question

The _______________ is the most common form of business ownership.

answer

sole proprietorship

question

The three major forms of business ownership in the U.S. are sole proprietorships, partnerships, and corporations.

answer

True

question

Once a business is established, it's almost impossible to change from one form of business ownership to another.

answer

False; Just because a business starts in one form of ownership, it doesn't have to stay in that form

question

A comparison of the three major forms of business ownership shows that sole proprietorships are usually the most difficult type of business to establish.

answer

False; it is easy to start and end a business in sole proprietorship

question

The first step in starting a sole proprietorship is to fill out a proprietorship charter application form and file it with the state government.

answer

False; the first step is to buy or lease the needed equipment, and put up some announcements saying you are in business.

question

The profits of a sole proprietorship are taxed as the personal income of the owner.

answer

True

question

A major advantage of sole proprietorships is that an owner has limited liability for the debts of his or her business.

answer

False; the disadvantage is unlimited liability - risk of personal losses. Any debts the business have is yours and you must pay them.

question

A drawback of sole proprietorships is that they usually have limited access to additional financial resources.

answer

True

question

An advantage of forming a sole proprietorship is that it allows the owner to have more time for leisure activities.

answer

False; a disadvantage is that it is time consuming

question

Jim wants to start a business. He is attracted by the idea of being his own boss, and wants to get started with a minimum of expense and hassle. He is very confident in his abilities, so he is not particularly worried about financial risks. All of these factors suggest that Jim would favor starting his business as a sole proprietorship.

answer

True

question

A general partner can take an active role in the management of the business.

answer

True

question

All of the partners in a general partnership have limited liability for the debts of their firm.

answer

False; they have unlimited liability

question

In a general partnership, all owners share in both management of the business and in the assumption of liability for the firm's debts.

answer

True

question

A limited partner is an owner who takes no management responsibility and has no liability for losses beyond the amount invested.

answer

True

question

According to the Uniform Partnership Act, the three key elements of any general partnership are (1) shares of stock to represent ownership, (2) limited liability, and (3) ease of ownership transfer.

answer

False: 1. common ownership 2. shared profits and losses 3. the right to participate in managing the operations of the business

question

A major objective of limited liability partnerships (LLPs) is to limit each partner's personal liability to the consequences of their own acts and those of people under their supervision.

answer

True

question

One advantage of a partnership is that there is a simple process for partners to terminate their business.

answer

False; difficulty of termination

question

Compared to sole proprietorships, an advantage of partnerships is their ability to obtain more financial resources.

answer

True

question

Compared to sole proprietorships, partnerships offer the advantage of shared management and pooled knowledge.

answer

True

question

A limited partnership refers to a partnership set up for a temporary purpose, such as a real estate development project.

answer

False; it is an owner who invests money in the business but does not have any management responsibility

question

Ted and Mark have been partners in a dry cleaning business for the past three years. They would like their brother Todd to join them. Unfortunately, partnership law states that only two partners can participate in a partnership.

answer

False; partnership can have two or more owners

question

Sharon Pebble and Gilbert Stone have just formed a business partnership. Under their arrangement, Sharon will actively manage the company and assume unlimited liability for the firm's debts. Gilbert will invest several thousand dollars of his money and will share in the profits, but will not actively manage the firm and will not have liability for losses beyond his initial investment. Sharon and Gilbert have formed a limited partnership.

answer

True; a limited partnership consist of at least one general partner, who has unlimited liability, and at least one limited partner, who can lose only what he or she has invested. The limited partner cannot actively manage the partnership.

question

Alphonzo has agreed to become a partner in his brother's new clothing store and has provided 30 percent of the startup capital for Remora's Clothiers. Since he provided 30 percent of the money to start the firm, he is legally entitled to 30 percent of any the profits the firm earns during its first year of operations.

answer

False; the division of profit in a partnership is negotiable; it is not necessarily tied to the amount of the initial investment

question

Ron and Jon want to go into business together. They do not want to bring in other partners, but they both want to avoid unlimited liability for any debts incurred by their new company. Ron and Jon can achieve their aims by organizing the firm as a limited partnership.

answer

False; all partnerships, including limited partnerships, MUST include at least one general partner. The general partners in a limited partnership must accept unlimited liability. Thus, if Ron and Jon forma limited partnership, they will either have to bring in another person to be the general partner, or one of them will have to be the general partner and accept unlimited liability.

