41) An S-corporation form of ownership overcomes which disadvantage of the regular or “C”
corporation form of ownership?
A) The double taxation issue
B) The expense and difficulty of formation
C) The amount of regulation and red tape involved in its operation
D) The potential loss of control by the founder
Topic: Advantages of an S Corporation
AACSB: Analytic Skills
42) An owner should choose an S-corporation form of ownership when he/she:
A) has an established company that is suffering losses due to double taxation.
B) is starting up a company and anticipating either net losses or high profits with large dividends.
C) owns a company in which net profits before any compensation to shareholders are less than
$100,000 per year.
D) has an existing sole proprietorship and wants to lower the tax bill through deducting fringe
benefits as business expenses.
Topic: When is an S Corporation a Wise Choice?
AACSB: Analytic Skills
43) The limited liability company is most like a(n):
A) general partnership.
B) master partnership.
C) sole proprietorship.
D) S-corporation.
Topic: The Limited Liability Company
AACSB: Analytic Skills
44) A limited liability company differs from an S-corporation in:
A) that it is not subject to the same amount of restrictions.
B) its ability to attract and accumulate capital.
C) that ownership is not transferable through the sale of stock.
D) that it is limited to only one class of stock.
Topic: The Limited Liability Company
AACSB: Analytic Skills
11
45) A limited liability company is formed under:
A) a Certificate of Incorporation.
B) a Partnership Agreement.
C) Articles of Organization.
D) the Revised Uniform Partnership Act.
Topic: The Limited Liability Company
AACSB: Analytic Skills
46) Which of the following is true about choosing a limited liability company form of
ownership?
A) It has no disadvantages except its newness.
B) It is ideal for a new company but difficult to convert to with an existing company.
C) It is inexpensive, easy to form, and covered by little regulation due to its newness.
D) It’s an excellent conversion vehicle for existing businesses that are suffering from double
taxation but problematic for sole proprietorships.
Topic: The Limited Liability Company
AACSB: Analytic Skills
47) Traditionally, ________ were always set up as nonprofit corporations.
A) businesses
B) corporations
C) social enterprises
D) partnerships
Topic: Social Enterprises
AACSB: Analytic Skills
48) A ________ organization uses its revenues to pursue social value rather than create personal
value for investors.
A) business
B) nonprofit
C) venture
D) corporate
Topic: Nonprofit Organizations
AACSB: Analytic Skills
12
49) One major advantage of the ________ is that once the owner has paid all of the company’s
expenses, he/she can keep the remaining profits (less taxes, of course).
A) partnership
B) corporation
C) sole proprietorship
D) limited liability company
Topic: Sole Proprietorship: Advantages of a Sole Proprietorship
AACSB: Analytic Skills
50) The ________ is a document that states in writing all of the terms of operating the
partnership for the protection of each partner involved.
A) Certificate of Incorporation
B) Partnership Agreement
C) Certificate for Conducting Business as Partners
D) Partnership Document
Topic: The Partnership
AACSB: Analytic Skills
51) ________ partners are not active in a business but generally are known to be members of the
partnership.
A) Dormant
B) General
C) Silent
D) Limited
Topic: Advantages of the Partnership: Limited Partners
AACSB: Analytic Skills
52) ________ corporations have shares that are controlled by a relatively small number of people
—family members, relatives, or friends.
A) Closely held
B) Domestic
C) Foreign
D) Alien
Topic: The Corporation
AACSB: Analytic Skills
13
53) Shares the corporation itself owns are called:
A) preferred stock.
B) bonds.
C) treasury stock.
D) common stock.
Topic: The Corporation: Requirements for Incorporation
AACSB: Analytic Skills
54) To maintain control over their ownership, many closely held corporations exercise this right,
known as:
A) right of first refusal.
B) right of refusal.
C) control rights.
D) corporate rights.
Topic: The Corporation: Requirements for Incorporation
AACSB: Analytic Skills
55) Corporations can also stimulate managers’ and employees’ incentive on the job by creating an
________ (ESOP).
A) Entrepreneur Stock Ownership Plan
B) Employee Stock Ownership Plan
C) Employee Shares Ownership Plan
D) Entrepreneur Shares Ownership Plan
Topic: The Corporation: Potential for Diminished Managerial Incentives
AACSB: Reflective Thinking
56) In a closely held corporation, one of the steps that should be taken to avoid legal difficulties
is:
A) hold annual meetings to elect officers and directors.
B) make sure that the stockholders make all the major decisions.
C) mingle corporate assets and the personal assets.
D) None of the above
Topic: The Corporation: Advantages of the Corporation
AACSB: Analytic Skills
14
57) One disadvantage of the proprietorship is:
A) it is the least regulated form of business ownership.
B) limited personal liability.
C) excessive access to capital.
D) limited skills and abilities.
Topic: The Sole Proprietorship: Disadvantages of the Sole Proprietorship
AACSB: Analytic Skills
58) Which form of ownership is the least costly to form?
A) Sole proprietorship
B) Corporation
C) Partnership
D) Limited liability corporation
Topic: The Sole Proprietorship: Advantages of the Sole Proprietorship
AACSB: Analytic Skills
59) The ________ is a document that states in writing all of the terms of operating a business
among the partners.
A) Sole Proprietorship Agreement
B) Articles of Corporations
C) Partnership Agreement
D) Limited Liability Corporation Agreement
Topic: Partnership
AACSB: Analytic Skills
60) The ________ codifies the body of law dealing with partnerships in the United States.
