BUSMHR 2500 Chapter 9

In an S corporation, the maximum number of shareholders is limited to _____. Multiple choice question. 80 50 150 100

100

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? Multiple choice question. The taxing of S corporations as partnerships The emergence of C corporations as a more popular alternative to S corporations The abolition of tax cuts for S corporations The acceptance of limited liability companies (LLCs) in all states

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

Identify a true statement about a proprietorship and regular partnership. Multiple choice question. There will be no distinction between the business entity and the owner(s). The owner(s) will not be liable for the aspects of the business. The owner(s) will be liable only for the amount of his or her investment. Creditors will be prevented from seizing any assets the owners have outside the business.

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

Match the forms of business (in the left column) with the aspects related to the right to transfer of interest in a business (in the right column). Instructions

A sole proprietorship - An entrepreneur has the freedom to sell or transfer any assets in the business. A limited liability partnership (LLP) - A single partner cannot carry out the transfer of interest.

A(n) is the most common form of corporation, regulated by statute and treated as a separate legal entity for liability and tax purposes.

C corporation

What are the basic legal forms of business formation? (Check all that apply.) Multiple select question. Public agency Partnership Proprietorship Corporation Government ownership

Partnership Proprietorship Corporation

The standard acceptable term of a limited liability company (LLC) is _____. Multiple choice question. 20 years 50 years 10 years 30 years

30 years

Select all that apply Which of the following is true about limited liability companies (LLCs)? Multiple select question. Currently, regulations allow an LLC to be automatically taxed as a partnership. An LLC is also known as a sole proprietorship. An LLC is similar to an S corporation. Venture capitalists typically give more preference to a C corporation than an LLC.

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

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

Reason: This is false. A proprietorship is not likely to need large sums of money, as might be the case for a partnership or corporation. Whatever the source, the responsibility for payment is in the hands of an entrepreneur, and failure to make payments can result in foreclosure and liquidation of the business.

Which of the following is true about limited partners in a general partnership? Multiple choice question. They share the amount of personal liability equally with general partners, regardless of their contribution to the partnership. The only protection for these partners is insurance against liability suits. The only protection for these partners is each partner putting his or her assets in someone else's name. They are liable for only their contribution to the partnership.

They are liable for only their contribution to the partnership.

Which of the following business forms is considered a partnership-corporation hybrid? Multiple choice question. A limited liability company (LLC) A C corporation A sole proprietorship A limited liability partnership (LLP)

A limited liability company (LLC)

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

Reason: This is false. Compared to a board of directors, a board of advisors for an organization would be more loosely tied to the organization and would serve the venture only in an advisory capacity for some of the functions or activities.

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

Reason: This is true. In a partnership, the distribution of profits and losses depends on the partnership agreement. It is likely that the sharing of profits and losses will be a function of the partners' investments.

An S corporation integrates the tax advantages of _____. Multiple choice question. a C corporation and a proprietorship a partnership and a corporation a proprietorship and a limited liability company a sole proprietorship and a government agency

a partnership and a corporation

Which of the following forms of business has the most freedom in terms of selling one's interest in the business? Multiple choice question. A limited liability partnership A general partnership A proprietorship A corporation

A corporation

Which of the following is the least expensive form of business to start? Multiple choice question. A general partnership A proprietorship A limited partnership A corporation

A proprietorship

Identify a true statement about limited partners in a general partnership. Multiple choice question. They possess the same rights as general partners. They control the decisions made by general partners. They are personally responsible for all business losses. They lack control over business decisions.

They lack control over business decisions.

What is the primary concern of an organization's manager as an entrepreneur? Multiple choice question. To convert the organization into a sole proprietorship To avoid providing the members of the organization with rewards To create opportunities to interact with other organizations To cope up with changes in the environment and attempt to find new ideas

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

Identify a true statement about management control in a corporation. Multiple choice question. It is similar to the management control in a sole proprietorship. The entrepreneur who founded the corporation has sole authority over all business decisions. Minor stockholders have the most control and flexibility in making business decisions. It is separated based on the types of business decisions.

It is separated based on the types of business decisions.

What happens to a sole proprietorship if its owner dies? Multiple choice question. It results in the formation of a limited liability company (LLC). It results in the issuance of insurance against liability suits. It results in the formation of a general partnership. It results in the termination of the business.

It results in the termination of the business.

Which is the most appealing form of business for raising capital due to its advantages regarding personal liability? Multiple choice question. A limited liability partnership A corporation A proprietorship A general partnership

A corporation

Match the kinds of partnerships (in the left column) with the effects on them when one of the entrepreneurs dies or withdraws from the business (in the right column). Instructions A general partnership A limited liability partnership (LLP)

A general partnership - Death or withdrawal leads to the termination of the partnership unless the partnership agreement states otherwise. A limited liability partnership (LLP) - Death or withdrawal does not affect the continuity of the business.