question

Connie is a general partner in a retail cookie store. Her personal assets are protected from the debts of the business.

answer

False; as a general partner, Connie assumes unlimited liability for the debts of her business

question

A conventional corporation is a state-chartered legal entity, with authority to act and have liability separate from its owners.

answer

True

question

A corporation can raise financial capital by selling shares of stock to interested investors.

answer

True

question

Stockholders in a corporation must accept unlimited liability for the corporation's debts.

answer

False; they are not liable for debts or other problems of the corporation beyond the money they invest in it by buying ownership shares, or stock, in the company. They don't have to worry about losing their house, car, or other property because of some business problem

question

When one of the owners of a corporation dies, the corporation legally ceases to exist.

answer

False; the death of one or more owners does not terminate the corporations

question

Corporations are easy to start and easy to terminate.

answer

False; sole proprietorship

question

A disadvantage of corporations is that they generally require extensive paperwork.

answer

True

question

The stockholders in a corporation elect a board of directors to oversee the company's major policy issues.

answer

True

question

Stockholders in a corporation have limited liability for the debts of the corporation.

answer

True

question

One advantage of corporations is that the initial cost of setting them up is usually lower than for other forms of ownership.

answer

False; the start up cost is a disadvantage

question

One reason Individuals incorporate is to obtain the advantage of limited liability.

answer

True

question

One advantage of an S Corporation is that the profits of the business are taxed as regular personal income of the owners, thus avoiding the problem of double taxation.

answer

True

question

Any corporation can qualify to be classified as an S corporation as long as it fills out and files the proper paperwork with the appropriate state agency on an annual basis.

answer

False; not all businesses can become S corporations. It must: 1. have no more than 100 shareholders 2. have shareholders that are individuals or estates, who are citizens or permanent residents of the US 3. Have only one class of stock 4. Derive no more than 25% of income from passive sources

question

A limited liability company is similar to an S corporation, but without the special eligibility requirements.

answer

True

question

Limited liability companies have both flexibility in tax treatment of earnings and limited liability protection for owners.

answer

True

question

Like stockholders of a C corporation, owners of a limited liability company (LLC) are free to sell their ownership without the approval of other members.

answer

False; LLC members need the approval of the other members in order to sell their interests in the company

question

Owners of limited liability companies (LLCs) must pay self-employment taxes on any profits they earn.

answer

True

question

Dr. Wright is interested in incorporating as an individual. While this is legally possible, there are really no advantages to doing so.

answer

False; the advantage would be to obtain limited ; may get tax savings if doing so

question

Nutty Dough is a small chain of donut shops that is currently owned and operated by a group of seven partners. The owners think that their chain has the potential for rapid growth, but several of the partners are concerned about the growing financial risks that will accompany this growth. One way the partners could deal with this problem would be to incorporate their business.

answer

True; Because they can issue shares of stock and bonds, and often find it easier to obtain loans from financial institutions, corporations usually have easier access to financial resources than unincorporated businesses. Another advantage of corporations is that they provide their owners (stockholders) with the protection of limited liability.

question

When Erica Wayne decided to start a business she chose to form it as a corporation. This choice ensures that, as the founder and incorporator of the company, Erica will remain in control of the firm's operations as long as she wants, no matter how large or complex the business becomes.

answer

False; One potential drawback of incorporation is the possibility of conflict between the entrepreneurs who originally start a business and the stockholders and board of directors who may eventually gain control. The text cites the cases of Rod Canion of Compaq and Steve Jobs of Apple Computer as examples of entrepreneurs who were forced out of the very companies they founded.

question

Mojo Motors is a rather small conventional corporation with only 212 stockholders. Eleven of the stockholders are citizens of Mexico who live in Mexico City, and eight more are citizens of Canada who live in Toronto. Mojo Motors should organize as an S corporation in order to save on taxes.

answer

False; Mojo Motors does not satisfy the requirements for an S corporation--it has more than 75 stockholders, some of whom are not U.S. citizens or permanent residents of the United States.

question

The partners at Edgar's Microbrewery would like to switch to an S corporation. Unfortunately, their lawyer has told them that they do not meet some of the requirements necessary to qualify as an S corporation. An alternative form of business that would give them similar advantages is a limited liability company.

answer

True; Limited liability companies offer many of the same advantages as S corporations, including limited liability and the possibility of taxation like a partnership, without the special eligibility requirements required to qualify for S corporation status.

