley Act

Identify the advantages of an S corporation over a C corporation. (Check all that apply.)

Shareholders in an S corporation retain the same limited liability protection as a C corporation. An S corporation is not subjected to a minimum tax, as is a C corporation.

Isabella, an entrepreneur, plans to select a board of directors for her new venture. Identify the guidelines she should follow when selecting the members of the board. (Check all that apply.)

She should choose people who have skills needed for her business, have experience in her industry, and are committed to the venture's mission .She should choose people who are ready to spend enough time to be informed directors who can assist the company in making important decisions.

True or false: An entrepreneur should be able to assign responsibility to people in order to create a vibrant organizational culture

TRUE

What are the functions the management team of an organization must accomplish? (Check all that apply.)

Execution of the organization's business plan Maintenance of profitability by making adjustments to the organization's plan based on changes in the environment and market Recognition of the basic changes in the business as they occur

A corporation

A form of business with a separate legal entity that is run by stockholders having limited liability

A proprietorship

A form of business with single owner who has unlimited liability, controls all decisions, and receives all profits

A partnership

A form of business with two or more individuals having unlimited liability who have pooled resources to own a business

Identify the forms of business that are the least attractive for raising capital, primarily owing to the problem of personal liability. (Check all that apply.)

A partnership A proprietorship

Organization structure

Explains members' jobs and the communication and relationship these jobs have with each other

True or false: In an organization, a board of advisors is more closely tied to the organization than its board of directors.

FALSE

True or false: The advantages of a limited liability partnership (LLP) related to the liability of owners are different from a limited liability company (LLC).

FALSE

Peter, an entrepreneur, plans to select a board of directors for his new venture. A guideline to follow when he chooses members of the board is that he should ______.

Find candidates using referrals of business associates or from any of the external advisors such as banks or investors

Identify the true statements about the tax rates for various forms of business after the new laws passed at the end of 2017. (Check all that apply.)

For service-based businesses, the 20 percent deduction is only applicable to income after salary. For employee-driven, passed through businesses such as restaurants and manufacturers, the tax deduction of 20 percent is limited to 50 percent of the company's payroll.

Which of the following are true when a limited partner in a general partnership is given some control over business decisions? (Check all that apply.)

He or she assumes personal liability. He or she is not considered a limited partner.

Identify the advantages of a limited liability company (LLC) over an S corporation. (Check all that apply.)

It can be formed by one or more individuals, corporations, partnerships, trusts, or other entities. Its members are allowed to share income, profit, expense, deduction, loss and credit, and equity among themselves.

Identify the disadvantages of an S corporation. (Check all that apply.)

It is mandatory for an S corporation to adopt a calendar year for tax purposes. Some restrictions are present related to the qualification for this form of business.

Identify the characteristics of a limited liability company (LLC). (Check all that apply.)

It is typically treated by the Internal Revenue Service as partnerships for tax purposes. It allows a member to transfer his or her interest only with the unanimous written consent of the remaining members.

What is the implication of losses incurred by a corporation?

It results in no dividends to stockholders.

Rewarding

Provides member with promotions, bonuses, praise, and so on

What are the legal requirements owners should fulfill before forming a corporation? (Check all that apply.)

Owners should meet the state statutory needs. Owners should register the name and articles of incorporation.

Which of the following statements are true about the tax rates for various forms of business after the new tax laws passed at the end of 2017? (Check all that apply.)

Pass through businesses receive 20 percent reduction of their business income. All C Corporations receive a tax cut from 35 percent to 21 percent

Stephen, an entrepreneur, plans to recruit an effective team for his new venture. Identify the factors he should consider when recruiting and assembling the team. (Check all that apply.)

The desired culture must match the business strategy outlined in the business plan. He must build a workplace where employees are motivated and rewarded for good work.

Which of the following are important considerations and strategies that an entrepreneur should follow in recruiting and assembling an effective team and in creating an effective and positive organization culture? (Check all that apply.)

The entrepreneur should develop a culture that matches the business strategy outlined in his or her business plan. The entrepreneur should be willing to spend extra time in the hiring process.

Which of the following is true about limited partners in a general partnership?

They are liable for only their contribution to the partnership.

Selection criteria

Defines a set of guidelines for choosing individuals for each position

What happens to a sole proprietorship if its owner dies?

It results in the termination of the business.

Identify a true statement about the continuity of business in a corporation if one of the entrepreneurs dies or withdraws from the business.

It seldom affects the continuity of the business.

True or false: In a partnership, the distribution of profits and losses is based on the partnership agreement.

true

True or false: It is mandatory for the members of a limited liability company (LLC) to file estimated taxes on a regular basis.

true

What are the basic legal forms of business formation?

Corporation Proprietorship Partnership

Which of the following is true about limited liability companies (LLCs)?

Currently, regulations allow an LLC to be automatically taxed as a partnership. An LLC is similar to an S corporation.

The standard acceptable term of a limited liability company (LLC) is _____________.

30 years

Identify the functions served by a board of directors in an organization. (Check all that apply.)

Building longer-term strategic plans for growth and expansion Examining operating and capital budgets Creating a network of information sources for the entrepreneurs

An __________________________________ is the most common form of corporation, regulated by statute and treated as a separate legal entity for liability and tax purposes.

C Corporation

True or false: The relationship of an entrepreneur of a new venture and external advisors can be enhanced by seeking out the best advisors and involving them thoroughly and at an early stage of the development of the venture.

TRUE

Which of the following has been the reason for the decline in the growth rate of the formation of S corporations in the last few years in the United States?

The acceptance of limited liability companies (LLCs) in all states

What was the impact of the passage of the Small Business Job Protection Act in 1996 on the rules governing an S corporation?

The restrictions that existed in regard to the number of shareholders and classes of stock were loosened.

Identify a true statement about a proprietorship and regular partnership.

There will be no distinction between the business entity and the owner(s).

Identify a true statement about an organization's outside advisors such as accountants, bankers, lawyers, advertising agencies, and market researchers.

They are not part of the organization's formal board of advisors.

Identify an attribute of the owners of a limited liability company (LLC).

They are paid in the form of guaranteed payments without involving any federal or state withholding

Identify a true statement about limited partners in a general partnership.

They lack control over business decisions.

What is the primary concern of an organization's manager as an entrepreneur?

To cope up with changes in the environment and attempt to find new ideas

Liability is a critical reason for establishing a ______ rather than any other form of business.

corporation

Owners are liable only for the amount of their investment unless there is negligence or fraud involved in the form of business called a ______, as it is an entity that is taxable and absorbs liability.

corporation

Shareholders are allowed to transfer their shares in a business at any time without consent from the other shareholders in the form of a business called a ______.

corporation

True or false: A proprietorship is likely to require a larger sum of capital than the capital needed for a partnership or corporation.

false

In the context of the liability of owners, a true statement about a limited liability partnership (LLP) is that it ______.

provides partners with an advantage to protect their personal assets from liability risk