1. Describe the ownership, operation, and size of a sole proprietorship.
2. Why is a sole proprietorship the most flexible type of business?
3. Why is the concept of unlimited liability a concern for the sole proprietor?
4. How do management tasks differ for a general partner and a limited partner?
5. What types of information should a partnership agreement contain?
6. What are some of the disadvantages of partnerships? Are the disadvantages enough to dissuade you from forming
this type of business ownership?
7. What does it mean when someone says that a corporation is an artificial person created by law? In your answer,
describe some things that an artificial person and a real person like you could both do.
8. What is an owner of a corporation called? What is the difference between a closed corporation and an open
corporation?
9. Explain the differences among a domestic, a foreign, and an alien corporation.
10. How would you go about incorporating a business?
11. What are the primary responsibilities of the board of directors? What do corporate officers manage?
12. Describe the array of advantages of a corporation.
13. List at least three criteria a corporation must meet for the IRS to grant the business an S-corporation status.
14. How does an S-corporation differ from a limited-liability company? Does an LLC type of ownership appeal to you?
Explain your answer.
15. What is a not-for-profit corporation? Discuss some of the similarities between not-for-profit corporations and for-
profit corporations.
16. What is the difference between a joint venture and a syndicate?
17. Define “growth from within” in regard to a corporation. Is it generally a suggested path for corporations?
18. In your own words, explain the differences among a horizontal merger, a vertical merger, and a conglomerate
merger.
19. Describe the merger trends affecting American business.
Samantha’s Dilemma
Samantha graduated from college and needed to decide where she wanted to work. She had several options. Her
aunt Julie owned and operated a small business that she started about twenty years ago. Julie, an individual owner
of her business, informed Samantha that she could work for her. On one hand, Samantha thought it would be a
great opportunity to be able to work for her aunt, learn the business, and then run the business when her aunt
retires. On the other hand, she also felt that she wanted something a little more challenging; a job where she could
really use her education. Her other option would be to work for a company that a friend and her husband had
started and jointly owned. It was a rapidly growing company with plenty of opportunity for advancement. However,
Samantha had some reservations about this choice because she was not sure she wanted to work for friends. Her
last option was to work for a large retail company, headquartered in Maryland, which had stores across the United
States.
After much consideration, Samantha decided she didn’t want an opportunity and a job because someone knew her.
She wanted to prove how motivated and hardworking she was. Once she weighed all the advantages and
disadvantages of her different options, she decided to work for the large retail company so that she could gain the
most experience for herself.
20. Refer to Samantha’s Dilemma. Based on the information provided, what type of business does Samantha‘s aunt
operate?
a. Incorporation
b. Partnership
c. Franchise
d. Corporation
e. Sole proprietorship
21. Refer to Samantha’s Dilemma. What type of company does Samantha’s friend operate?
a. Incorporation
b. Partnership
c. Franchise
d. Corporation
e. Sole proprietorship
22. Refer to Samantha’s Dilemma. If Samantha worked for the large retail company in Philadelphia, what type of
corporation would that be?
a. Foreign
b. Alien
c. International
d. Domestic
e. Global
23. Refer to Samantha’s Dilemma. What would not be an advantage of Samantha’s aunt’s business?
a. Pride of ownership
b. Retention of profits
c. No special taxes
d. Ability to be your own boss
e. Unlimited liability
B&G, Inc.
A year ago, Kevin went to work for B&G, Inc. He has worked for the finance department ever since he started.
He noticed that the corporation was only taxed as though it were a partnership. This was something that he found
very odd when he first started working for the company, but he later realized it was a fairly common practice. He
recognized that this was one of the advantages of this type of corporation.
While the job was challenging, Kevin was not happy. He wanted to work for a company whose main goal was to
provide service to the community, not to make a profit. However, Kevin felt that, considering his present financial
situation, he had to continue working for B&G, Inc. A week later, Kevin discovered there was going to be a merger
between B&G, Inc. and one of its major competitors. Kevin’s boss informed him that he would be getting a
promotion and a raise. While he was excited about making more money, he still was not happy. He knew then that
he would not be working for the company for long.
