Chapter 9 Organizational Plan Essay

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1. (T/F) Method Products, Inc is expected to surpass $110 million in sales in 2011.
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True
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2. (T/F) Investors usually insist that the management team should not operate the business as a part-time venture.
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True
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3. (T/F) Investors accept that the management team draws a large salary for their contributions in early operations.
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False, this looks bad on the management teams part
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4. (T/F) The decision regarding the legal form of organization should be made by the entrepreneur before request for venture capital.
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True
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6. (T/F) The corporation is considered a legal person that is taxable and absorbs liability.
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True
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9. (T/F) The most expensive type of business to start is the partnership.
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False, it is the corporation
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10. (T/F) In order for a corporation to be legally formed the owners have to register the name and articles of incorporation and meet statutory requirements.
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True
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12. (T/F) In a partnership, the death of a general partner generally does not result in termination of the partnership.
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False, unless it is written in the partnership agreement it does
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13. (T/F) The corporation has the most continuity of the forms of business.
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True
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15. (T/F) In an LLP, the transfer of interest of one limited partner is typically not allowed.
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True
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16. (T/F) In an S Corporation, ownership can be freely transferred as long as the buyer is an individual.
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True
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18. (T/F) Sole proprietors can access two sources of capital- personal contributions from the entrepreneur and sale of stock.
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False, it’s personal contributions from the entrepreneur and loans
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20. (T/F) The sole proprietorship form of ownership gives the most control of business operations.
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True
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21. (T/F) The limited partners in a venture share control of day-to-day operations with the general partners.
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False, Limited partners have no control of day-to-day operations.
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24. (T/F) Corporations are not able to distribute profits to shareholders.
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False, they do it in the form of dividends
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27. (T/F) Both partnerships and proprietorships serve as nontaxable conduits of income for their owners.
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True
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30. (T/F) Since a corporation is recognized as a separate tax, it has the advantage of being able to take many deductions and expenses that are not available to the proprietorship or partnership.
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True
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32. (T/F) An S corporation combines the tax advantages of the partnership and the corporation.
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True
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34. (T/F) The S corporation can deduct most fringe benefits for shareholders.
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True
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36. (T/F) In a limited liability company, every member has limited liability.
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True
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37. (T/F) The limited liability company is the only form of organization that allows members to share liability.
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False, corporations as well
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38. (T/F) Shares of stock are issued to members of a limited liability company.
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False
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40. (T/F) When hiring employees for the venture, the entrepreneur should consider the candidate’s skills and abilities and avoid considering the individual’s personality.
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False, personality is important
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43. (T/F) The board of directors should be an even number of members.
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False, an odd number is better to avoid deadlock votes.
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44. (T/F) A board of advisors has less decision making authority than a board of directors does.
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True
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46. Eric Ryan and Adam Lowry Started Method Products because: a) they were both unhappy in their jobs b) a friend tipped them off to market trend of green products c) Ryan’s background as a scientist gave him the idea for a clean dish washing liquid. d) Lowry heard, in his previous job as a marketer, that distributors were looking for green products.
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a) they were both unhappy in their jobs
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48. ____ have unlimited liability for the actions of the business. a)Limited liability company members b) Corporate shareholders c) General Partners d) Limited Partners
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c) General Partners
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50. Liability is one of the most critical reasons for establishing a: a) limited liability company b) corporation c) partnership d) sole proprietorship
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b) corporation
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52. Which type of ownership is the least expensive to start? a) corporation b) general partnership c) limited partner d) sole proprietorship
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d) sole proprietorship
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53. Which type of ownership is the most expensive to start? a) corporation b) general partnership c) limited partner d) sole partnership
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a) corporation
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55. Sole proprietorships: a) have no time limit on how long they may exist b) are perpetual c) continue even upon the death of the owner d) allow a member of the deceased partner’s family to take over as a partner
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a) have no time limit on how long they may exist
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57. In an S corporation, the transfer of interest can occur: a) only with the consent of the other shareholders b) only if there is a charter provision for doing so c) only as long as the buyer is an individual d) depending on the agreement
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c) only as long as the buyer is an individual
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59. Bonds can be used to raise capital in which form of ownership? a) sole proprietorship b) limited partnership c) general partnership d) corporation
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d) corporation
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60. In which form of organization does the owner have greatest control? a) sole proprietorship b) limited partnership c) general partnership d) corporation
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a) sole proprietorship
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62. In which form of organization would it be possible for individuals that don’t have any ownership stake in the business to make decisions? a) sole proprietorship b) limited partnership c) general partnership d) corporation
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d) corporation
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64. A(n)___ can raise capital through bonds, stock, and debt. a) sole proprietorship b) partnership c) corporation d) LLP
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c) corporation
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65. Organization costs in a proprietorship are: a) amortizable over a period of 60 months. b) not amortizable c) amortizable over a period of 45 months d) amortizable for a period of a year
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b) not amortizable
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67. Which form of organization has time limits on writing off capital losses? a) partnership b) corporation c) sole proprietorship d) LLP
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b) corporation
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69. Which of the following statements is(are) true? a) corporations are not able to take deductions and expenses available to the proprietorship or partnership b) distribution of dividends is taxed once, as income of the corporation c) bonuses, incentives, and profit sharing are allowable ways to distribute income of the corporation d) corporate tax may be higher than the individual rate
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c) bonuses, incentives, and profit sharing are allowable ways to distribute income of the corporation
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70. Which of the following ways of distributing the income of corporations is taxed twice? a) bonus b) salary c) profit sharing d) dividends
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d) dividends
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71. A limited liability corporation: a) has unlimited liability b) is automatically taxed as a partnership c) is decreasing in popularity among venture capitalists d) had been the most popular choice of organization structure by new venture and small businesses.
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b) is automatically taxed as a partnership
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72. S corporation status means: a) shareholders do not have limited liability b) the corporation is subject to a minimum tax of 34 percent c) consent by a majority of shareholders is required for the election of this form of business. d) the corporation pays no tax
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d) the corporation pays no tax
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73. In an S corporation: a) gains or losses of the business are separate from the personal income of the shareholder b) shareholders retain unlimited liability c) only one class of stock is permitted d) most fringe benefits for shareholders can be deducted.
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d) most fringe benefits for shareholders can be deducted.
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74. In a limited liability company: a) laws governing its formation differ from state to state b) members may transfer their interests at any time c) members are not allowed to share income, profit, expenses, deduction, loss, and credit among themselves d) owners are called shareholders
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b) members may transfer their interests at any time
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75. The standard term of a limited liability company is: a) 15 years b) 20 years c) 25 years d) 30 years
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d) 30 years
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77. Our text tells us that much of an entrepreneur’s time during start-up is spent: a) putting out fires b) negotiating c) delegating d) allocating resources
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a) putting out fires
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79. To build a successful organization culture, the entrepreneur: a) should focus and not try out different things b) needs to remember that it is easier to change a person’s attitude than it is to change the person’s behavior c) should spend extra time in the hiring process d) must create a workplace where communication from the top-down is encouraged.
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d) must create a workplace where communication from the top-down is encouraged.
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81. A board of directors should not: a) have members with unlimited terms b) have an odd number of members c) be comprised of external advisors d) be compensated with anything other than stock
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a) have members with unlimited terms
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83. The difference between a board of directors and a board of advisors is that: a) a board of advisors meets less frequently b) a board of directors lacks voting authority c) a board of directors is subject to less pressure of litigation d) a board of advisors is compensated
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a) a board of advisors meets less frequently
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85. According to Cythia Kocialski, and advisory board should have: a) 2 members b) 4 members c) 6 members d) 8 members
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c) 6 members

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