Liability is a critical reason for establishing a _____ rather than any other form of business. Multiple choice question. corporation sole proprietorship partnership proprietorship

corporation

Match the forms of business (in the left column) with the descriptions on their capital requirements (in the right column). A proprietorship A proprietorship drop zone empty. A partnership A partnership drop zone empty. A corporation

A proprietorship - Any new capital can be gained only from loans by any number of sources or by additional personal contributions by an entrepreneur. A partnership - Loans can be obtained from banks but will likely need a change in the agreement involved in the business. A corporation - New capital can be raised in a number of ways such as selling stocks or bonds.

Which of the following is true about limited partners in a general partnership? Multiple choice question. The only protection for these partners is insurance against liability suits. They share the amount of personal liability equally with general partners, regardless of their contribution to the partnership. The only protection for these partners is each partner putting his or her assets in someone else's name. They are liable for only their contribution to the partnership.

They are liable for only their contribution to the partnership.

Match the areas in which entrepreneurs can indicate to the members of an organization what is expected of them (in the left column) with their descriptions (in the right column). Instructions Drag and drop application. Organization structure Rewarding Selection criteria

Organization structure - Explains members' jobs and the communication and relationship these jobs have with each other Rewarding - Provides member with promotions, bonuses, praise, and so on Selection criteria - Defines a set of guidelines for choosing individuals for each position

What are the legal requirements owners should fulfill before forming a corporation? (Check all that apply.) Multiple select question. Owners should form a limited liability company (LLC). Owners should meet the state statutory needs. Owners should sign a partnership agreement. Owners should register the name and articles of incorporation.

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

Identify a true statement about a board of advisors in an organization. Multiple choice question. It is more closely tied to the organization than its board of directors. It is subject to the regulations stipulated in the Sarbanes-Oxley Act. It lacks a legal status. It is selected by employees.

It lacks a legal status.

What is the implication of losses incurred by a corporation? Multiple choice question. It makes limited partners assume personal liability. It makes a major stockholder personally responsible for the losses. It results in no dividends to stockholders. It results in the formation of a limited liability partnership.

It results in no dividends to stockholders.

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

Reason: This is true. An entrepreneur should be able to assign responsibility to people in order to create a vibrant organizational culture. The organization culture will be a blend of attitudes, behaviors, dress, and communication styles that make one business different from another.

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.

Reason: This is true. 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. Advisors should be assessed or interviewed just as if they were being hired for a permanent position. References should be checked and questions asked to ascertain the quality of service as well as compatibility with the management team.

What was the impact of the passage of the Small Business Job Protection Act in 1996 on the rules governing an S corporation? Multiple choice question. The rules governing the number of shareholders were made more rigid. The restrictions that existed in regard to the number of shareholders and classes of stock were loosened. The restrictions that existed in regard to ownership of stock of another corporation were removed. The rules governing the role of trusts as stockholders were made more rigid.

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

What are the factors that form the basis of the ability of entrepreneurs to raise capital in a proprietorship and a partnership? (Check all that apply.) Multiple select question. The success of the venture The personal capability of the entrepreneurs The financial strength of stockholders The gender ratio of limited partners

The success of the venture The personal capability of the entrepreneurs

Liability is a critical reason for establishing a _____ rather than any other form of business. Multiple choice question. corporation sole proprietorship proprietorship partnership

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, which is taxable and absorbs liability. Multiple choice question. partnership corporation proprietorship sole proprietorship

corporation

Shareholders are allowed to transfer their shares in a business at any time without consent from the other shareholders in the form of business called a _____. Multiple choice question. limited liability partnership corporation general partnership sole proprietorship

corporation

What are the functions the management team of an organization must accomplish? (Check all that apply.) Multiple select question. Recognition of the basic changes in the business as they occur Extension of liability beyond an entrepreneur's capital contribution to the business Execution of the organization's business plan Willingness to share income, profit, expense, deduction, loss and credit, and equity of the organization among themselves 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 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

Identify a true statement about an organization's outside advisors such as accountants, bankers, lawyers, advertising agencies, and market researchers. Multiple choice question. They need to be hired by the nonmanagerial employees rather than the entrepreneur. They need not be managed similar to a permanent part of the organization. They are not part of the organization's formal board of advisors. They are typically part of the board of directors in the organization.

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

Identify a true statement about the ownership pattern of limited liability partnerships (LLPs). Multiple choice question. In LLPs, a partnership is considered a legal entity. In LLPs, ownership is reflected by ownership of shares of stock. In LLPs, an owner is the individual who starts the business. In LLPs, the maximum number of shareholders is limited to 100.

In LLPs, a partnership is considered a legal entity.