24. Refer to B&G, Inc. What type of organization is B&G, Inc.?
a. Sole proprietorship
b. Limited–liability company
c. S-corporation
d. Not-for-profit corporation
e. Cooperative
25. Refer to B&G, Inc. Which of these features does not belong to this type of corporation?
a. No double taxation
b. Management flexibility
c. Limited liability
d. Personal asset protection
e. Many Internal Revenue Service tax regulations
26. Refer to B&G, Inc. What type of organization was Kevin considering switching to?
a. Limited–liability corporation
b. Sole proprietorship
c. S-corporation
d. Not-for-profit corporation
e. Closed corporation
27. Refer to B&G, Inc. B&G, Inc. was going through a merger.
a. vertical
b. horizontal
c. conglomerate
d. hostile
e. leveraged
28. The simplest form of business owned and operated by one person is called a(n)
a. franchise.
b. partnership.
c. S-corporation.
d. sole proprietorship.
e. syndicate.
29. Glenn owns and operates a large hardware store in Missouri that employs about fifty people. He delegates some of
the decision making to two managers, but he remains the only owner. Glenn’s business is organized as a
a. corporation.
b. partnership.
c. sole proprietorship.
d. limited partnership.
e. limited-liability corporation.
30. Karen Howard loves to cook and receives unqualified praise whenever she prepares a meal for someone.
Encouraged by these compliments and eager to put her culinary talents to good use, Karen decides to open a small
neighborhood restaurant. Since she plans to maintain complete control of the business, she will most likely organize
it as a
a. limited partnership.
b. corporation.
c. general partnership.
d. cooperative.
e. sole proprietorship.
31. Local residents have always thought the mom-and–pop store on the corner of Locust and Congress was a
partnership between Mr. and Mrs. Jones. But Mr. Jones is the real owner. This probably means that the store is a
a. limited partnership.
b. sole proprietorship.
c. corporation.
d. cooperative.
e. joint venture.
32. In the United States, approximately 72 percent of all businesses are
a. corporations.
b. partnerships.
c. sole proprietorships.
d. joint ventures.
e. franchises.
33. When compared to partnerships and corporations, sole proprietorships account for
sales.
a. 34
b. 16
c. 9
d. 4
e. 2
34. Which form of business is the easiest to start?
a. Corporation
b. Partnership
c. Entrepreneurship
d. Sole proprietorship
e. S-corporation
percent of total annual
35. Which of the following is necessary for starting a sole proprietorship?
a. A contract
b. An agreement
c. An application to the secretary of state
d. Articles of proprietorship
e. Limited legal documents
36. To close a sole proprietorship, the owner must
a. notify the secretary of state.
b. pay creditors.
c. publish an out-of–business statement in the newspaper.
d. have all licenses and permits revoked.
e. do none of the above.
37. Laura wants to start a business, but she is unsure of the legal form best for her. Short of cash, she has decided to
take the form that is the least expensive and most flexible in terms of decision making and implementation. Which
would you recommend?
a. Joint venture
b. Partnership
c. Sole proprietorship
d. Cooperative
e. Corporation
38. Thomas wants to make money, so he starts his own business as a sole proprietor. He likes this form of business
because
a. he will get to keep all of the profits the business makes.
b. profit is guaranteed since he will be the only owner.
c. it will provide a steady income for him.
d. he has to split the profits with only one other person.
e. he has to pay small dividends to the other owners.
39. Angela is tired of her boss as well as corporate America in general. She decides she would like to start a business
where no one tells her what to do, and she can always make the decisions. The best form of business for Angela is
a(n)
a. partnership.
b. limited partnership.
c. singleship.
d. sole proprietorship.
e. S-corporation.
40. Stephen decides his business will begin staying open until 7 p.m. instead of 6 p.m. The next day, the shop stays
open until 7 p.m. This environment of flexibility to quickly change is characteristic of what form of business
organization?
a. Corporation
b. Partnership
c. S-corporation
d. Flexible partnership
e. Sole proprietorship
41. Which of the following is an advantage of a sole proprietorship?
a. The owner has unlimited liability.
b. The business ceases to exist when the owner dies.
c. There is a limit to the amount one person can borrow.
d. Profits are taxed as individual income.
e. The owner enjoys lack of continuity.
42. How might a sole proprietorship have a possible tax advantage?
a. It does not have to make tax payments until the end of the year.
b. It does not have to pay federal income taxes.
c. It does not have to charge sales tax on its merchandise.
d. It does not pay special state and federal taxes that corporations pay.
e. It is subject to a form of double taxation.
43. Which of the following is not a disadvantage of sole proprietorships?
a. Unlimited liability
b. Lack of money
c. Double taxation
d. Lack of continuity
e. Limited management skills
44. Which of the following is not an advantage of a sole proprietorship?
a. It is easy to form and dissolve.
b. It has unlimited liability.
c. Profits are taxed as personal income.
d. There owner has the flexibility of being his or her own boss.
e. The owner keeps all profits.