MGMT 421: Chapter 3

15. A disadvantage of a corporation is that: A. it is difficult to raise capital. B. it is personal in its approach. C. it is subject to double taxation. D. it is considered as a separate entity from its owners.

. it is subject to double taxation.

29. _____ is defined as a percentage share of an expensive asset and is most often used for aircraft, sports cars, and real property. A. Fractional ownership B. Limited liability partnership C. Joint venture D. Limited partnership

A. Fractional ownership

11. Which of the following is true of a limited partnership? A. General partners conduct the business. B. Limited partners are held liable for debts of general partners. C. Limited partners do not contribute any capital to the business. D. General partners have limited personal liability for the partnership's debts.

A. General partners conduct the business.

14. Which of the following is an advantage of a corporation? A. It cannot make use of a business owner's personal property to pay the debts of the business. B. It gives unlimited powers to the owners. C. The procedures required by the government for its formation are not complex. D. The tax advantages received in this form of business are unique.

A. It cannot make use of a business owner's personal property to pay the debts of the business.

19. Which of the following is true of S corporations? A. They are exempted from multiple taxations. B. They can issue several classes of stocks. C. They require excessive paperwork. D. They are governed by simple tax rules.

A. They are exempted from multiple taxations.

18. Which of the following best describes the work carried out by the board members in a corporation? A. They represent the stockholders in managing the company. B. They direct the day-to-day operations of the business. C. They elect to form the executive committee. D. They have a limited or no interest in the welfare of the corporation.

A. They represent the stockholders in managing the company.

28. In an endeavor where neither party can achieve its purpose alone, a _____ becomes a viable option. A. joint venture B. proprietorship C. corporate charter D. buy-sell agreement

A. joint venture

3. In the United States, finance, insurance, and real estate use the _____ form of business more frequently than do the other industries. A. partnership B. proprietorship C. corporation D. cooperative

A. partnership

13. A(n) _____ provides the protection of limited liability for shareholders, but its earnings are taxed at both the corporate and shareholder levels. A. cooperative B. C corporation C. nonprofit corporation D. S corporation

B. C corporation

17. What does a buy-sell agreement do? A. It states what a business can do and provides other financial information. B. It details the terms by which stockholders can purchase each other's interest. C. It lays down the rights, duties, and responsibilities of each partner involved in a business. D. It oversees the usage of an expensive asset.

B. It details the terms by which stockholders can purchase each other's interest.

26. Which of the following is a characteristic of a nonprofit corporation? A. The trustees have unlimited liability status. B. It enjoys tax-exempt status. C. The sole purpose of such an organization is to provide a professional service. D. It is owned by and operated for the benefit of patrons using its services.

B. It enjoys tax-exempt status.

10. What is the purpose of the Uniform Partnership Act (UPA)? A. It legally terminates a business upon the death of a partner. B. It governs partnerships in the absence of other expressed agreements. C. It provides the protection of limited liability for shareholders. D. It ensures that one partner in a partnership business is not held responsible for all the debts of the firm.

B. It governs partnerships in the absence of other expressed agreements.

2. Which of the following is true about proprietorship? A. It is frequently used in finance, insurance, and real estate. B. It is the most popular form of business in the United States. C. It accounts for the largest share of total revenues generated in the United States. D. It is owned by two persons who have unlimited liability for its debts and obligations.

B. It is the most popular form of business in the United States.

5. Which of the following is an advantage of a proprietorship? A. It makes it easy for the owner to obtain credit. B. It offers unique tax advantages. C. It continues to legally exist even after the proprietor's death. D. It provides access to unlimited capital.

B. It offers unique tax advantages.

21. Which of the following is true of a limited liability partnership? A. It is the most common type of industry for agriculture, or family farms. B. States that recognize limited liability partnerships sometimes limit them to organizations that provide a professional service for which each partner is licensed. C. In a limited liability partnership, partners do not report their profits and losses on their personal tax returns. D. It does not protect individual partners from personal liability for the negligent acts of other partners.