A) Small Business Partnership Agreement
B) Uniform Partnership Act (UPA)
C) Partnership Agreement
D) None of the above
Topic: Partnership
AACSB: Analytic Skills
15
61) Complementary skills refers to:
A) the sole proprietorship skills.
B) partner’s skills that complement one another.
C) complementary skills offered by the employees.
D) None of the above
Topic: Advantages of the Partnership
AACSB: Analytic Skills
62) Which type of ownership is not subject to federal taxation?
A) Sole proprietorship
B) Corporations
C) Partnership
D) Limited liability corporation
Topic: Advantages of the Partnership
AACSB: Analytic Skills
63) Corporations that are formed in other countries but do business in the United States are:
A) international partnerships.
B) domestic corporations.
C) foreign corporations.
D) alien corporations.
Topic: Corporations
AACSB: Analytic Skills
64) ________ have shares that are controlled by a relatively small number of people, often
family members, relatives, or friends.
A) International partnerships
B) Publicly traded corporations
C) Closely held corporations
D) Privately held corporations
Topic: Corporations
AACSB: Analytic Skills
16
65) Shares the corporation itself owns are called:
A) treasury stock.
B) common stock.
C) preferred stock.
D) bonds.
Topic: The Corporation: Requirements for Incorporation
AACSB: Analytic Skills
66) A distinct disadvantage of the corporate form of ownership is:
A) treasury stock.
B) double taxation.
C) stockholder’s liability.
D) All of the above
Topic: Corporations
AACSB: Analytic Skills
67) Bylaws are the rules and regulations the officers and directors establish for the corporation’s
internal management and operation.
Topic: Corporations
AACSB: Analytic Skills
68) If stockholders in a corporation are displeased with the business’s progress, they can sell their
shares to someone else.
Topic: Corporations
AACSB: Analytic Skills
69) A corporation can sell its stock to a limited number of private investors in a private
placement.
Topic: Corporations
AACSB: Analytic Skills
70) Closely held corporations have shares that are controlled by a relatively small number of
people, often family members, relatives, or friends.
Topic: Corporations
AACSB: Analytic Skills
17
71) An LLP does pay taxes as a corporation and its income is not passed through to the limited
partners.
Topic: Limited Liability Partnership
AACSB: Analytic Skills
72) Silent partners are active in a business but generally are known to be members of the
partnership.
Topic: Partnership
AACSB: Analytic Skills
73) By choosing certain forms of ownership, an entrepreneur does not give up some control over
the company.
Topic: Introduction
AACSB: Analytic Skills
74) The form of ownership can impact an entrepreneur’s ability to raise start-up capital.
Topic: Introduction
AACSB: Analytic Skills
75) One of the first and most fundamental decisions an entrepreneur faces is choosing a form of
ownership.
Topic: Introduction
AACSB: Analytic Skills
76) Factors an entrepreneur should consider when choosing a form of ownership should include
but not be limited to: tax considerations, liability exposure, business goals, managerial ability,
etc.
Topic: Introduction
AACSB: Analytic Skills
18
77) While there are many forms of ownership, the three major forms are: proprietorship,
partnership, and S-corporation.
Topic: Introduction
AACSB: Analytic Skills
78) The sole proprietorship is the simplest and least expensive form of ownership to begin.
Topic: Sole Proprietorship
AACSB: Analytic Skills
79) While the sole proprietorship is the easiest type of business to get into, it is the most heavily
regulated.
Topic: Sole Proprietorship
AACSB: Analytic Skills
80) In a sole proprietorship, the owner has limited liability.
Topic: Sole Proprietorship
AACSB: Analytic Skills
81) If a sole proprietorship fails, the owner is not liable for its debts since the business is a
separate legal entity.
Topic: Sole Proprietorship
AACSB: Analytic Skills
82) One of the advantages of a sole proprietorship is that skills and capabilities are unlimited
because you, as sole proprietor, are able to assume all of these responsibilities.
Topic: Sole Proprietorship: Disadvantages of a Sole Proprietorship
AACSB: Analytic Skills
83) The sole proprietorship has the least ability to accumulate capital.
Topic: Disadvantages of a Sole Proprietorship: Limited Access to Capital
AACSB: Analytic Skills
19
84) When the owner of a sole proprietorship dies, the business automatically terminates.
Topic: Disadvantages of a Sole Proprietorship: Lack of Continuity for the Business
AACSB: Analytic Skills
85) The most popular form of ownership in the United States is the partnership.
Topic: Introduction
AACSB: Analytic Skills
86) Perhaps the most important feature of a partnership agreement is its ability to resolve
potential sources of conflict among partners.
Topic: The Partnership
AACSB: Analytic Skills
87) If a partnership agreement does not exist, the partnership will be governed by the Uniform
Partnership Act.
Topic: The Partnership: The Uniform Partnership Act
AACSB: Analytic Skills
88) The terms of a partnership agreement are legally binding even if some of the items are
illegal.
Topic: The Partnership
AACSB: Analytic Skills
89) In a partnership, profits (and losses) are shared according to any ratio stated in the articles of
partnership.
Topic: The Partnership
AACSB: Analytic Skills
90) Partnership agreements do not cover how to dissolve a partnership or sell a partnership
interest.
Topic: The Partnership
AACSB: Analytic Skills
20