45. Unlimited liability means
a. there is no limit on the amount an owner can borrow.
b. creditors will absorb any loss from nonpayment of debt.
c. the business can borrow money for any type of purchase.
d. the owner is responsible for all business debts.
e. stockholders can borrow money from the business.
46. Darrell inherited a large amount of money from his uncle. Darrell wishes to start his own business, and his lawyers
encourage him to make it a corporation. What disadvantage of a sole proprietorship are the lawyers trying to avoid?
a. Unlimited liability
b. Lack of management skills
c. Retention of all profits
d. Lack of money
e. Double taxation
47. When the owner of a sole proprietorship dies, what becomes of the business?
a. The employees take over the business.
b. It ceases to exist unless the heirs take it over or sell it.
c. It is automatically auctioned to the highest bidder.
d. It ceases to exist, and no one may legally take it over.
e. It may continue existing but only under a new name.
48. According to the text, which of the following statements is false?
a. The sole proprietor is often the sole manager.
b. Many sole proprietors cannot afford to hire the help they need.
c. Potential employees often feel there is no room for advancement in a sole proprietorship.
d. When compared to larger businesses, the lure of employee benefits is one reason why people go to work for
sole proprietorships.
e. The sole proprietor often finds it hard to keep competent employees.
49. The major reason why businesses change from sole proprietorships to other forms of ownership is to
a. gain unlimited liability.
b. avoid unlimited liability.
c. avoid lack of continuity.
d. obtain help and eliminate the problem of too much to do in one day.
e. offer advancement opportunities for employees.
50. A voluntary association of two or more people acting as co–owners of a business is known as a
a. partnership.
b. corporation.
c. sole proprietorship.
d. conglomerate.
e. syndicate.
51. Most partnerships have partners.
a. two
b. three
c. four
d. five
e. more than five
52. Ted’s partnership agreement with two other men was a bit unsound. One of the problems the men were
encountering was uneven productivity among the partners. The agreement required each partner to contribute to
every aspect of the business to receive an equal portion of the profits. This agreement did not reflect the idea that
a. all partners need not be equal; that is, there are different types of partners. Some may be fully active in
running the business, whereas others may have a more limited role.
b. limited partners are required to be active in day-to–day business operations.
c. customers and creditors of a limited partnership need not be protected.
d. the Uniform Partnership Act requires every general partnership to have at least one limited partner.
e. each partner must agree to contracts entered into on behalf of all the others.
53. The person who assumes full co–ownership of a partnership, including unlimited liability, is a
a. sole proprietor.
b. stockholder.
c. shareholder.
d. limited partner.
e. general partner.
54. Legally, a partnership must
a. have at least one limited partner.
b. have at least one general partner.
c. make all owners general partners.
d. not have any general partners.
e. designate a limited partner to be responsible for all debts of the partnership.
55. The partner who can lose only what he or she has invested in a business is the
a. general partner.
b. sole proprietor.
c. manager.
d. employee.
e. limited partner.
56. Mike Nettles approached Nathan Lang about becoming a partner in a firm that destroys environmental waste.
While Mike would like to become a partner in the firm, he is concerned about his liability because he has recently
inherited a lot of money. In this situation, Mike should become a
a. general partner with a majority ownership interest in the business.
b. general partner with a minority ownership interest in the business.
c. limited partner.
d. joint venturist.
e. sole proprietor.
57. A invests money in the business but has no management responsibility.
a. general partner
b. limited partner
c. sole proprietor
d. nominal partner
e. stockbroker
58. The is a legal document that lists and explains the terms of the partnership.
a. co-owners’ agreement
b. charter
c. will
d. articles of partnership
e. formation contract
59. Keisha Cook and Donnie Blackman decide to go into business together. They start by writing an agreement listing
and explaining the terms of the business they will both own, along with each of their responsibilities. Keisha and
Donnie created a(n)
a. articles of partnership.
b. master limited partnership agreement.
c. licensing agreement.
d. corporate charter.
e. division of partnership agreement.
