ITEC161-6

1. Lucia owns her own dog walking business and has several employees. She filed no legal paperwork and has no partners. Lucia’s business is a ________.

sole proprietorship

2. All of the following are advantages of sole proprietorship EXCEPT ________.

limited liability

3. One disadvantage of sole proprietorship is the ________.

unlimited liability the owner has for the debts of the company

4. Paula is thinking of making homemade perfumes and selling them to her relatives. She has not filed any legal documents to start her business. Paula would be operating as a(n) ________.

sole proprietor

5. A sole proprietor’s income and expenses flow through ________.

his or her personal tax returns

6. Dan is excited to start marketing and selling his new indoor practice hockey tarps and would like to start today. He already has several hockey associations waiting to make purchases. Dan’s best option for starting his business quickly and hassle free is a(n) ________.

sole proprietorship

7. Arthur is a truck driver who owns his own business. He has been on the road for several months, and the constant wear and tear on his truck results in the need for several major mechanical repairs. This generates a loss for his business. Which of the following reflects how this will affect Arthur’s tax obligation?

Arthur’s tax obligation will be reduced.

8. Unlimited liability with respect to business ownership means ________.

to have an obligation to pay all business debt

9.In a sole proprietor ownership, if business assets are not enough to pay business debts, then personal assets, such as the sole proprietor’s house, personal investments, and retirement plans can be used to pay the debt. This is called ________.

unlimited liability

10. All of the following EXCEPT ________ would be an advantage to partnership.

unlimited liability

11. The most significant difference between a partnership and a sole proprietor is the ________.

number of people contributing resources

12. A good reason why partners should spell out the details of their partnership arrangements in writing is because ________.

a written agreement will help reduce misunderstandings and disagreements among the partners

13. Jenny and Rose are hairstylists that have decided to open their own salon by starting a general partnership. The first step to ensuring a successful partnership would be to ________.

draw up a partnership agreement

14. In a partnership, all profits and losses flow through each partner’s ________.

tax returns

15. Which of the following parts of a partnership agreement spells out the policy regarding partners entering into key financial or contractual agreements?

responsibilities of partners

16. Policies regarding all of the following points should be included in a partnership agreement EXCEPT ________.

division of stock

17. Jaden and Noel are starting a computer repair business together. Jaden insists on outlining rules for the departure of partners in the partnership agreement, although Noel does not think it is necessary. Which of the following statements might Jaden use to explain his insistence to Noel?

Provisions to remove a partner’s ownership interest are necessary so the business would not have to liquidate.

18. In a partnership, the type of partner that is responsible for all claims against the company is called a(n) ________.

general partner

19. Kris and Amy own a workout facility in which they are co-owners. Both take an active role in the management of the business and each accepts unlimited liability. Kris and Amy operate as a ________.

general partnership

20. A partner who invests money in a business but is not involved in the day-to-day operation and is only risking capital equal to what they have contributed is called a ________.

limited partner

21. Which of the following is the limit of liability of a limited partner?

the amount of their investment

22. Alex and Bailey opened a dance studio together as general partners. They each invested $10,000 of their personal savings. After one year in business, they decided to close the doors. Their partnership agreement said they would divide profits and losses 50/50. They have more debt than assets. Alex and Bailey will each ________.

lose personal assets to repay the debt since a partnership is not considered to be a separate entity from the partners who own it

23. Nick is investing $25,000 in a partnership with his sister and brother. Nick does not want to be an active part of the partnership and can only afford to risk the $25,000 he is investing. His brother and sister agree to let him share a proportionate amount of the profits. Nick is a ________ in this partnership.

limited partner

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

A corporation is a separate entity and is legally formed under state laws.

25. All of the following are advantages of forming a corporation EXCEPT ________.

ease of set up

26. Which of the following is the MOST compelling argument for incorporating a business?

to protect the owners’ personal assets

27. Traci and Sally have considered starting their own business but are concerned about the possibility of losing their personal assets if the business fails. One way for Traci and Sally to avoid this risk would be to organize their company as a ________.

corporation

28. Ben recently purchased 100 shares of stock in Feger’s Sports, Inc. Ben is a(n) ________ of Feger’s Sports, Inc.

owner

29. If a corporation provides medical insurance, it will actually lower the company’s taxes because ________.

) medical insurance benefits are legally deductible expenses

30. Management and ownership roles would most likely be separate in what type of business structure?

corporation

31. Owners of limited liability companies are referred to as ________, while owners of corporations are called ________.

members; shareholders

32. In a large corporation, shareholders responsibilities include ________.

electing a board of directors

33. The Sarbanes-Oxley Act of 2002 was enacted to provide a new set of standards of accountability for ________.

board of directors

34. Which of the following is a benefit of forming a corporation?

Corporations can offer stock options to employees.

