BJU Economics Chapter 7 Study Guide for Test

What are the questions that a general partnership contract must answer?

- What is each partner responsible to do? - How may a partner withdraw from the partnership? - How are the profits to be divided?

t/f 18. Approximately one-half of all new businesses fail within five years.

18. true

t/f 19. The most popular business model in the United States today is the partnership.

19. false

t/f 20. The greatest weakness of the partnership and the sole proprietorship is their limited management skills.

20. false

t/f 21. Legally, partnerships always require a written contract.

21. false

t/f 22. A cosigner is someone to whom a debt is owed.

22. false

t/f 23. Partnerships have a definite advantage over sole proprietorships in finding financial sources.

23. true

t/f 24. Historically, sole proprietorships have the shortest lifespan of the three business types.

24. false

t/f 25. A limited partner can lose only what he originally invested in a company.

25. true

t/f 26. A corporation is more likely to obtain low-interest loans than a partnership.

26. true

t/f 27. A subchapter S corporation must have fewer than twenty-five shareholders.

27. false

t/f 28. Corporations can usually get better loans than partnerships.

28. false

t/f 29. Limited liability companies are ruled by a board of directors.

29. false

t/f 30. Corporations' great size can make workers feel unimportant.

30. true

t/f 31. Corporations' complex organizational structure can cause slow responses to the market.

31. true

What does a cosigner do?

A cosigner is someone who agrees to pay back a loan if the original borrower cannot.

Name and define the three primary types of business firms.

A sole proprietorship is a business firm owned by one person. A partnership is a business firm owned by two or more people. A corporation is a business firm considered by the government to be an entity separate from its owners or stockholders.

What does CEO stand for, and what function does a CEO perform?

Chief executive officer is the common title for the president of a corporation.

Which statement best summarizes J. C. Penney's business philosophy?

Do unto others as you would have them do unto you.

Corporations have two advantages in raising financial capital. What are they?

First, corporations can sell more stock to raise money. Second, corporations tend to get better deals on loans because they are considered more likely to pay back the loan than sole proprietorships or partnerships are.

If a person becomes surety for a friend, what has he done?

He has become security for that person's debt.

What universal human problem leads to some of the disadvantages of partnerships? Explain briefly.

Human sin nature leads people to want their own way. This can lead to conflicts between partners that must be compromised on. Despite compromises, conflict may continue to build over time. In addition, any faulty management or moral breaches by one partner may lead to difficulties for the other.

What two types of corporations are mentioned in the text? What is the primary difference between them?

Private and public corporations differ in their ownership. Private corporations are owned by private citizens whereas public corporations are owned by the general public and managed by the government.

What book of the Bible gives much advice about personal financial practices?

Proverbs

To which type of business do the Bible's cautions about surety most directly apply? Explain.

The biblical caution against surety clearly applies to general partnerships. In this type of business, each partner is legally liable for the financial decisions and mistakes of the other.

What two types of partnerships exist? Explain the difference between the two.

The two types of partnerships are general and limited. In a general partnership, all partners are fully responsible for the financial decisions of each other. A limited partnership allows some partners (limited partners) to avoid full financial liability in exchange for less input in the management and decision making of the company.

What is not a question that a general partnership contract must answer?

What is the limit of each partner's liability?

What is the economic term for someone to whom a debt is owed?

a creditor

According to the textbook, corporations' complex organizational structures can sometimes lead to accusations of

an inability to respond to the market.

What is a limited partner?

an investor with no liability and few or no duties in a company

What is the primary advantage of partnerships over sole proprietorships?

greater financial resources

What are the two main tax disadvantages of corporations?

higher tax rates and double taxation of earnings

According to the text, what disadvantage often results from corporations' great size?

impersonality

In the eyes of the law, a corporation possesses which two important qualities?

individuality and immortality

What two important qualities do corporations possess in the eyes of the law?

individuality and immortality

What important business factor can sole proprietorship protect better than corporations can?

information

What important business factor can sole proprietorships protect better than corporations can?

information

What is the chief advantage of incorporating a company?

limited personal liability

Which of the following is not an accurate criterion for an LLC?

no more than fifty shareholders

Suppose you buy 70,000 shares of a particular corporation's stock. If the company has issued a total of 280,000 shares, how much of the company do you now own?

one-fourth

What does a company's stock represent?

partial ownership of the company

Many law and accounting firms use the partnership model because of its ability to

retain competent employees

Which business type gives its owner(s) the most freedom?

sole proprietorship

A business with fewer than thirty-five shareholders can incorporate as a(n)

subchapter S corporation.

What advantage of the partnership do many law and accounting firms value?

the ability to retain competent employees by making them partners in the business

Which type of business is most open to governmental regulation?

the corporation

The most popular business model in the United States today is

the sole proprietorship.

What great risk balances out the many advantages of both the sole proprietorship and partnership models?

unlimited financial liability