question

The owners of the new Chillout Ice Cream Company have chosen to organize their business as a limited liability company. One drawback of this form of ownership is that the owners will pay higher taxes on their earnings than a regular corporation if their company grows rapidly.

answer

False; In terms of taxes, a limited liability company offers the best of all worlds, allowing the owners to choose to be taxed as a partnership or a corporation depending on which tax rates would benefit them the most.

question

In a merger, two firms combine to form one company.

answer

True

question

An acquisition is when one company buys the property and obligations of another company.

answer

True

question

In a conglomerate merger, firms in the same industry merge to expand their share of the market.

answer

False; horizontal merger

question

A merger between two businesses in different stages of related businesses is known as a vertical merger.

answer

True

question

When a group of investors take a firm private, they obtain all of the stock for themselves.

answer

True

question

In the past, the Beirderg's Markets and Bronew's Groceries have been fierce competitors in the grocery market. However, they recently issued a joint announcement stating their decision to merge. The announcement justified the proposed merger by claiming that the resulting firm would have more financial resources, which would enable it to expand services and broaden offerings to consumers. This proposed merger is an example of a horizontal merger.

answer

True; A merger between two firms in the same industry, such as two grocery store chains, is a horizontal merger.

question

A major objective of a leveraged buyout is to enable investors to gain control of a company by issuing new shares of ownership, thus minimizing the use of debt.

answer

False; Leveraged buyouts involve financing the acquisition of an organization through the use of debt financing.

question

Jane Gramm is leading a group of stockholders who want to take the Bigbux Corporation private. If Jane's group succeeds, Bigbux's stock will no longer be available to investors on the open market.

answer

True; Rationale: Taking a firm private involves gaining control of a firm's stock so that it is no longer available to investors on the open market.

question

The workers at Scrappy's Metal Fabrication, Inc., have learned that the firm is about to close down. They have devised a plan to use debt financing to buy the company's stock from current shareholders with the intention of keeping the company in business, thus saving their jobs. This strategy is called a leveraged buyout.

answer

True; A leveraged buyout involves the use of debt financing to buy the stock of a company. This is what the workers are attempting to do in this example.

question

A franchise agreement is an arrangement where a franchisor sells the rights to a business name and to sell a product or service within a given territory to a franchisee.

answer

True;

question

A franchise may be organized as a sole proprietorship, partnership, or corporation

answer

True

question

In a franchise arrangement, ownership of all of the individual stores or outlets remains in the hands of the franchisor.

answer

False; in franchising, you have personal ownership

question

One of the major advantages of a franchise system is the franchisee often gets instant recognition from consumers.

answer

True

question

Franchisees must follow more rules, regulations, and procedures than if they operated independently owned businesses.

answer

True

question

The franchisee often must pay the franchisor a share of profits or a percentage commission on sales known as a royalty.

answer

True

question

Franchising in global markets has demonstrated that high operating costs are counterbalanced by high profit opportunities.

answer

True

question

Les is a franchisee in the Far Horizons Travel Agency franchise. As a franchisee, Les is guaranteed the right to retain all of his franchise's profits.

answer

False; Franchisees usually pay a royalty to the franchisor. This royalty is sometimes expressed as a share of the franchisee's profits.

question

Leanne is a franchisee in a restaurant chain. Thanks mainly to her hard work and people skills, her individual outlet is doing quite well. However, she has noticed that several other franchisees in the same chain have let their businesses deteriorate, especially in terms of the quality of the food they offer. Leanne should be very concerned about this trend, since it eventually could affect her own business.

answer

True; The actions of less successful franchisees can hurt the success of others in the same franchise. This is known as the coattail effect.

question

A cooperative consists of people with similar needs who pool their resources for mutual gain.

answer

True;

question

It is not unusual for members of cooperatives to work for and help manage their cooperative.

answer

True

question

Farm cooperatives were originally established to help farmers increase their economic power by acting as a group rather than as individuals.

answer

True

question

______________ comprise about 20% of all businesses but account for about 87% of all business receipts.

answer

corporations

question

Any debts or damages incurred by a firm organized as a sole proprietorship are:

answer

the sole responsibility of the owner.

question

An entrepreneur who wishes to start a business with little delay or hassle, and who wants to be his or her own boss, should organize the business as a:

answer

sole proprietorship

question

Entrepreneurship involves accepting the risk of starting and running a business.