35. Which of the following tasks is NOT the responsibility of the board of directors?

managing the company’s daily operations

36. Which of the following is a disadvantage of forming a corporation?

double taxation

37. Leslie is excited to begin a personal shopping business. She is planning on having employees and is concerned about losing personal assets should something happen to the business. She would like to focus on profits and building a business but she does not want her business to pay its own taxes. What ownership structure is Leslie’s best choice?

S corporation

38. Which of the following statements about S corporations is MOST accurate?

S corporations enable owners to avoid the problem of double taxation.

39. Many new business owners prefer a limited liability structure because there are ________.

fewer corporate formalities

40. Which of the following types of ownership is limited to 100 owners?

S corporation

41. Compared to the C corporation, the limited liability company is an attractive form of business ownership because ________.

a limited liability company does not require the firm to hold annual meetings and it can avoid double taxation

42. A disadvantage of a limited liability company is that it ________.

must dissolve when an owner leaves the company

43. Limited liability companies are unable to offer stock options or stock bonus incentives to their employees because ________.

limited liability companies do not have shareholders or stock

44. Becca and Bob own a car rental business. Becca contributes 75 percent of the capital but does only 20 percent of the work, while Bob contributes 25 percent of the capital but does 80 percent of the work. Both decide on a 50/50 allocation of profits. In which types of business structures would this arrangement be possible?

limited liabilities and partnerships

45. All of the following are reasons business owners consider using a corporation structure of ownership EXCEPT ________.

ease of forming and setting up the structure

46. The following are characteristics shared by both for-profit and not-for-profit corporations EXCEPT ________.

issuing shares of stock

47. Which of the following statements BEST describes the distinction between a not-for-profit corporation and a for-profit corporation?

Not-for-profits cannot be organized for any person’s private gain.

48. When a not-for-profit corporations dissolves, its assets are ________.

given to a similar not-for-profit group

49. Which of the following methods do not-for-profit corporations primarily use to generate revenues?

organizing fund-raising events

50. A not-for-profit corporation such as a church or ministry may be exempt from ________.

property tax

51. A cooperative is a type of business that is owned by ________ who use its products or services.

members

52. Mr. Gonzales wants to help fellow farmers in his community, but he is not interested in making a personal profit. His main goal is to join with other farmers so they can have better bargaining power when purchasing supplies. Which of the following business types will Mr. Gonzales MOST likely form?

cooperative

53. A(n) ________ occurs when two companies of about the same size mutually agree to create a new combined company.

merger

54. Companies MOST often resort to mergers and acquisitions when they want to expand their markets and product lines because ________.

it minimizes time and investment to research and develop new products

55. A proxy fight occurs when a company attempts to persuade the target company’s shareholders to replace the existing management with one that is ________ the goals of the acquiring company.

sympathetic to

56. Which of the following moves would MOST likely initiate a hostile takeover?

The buying company offers to buy the target company’s stocks at a price higher than their current value.

57. Lizzie is the CEO of a large corporation that offers accounting services to several companies. She has tried to acquire her closest rival, but her rival’s management is opposed to the idea. In order to gain a competitive edge, Lizzie starts a campaign to persuade her rival company’s shareholders to vote out its existing management in the hopes of replacing it with a management team more sympathetic to the goals of the acquiring company. Which method of acquiring a company is Lizzie using?

proxy fight

58. A(n) ________ acquisition occurs when one company tries to take control over another company against its wishes.

hostile

59. At a meeting to announce a merger with another company, which of the following buzzwords is a business leader MOST likely to use to justify the decision?

synergy

60. A merger involving a computer manufacturer and an electronics retailer that sells its computers would be an example of a ________.

vertical merger

61. When two companies in entirely different industries combine, it is known as a ________.

conglomeration

62. A dance studio and a dancewear manufacturer decide to combine. This type of merger is called a ________.

vertical merger