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True / False
1. DBA stands for a certificate of doing business under an assumed name.
a.
True
b.
False
2. Sole proprietorships, partnerships, S-corporations, and limited liability companies all permit pass-through earnings and
losses, but S-corporations and LLCs offer more protection from liability.
a.
True
b.
False
3. In a sole proprietorship, the owner is the only person responsible for the activities of the business and, therefore, is the
only one to enjoy the profits and suffer the losses.
a.
True
b.
False
4. A high-growth venture cannot be started as a sole proprietorship.
a.
True
b.
False
5. In terms of its treatment of income, expenses, and taxes, a partnership is essentially a sole proprietorship consisting of
more than one person.
a.
True
b.
False
6. The law requires a partnership to draw up a written partnership agreement based on the Uniform Partnership Act.
a.
True
b.
False
7. Common stockholders are entitled to vote at stockholder meetings.
a.
True
b.
False
8. LLCs are becoming a popular vehicle for companies that may have global investors, because the C-corporation does
not permit foreign ownership.
a.
True
b.
False
9. Having a strategic plan in place for the venture enables the entrepreneur to choose a legal form that won't have to be
changed or one that can easily be shifted to when the time is right.
a.
True
b.
False
10. Nonprofit corporations are not allowed to make a profit, according to the Internal Revenue Service.
a.
True
b.
False
Multiple Choice
11. More than 76 percent of all businesses in the United States are ____.
a.
limited partnerships
b.
nonprofit businesses
c.
dormant partnerships
d.
sole proprietorships
e.
limited liability companies
12. ____ make(s) all partners responsible for the obligations that each incurs in the course of doing business.
a.
Limited partnerships
b.
General partnership
c.
Ostensible authority
d.
Sole proprietorship
e.
Limited liability
13. In a/an ____, all partners assume unlimited personal liability and responsibility for the management of the business.
a.
limited partnerships
b.
general partnership
c.
ostensible authority
d.
sole proprietorship
e.
LLC
14. Upon the death of a partner, the insurance proceeds can be used to keep the business going or to buy out the deceased
partner's interest under a/an ____.
a.
buy/sell agreement
b.
partnership agreement
c.
ostensible authority
d.
sole proprietorship
e.
None of these choices
15. Only about 25 percent of all U.S. businesses are ____, but they account for 67 percent of all sales transactions.
a.
nonprofits
b.
LLCs
c.
corporations
d.
sole proprietorships
e.
None of these choices
16. In forming a ____, the entrepreneur gives up proprietary interest in the organization and dedicates all the assets and
resources of the corporation to tax-exempt activities.
a.
sole proprietorship
b.
LLC
c.
C-corporation
d.
S-corporation
e.
nonprofit corporation
17. ____ partners typically provide capital but do not actively participate in the management of the business.
a.
Secret
b.
Silent
c.
Dormant
d.
Limited
e.
General
18. ____ life insurance is a policy on the life of principal members of the partnership, usually the senior partners.
a.
Principal
b.
Uniform partnership
c.
First-partner
d.
Key-person
e.
None of these choices
19. A ____ corporation is chartered in a state other than in the one in which it will do business.
a.
closely held
b.
domestic
c.
foreign
d.
S-
e.
C-
20. ____ pay taxes on profits and their shareholders pay taxes on dividends they receive, resulting in double taxation.
a.
S-corporations
b.
C-corporations
c.
LLCs
d.
Foreign corporations
e.
None of these choices
21. The owner is the only person responsible for the activities of the business in a ____.
a.
limited partnership
b.
nonprofit business
c.
dormant partnership
d.
sole proprietorship
e.
limited liability company
22. To operate as a sole proprietor requires nothing more than a ____.
a.
stock certificate
b.
"Certificate of Doing Business Under an Assumed Name"
c.
limited liability certificate
d.
retained earnings statement
e.
visit to an attorney
23. Sole proprietorships offer several advantages, which include all of the following except ____.
a.
they are easy and inexpensive to create
b.
they give the owner complete authority
c.
dividends are paid to owners
d.
the income from the business is taxed only once, at the owner's personal income tax rate
e.
there are no major reporting requirements, as with a corporation
24. Often small businesses such as pizza parlors and boutiques are run as ____.
a.
sole proprietorships
b.
silent partnerships
c.
general partnerships
d.
nonprofit businesses
e.
an LLC
25. When two or more people share the assets, liabilities, and profits of the business, the legal structure is a ____.
a.
sole proprietorship
b.
corporation
c.
partnership
d.
limited partnership
e.
