Bus 010 ch5

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The__________ is the most common form of business ownership.

sole proprietorship

____________comprise about 20% of all businesses but account for about 80% of U.S. business receipts.


Two important considerations when choosing a form of business ownership is:

taxes and liabilities

The__________ is usually the easiest form of business to start and end.

sole proprietorship

One of the major disadvantages of a sole proprietorship is the:

Unlimited liability the owner has for the debts of the firm.

A significant disadvantage of owning a sole proprietorship is the:

Overwhelming time commitment often required of the owner.

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

The responsibility of the owner.

Ina partnership, a(n) __________ partner (owner) actively manages the company and has unlimited liability for claims against the firm


The limited liability provided to limited partners means that they are not responsible for the debts of the business beyond:

The amount they have invested in the company.

Compared to a sole proprietorship, which of the following is considered an advantage of a general partnership?

ability to pool financial resources

When entering into a new partnership, a good strategy is to:

Put the partnership agreement in writing.

Which of the following statements about partnerships is most accurate?

A major drawback of a partnership is that it is difficult to terminate.

Which of the following is not a disclosure that should be part of a partnership agreement?

The list of personal assets of each partner.

One way to eliminate some of the risk of your partners making costly mistakes that could jeopardize your personal assets is to set-up a:

limited liability partnership

An owner of a corporation is known as:


Which of the following statements about the operation of a corporation is correct?

A corporation receives its charter from a state government.

The form of business ownership best suited to raising large amounts of money for expansion is the:


Which of the following is an advantage of the corporate form of business when compared to sole proprietorships and partnerships?

limited liabilities of owners

Compared to partnerships and sole proprietorships, a major advantage of the C(conventional) corporation as a form of business ownership is that it:

Has the ability to raise more money.

Which of the following is normally considered a disadvantage of the corporate form of business?

Double taxation of earnings.

The board of directors for a corporation is elected by its:


A separation between ownership and management is most likely to occur in a:


The form of business ownership that usually requires the most detailed record keeping is the:


A major advantage of S corporations is that they:

Avoid the problem of double taxation associated with conventional corporations.

To qualify as an S corporation, a company must:

Have shareholders who are individuals or estates, and, qualify as permanent residents of the U.S.

The income generated by S-Corporations:

Passes through to its owners, and each is taxed individually for this income.

_____________are companies that are similar to S Corporations but are not restricted with similar eligibility requirements

limited liability companies

One disadvantage of a limited liability company is that it:

Has a limited life span.

One reason limited liability companies have become so popular is that they:

Can be taxed either as a corporation or as a partnership, so owners can choose the tax treatment that is most advantageous for their situation

Earnings of C (conventional) corporations can be:

Taxed twice if they are distributed as dividends to stockholders.

Which of the following is an attractive benefit of a corporation?

Corporations can attract employees by offering stock options.

The reason a professional such as a lawyer or doctor would incorporate his/her business is

To protect his/her other assets with limited liability.

Which of the following statements about S corporations is most accurate?

The major attraction of S corporations is that they avoid the problem of double taxation.

The S corporation is likely to be less popular in the future because:

Limited liability companies, which do not have the restrictive eligibility requirements of S corporations

"Double taxation" means:

Corporations pay taxes on their profits. If they distribute after-tax profits to the stockholders, the stockholders also pay taxes on the distribution.

One reason that companies participate in mergers and acquisitions is:

To expand within their own field or enter new markets.

A(n)_________ occurs when one company buys the property and obligations of another company.


Three types of corporate mergers are:

Vertical, horizontal, and conglomerate.

An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing is:

leveraged buyout

If a group of stockholders or management obtain all the stock of a previously publicly traded firm for themselves, this is referred to as:

taking the firm private

The difference between a merger and an acquisition is:

A merger is the joining of resources of two companies, whereas an acquisition is a buyout of one firm by the other. The new company concerns itself with merging of resources.

The strategy of investors who are attempting a leveraged buyout is:

Use debt to finance the buyout of the firm’s stockholders and gain control of the firm themselves.

A___________ is an arrangement whereby someone with proven idea for a business sells the rights to use the business model, to sell a product or service to others in a given territory.

franchise agreement

A person who buys the right to use a business name and sell a product within a given territory is called a


A franchise can be formed:

can be corporation, partnership or sole proprietorship

Which of the following statements about buying a franchise is most accurate?

Before purchasing a franchise, the buyer should carefully evaluate the franchise, the franchisor, his or her own situation, and the nature of the market.

In a cooperative, members/customers:

Democratically control their businesses by electing a board of directors.

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