answer

True

question

Many business started by entrepreneurs have grown into major corporations employing thousands of workers.

answer

True

question

Entrepreneurs are motivated by the desire to earn a profit.

answer

True

question

Successful entrepreneurs accept the risk of failure

answer

True

question

It is important for an entrepreneur to be highly energetic

answer

True

question

Potential entrepreneurs would be well advised to surround themselves with people who are smarter than they are.

answer

True

question

Entrepreneurial teams combine the creative marketing and production ideas of a group of experienced people. .

answer

True

question

Micropreneurs is a term used to describe entrepreneurs who focus on the continued growth of their businesses.

answer

False; entrepreneurs who manages a business that remains small

question

The most important difference between entrepreneurs and micropreneurs is the focus placed by micropreneurs on balancing the demands of work and family.

answer

True

question

Micropreneurs are motivated by a desire to have both a satisfying family life and rewarding work.

answer

True

question

Creative people working as entrepreneurs within a large organization are called intrapreneurs.

answer

True

question

The U.S. government offers "investor visas" to attract more entrepreneurs.

answer

True

question

Enterprise zones offer lower tax rates and government assistance to attract private business investment.

answer

True

question

Entrepreneurial teams increase the cooperation between marketing, production and other functional areas of a business venture

answer

True; In entrepreneurial teams, all members work together to conceive, make, and market a new product.

question

Kylie is employed by Street Wheels, a large corporation that produces accessories for scooters, bicycles, and other children's vehicles. She is a creative force within the company and has helped launch several new successful products. Kylie is an example of an intrapreneur.

answer

True; intrapreneurs are creative people who work within corporations to launch new products and generate new profits

question

The management of a nonprofit organization is much the same as the management of small and large businesses

answer

True

question

Of all nonfarm businesses in the United States, almost 97 percent are considered small by the Small Business Administration (SBA) standards.

answer

True

question

Large firms have a greater ability to provide personalized, fast response customer service than do small business organizations

answer

False; small business organizations have closer customer service/relationships

question

About 80 % of Americans find their first jobs in small businesses.

answer

True

question

The number of women owning small businesses has grown slowly.

answer

False

question

Many small businesses list the lack of qualified workers as one of their biggest obstacles to growth.

answer

True

question

Most business opportunities offer entrepreneurs high levels of security and profits.

answer

False

question

The easiest businesses to start also have the least growth potential and the greatest failure rates.

answer

True

question

While the first job for many people is working for a small business, most of the permanent new jobs are created by larger corporations.

answer

False; employment in large companies have been declining for many years. Virtually all job growth is provided by small businesses.

question

Marina has just completed her business degree. Her best job search strategy would be to concentrate on looking for work with a major corporation.

answer

False; Many large firms are downsizing, and virtually all job growth is currently created by small businesses. If Maria focuses on job opportunities with big firms, she is likely to limit her chances of finding employment

question

Renee, a manager at a small manufacturing firm, has offered to help manage a local branch of the YMCA. Unfortunately, Renee will find that the skills acquired managing a small business will not be useful in managing a nonprofit organization.

answer

False; the skills needed to manage small/big businesses, charities, churches, and government agencies are very similar

question

A close look at the statistics indicates that the lack of qualified workers is a major obstacle to the growth of successful small businesses.

answer

True; One quarter of the small businesses surveyed list the lack of qualified workers as one of their biggest obstacles to growth

question

Traditionally small business statistics classified the retirement of an owner of a sole proprietorship as a business failure.

answer

True

question

Small businesses lack the resources to compete directly with big businesses.

answer

False; Small businesses can often compete successfully against big businesses because they are more nimble and able to offer more personalized customer service.

question

Sharaf decided to work for a floral design shop before opening her own shop. She will find that this was a waste of time as her work is used to make someone else successful.

answer

False; Sharaf will gain valuable training and insights into the floral design business by working for someone else. Her experience should reduce her risks and help her operate more efficiently when she starts her own business.

question

The personal character of an entrepreneur is irrelevant to bankers when determining the credit worthiness of business loan.

answer

False

question

Potential suppliers can be an excellent source of financing for a new business since lending money to a new customer may be very much in their own interest.

answer

True

question

Venture capitalists provide funds for small businesses as part of their philanthropy programs.

answer

False; venture capitalists may finance your project - for a price

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