None of these choices
26. Each partner owns and has use of the property acquired by the partnership, unless otherwise stated in ____.
a.
the corporate charter
b.
the partnership agreement
c.
the commercial code
d.
proprietary bylaws
e.
SEC regulations
27. The U.S. Supreme Court has defined the ____ as an artificial being, invisible, intangible, and existing only in
contemplation of the law.
a.
corporation
b.
sole proprietorship
c.
partnership
d.
joint venture
e.
closely held corporation
28. In a/an ____, corporate stock is owned privately by a few individuals and is not traded publicly on a securities
exchange.
a.
partnership
b.
sole proprietorship
c.
closely held corporation
d.
open corporation
e.
limited partnership
29. A corporation that is chartered in the state in which it will do business and issue stock is a/an ____.
a.
foreign corporation
b.
domestic corporation
c.
secret partnership
d.
alien corporation
e.
closely held corporation
30. By creating a corporation and issuing stock, the entrepreneur is giving up a measure of control to the ____.
a.
creditors
b.
government
c.
partnership
d.
board of directors
e.
SEC
31. A financial vehicle that enjoys limited liability in that its owners are liable for its debts and obligations only to the
limit of their investment is a ____.
a.
sole proprietorship
b.
S-corporation
c.
C-corporation
d.
joint venture
e.
limited partnership
32. Which of the following statements is not true of an S-corporation?
a.
It may have no more than 100 shareholders.
b.
Shareholders must be U.S. citizens or residents.
c.
Profits and losses must be allocated in proportion to shareholder interests.
d.
Partnerships may be shareholders.
e.
Shareholders may not deduct losses in an amount greater than their original investment.
33. Professionals such as lawyers, doctors, and accountants frequently employ the legal structure of a ____.
a.
sole proprietorship
b.
S-corporation
c.
partnership
d.
C-corporation
e.
None of these choices
34. A corporate form that enjoys the pass-through tax benefits of partnerships in addition to the limited liability of a C-
corporation is known as a ____.
a.
multinational corporation
b.
secret partnership
c.
silent partnership
d.
limited liability company (LLC)
e.
closely held partnership
35. When one or more people agree to assume unlimited personal liability and responsibility for management of the
business, a ____ exists.
a.
secret partnership
b.
general partnership
c.
silent partnership
d.
joint venture
e.
LLC
36. All of the following are types of nonprofit organizations except ____.
a.
religious organizations
b.
novelty shops
c.
schools
d.
museums
e.
shelters
37. The most significant disadvantage of the sole proprietorship form of doing business is:
a.
More difficult for the owner to raise capital
b.
The owner has unlimited liability
c.
The survival of the business depends on the owner
d.
It may require getting a DBA
e.
It cannot be used for high-growth ventures
38. A corporation established for charitable, public (scientific, literary, or educational), or religious purposes or for mutual
benefit (trade associations, tennis clubs), as recognized by federal and state laws, is a ____.
a.
nonprofit corporation
b.
joint venture
c.
syndicate operation
d.
limited partnership
e.
sole proprietorship
39. Income derived from for-profit activities in a nonprofit corporation is subject to ____.
a.
withholding
b.
distribution
c.
income taxation
d.
reinvestment
e.
dividend payments
40. If a nonprofit corporation is ever dissolved, its assets must be distributed ____.
a.
to the owners
b.
at public auction
c.
to another tax-exempt organization
d.
to the shareholders
e.
to the federal government
Subjective Short Answer
41. What are the advantages of sole proprietorships?
42. What are the added advantages of a partnership over a sole proprietorship?
43. What are the critical issues a partnership should address in a buy-sell agreement?
44. Define the two types of partnerships.
45. What are the disadvantages of a limited liability company (LLC)?
46. Define a nonprofit corporation.
47. What are the advantages of a C-corporation?
48. List the various legal structural forms available to an entrepreneur according to the level of risk of each.
49. What questions should entrepreneurs answer when determining which legal form is best for their venture?
50. What are the disadvantages of a sole proprietorship?