B. States that recognize limited liability partnerships sometimes limit them to organizations that provide a professional service for which each partner is licensed.

23. Which of the following is true of a family limited partnership? A. It has the same advantages and disadvantages as a proprietorship. B. The majority of the partners are related to each other as spouses, parents, grandparents, siblings, cousins, nieces, or nephews. C. The family limited partnership has fewer benefits than other limited liability partnerships. D. It enjoys a tax-exempt status.

B. The majority of the partners are related to each other as spouses, parents, grandparents, siblings, cousins, nieces, or nephews.

9. A disadvantage of a partnership is that: A. financial resources are obtained from one person only. B. each partner is responsible for the acts of every other partner. C. specialized skill is difficult to find in the individual partners. D. there are inadequate management and employee skills.

B. each partner is responsible for the acts of every other partner.

20. Which form of business combines the advantages of a corporation with the benefits of a partnership? A. Nonprofit corporation B. Proprietorship C. Limited-liability company D. Quasi-corporation

C. Limited-liability company

1. Which of the following factors should be considered while choosing the proper legal form for a business? A. Packaging of the product B. Location of the factory C. Nature of the business D. Name of the product

C. Nature of the business

12. What are articles of copartnership? A. They are instruments by which a partnership is formed under the business laws of a given state. B. They state what a business can do and provide other organizational and financial information. C. They are drawn up before the formation of a partnership to show the rights, duties, and responsibilities of each partner. D. They explain how stockholders can buy out each other's interest in a business.

C. They are drawn up before the formation of a partnership to show the rights, duties, and responsibilities of each partner.

27. A business that is owned by and operated for the benefit of patrons using its services is called a _____. A. joint venture B. fractional ownership C. cooperative D. proprietorship

C. cooperative

7. A partnership is a form of business that is: A. formed for only civic, educational, charitable, and religious purposes. B. organized to provide a professional service for which each shareholder is licensed. C. owned by two people who share ownership of a single business. D. created to obtain financial sources from only one person.

C. owned by two people who share ownership of a single business.

24. A corporation formed by a doctor for the sole purpose of providing his services for which he is licensed is called a(n) _____. A. nonprofit corporation B. S corporation C. professional service corporation D. C corporation

C. professional service corporation

6. Small business owners prefer a proprietorship over other forms of business because it: A. provides access to unlimited capital. B. ensures that the business has an unlimited life. C. provides relative freedom of action and control. D. makes it easy for the owner to obtain credit.

C. provides relative freedom of action and control.

8. Which of the following is an advantage of partnerships? A. Each partner has limited liability for the debts of a business. B. Each partner is responsible only for his or her acts. C. A business continues to exist even after the death of any one partner. D. More capital can be raised since good credit may be available.

D. More capital can be raised since good credit may be available.

30. Which of the following is a requirement of a successful fractional ownership? A. The co-owners must share individual reports of their profits and losses on personal tax returns. B. The co-owners must have established it for religious purposes. C. The co-owners must be related to each other. D. The co-owners must be honest in their dealings.

D. The co-owners must be honest in their dealings.

16. Which of the following best describes the purpose of articles of incorporation? A. They govern the operations of partnerships in the absence of other expressed agreements. B. They provide for protection of limited liability for shareholders. C. They combine the advantages of a corporation with the benefits of a partnership. D. They are the instruments by which a corporation is formed.

D. They are the instruments by which a corporation is formed.

22. The most common type of industry for a _____ is agriculture. A. nonprofit corporation B. professional service corporation C. fractional ownership D. family limited partnership

D. family limited partnership

25. A _____ is formed for civic, educational, charitable, and religious purposes. A. professional service corporation B. joint venture C. family limited partnership D. nonprofit corporation

D. nonprofit corporation

4. The _____ form of business generates significant revenues in services, trade, and construction in the United States. A. partnership B. cooperative C. corporation D. proprietorship

D. proprietorship