60. Which of the following would least likely be stated in the articles of partnership?
a. Who will make the final decisions
b. How much each partner will invest
c. What the duties of each partner are
d. What products the company will sell
e. What will happen if a partner dies or wants to dissolve the partnership
61. Wade Comer and Tom Busby decide to start a partnership and offer accounting services. Which of the following is
the best way to start this partnership?
a. They should orally discuss how they want the partnership to work and who is responsible for certain areas.
b. They should determine the exact way the business should be run and have a witness listen to their oral
discussion.
c. They should let a third party, such as a consultant or an attorney, draft whatever agreement the consultant or
attorney thinks is appropriate.
d. They should carefully draft an articles of partnership together, outlining each partner’s responsibilities and
other important information.
e. With the help of an attorney, they should draft a partnership agreement that states each partner’s duties and
investments.
62. As a limited partner in a construction business, Joe
a. has input only on major company decisions.
b. contributes only his time and not his money.
c. does not receive any portion of the profits.
d. only risks his initial investment.
e. cannot lose his investment in the partnership.
63. With respect to combined business skills and knowledge, which of the following partnerships is best?
a. Joe, Louis, and Raul own a bakery. They are able bakers by trade. Each wants to spend all of his time
baking items.
b. Carolyn, Melvin, and Cindy own a boutique. Carolyn has marketing expertise. Melvin has ten years’
experience operating a successful small store, including hiring employees, handling inventory control, buying,
and managing credit. Cindy is a CPA. Each has agreed to use his or her experience and expertise for the
success of the business.
c. Mary and Robert, both young pharmacists, own a pharmacy. Neither has taken a business course, but they
are willing to learn.
d. Carter and Renée own a video store. Renée is most experienced as a homemaker and mother. Carter has
worked as an auto mechanic for ten years.
e. Vince and Linda own a vacuum cleaner store. Vince knows everything possible about store operations.
Linda is wealthy and can provide investment capital.
64. All of the following are advantages of the partnership form of organization except
a. unlimited liability.
b. retention of profits.
c. combined skills and knowledge.
d. better access to capital and credit.
e. ease of start-up.
65. Brian wants to start a business that provides canoe and kayak trips. He decides that it would be better to ask his
brother Brad to become his partner because
a. one person could not possibly run this type of business.
b. Brian will receive all of the profits from the partnership.
c. together they will be able to get more capital and credit to start the business.
d. the business will pay less taxes than it would as a sole proprietorship.
e. there are generally fewer control issues in a partnership than in a sole proprietorship.
66. Lisa and John own a partnership that provides rental equipment for parties and special occasions. Which of the
following is true about the way Lisa and John would handle company profits?
a. Automatically split the profits, with 50 percent for Lisa and 50 percent for John.
b. They would do nothing because partnerships require that profits remain in the business.
c. Divide the profits according to each person’s investment in the business.
d. Distribute the profits according to the terms of the partnership agreement.
e. Split the profits according to how many hours each person worked.
67. Kerry wants to start a business to sell handmade jewelry. She is very competent at making the jewelry and
teaching others to make it, and she has saved a reasonable amount of money to start the business. Who of the
following would make the best partner for Kerry?
a. Bailey, an artist with a real flair for new–age jewelry design
b. Ashley, Kerry‘s best friend who is fun to hang out with and good at solving problems
c. Natalie, who has business experience with accounting, management, and marketing
d. Janette, who used to work at the jewelry counter at a department store
e. Darla, an engineer with industrial management experience but no money
68. With regard to taxation of partnerships, which of the following statements is correct?
a. Profits are taxed twice.
b. Each partner is taxed in the same way as a sole proprietor.
c. Taxes are paid on a partnership’s profits, after which each partner pays taxes on his or her share of the
profits.
d. A partnership is exempt from taxes.
e. The partnership is taxed as a separate entity.
69. All of the following are disadvantages that Sean should consider before entering a partnership agreement with his
cousin except
a. lack of continuity.
b. effects of disagreements with his cousin.
c. the inability to get out the money he invests.
d. unlimited liability.
e. double taxation.
70. Quarrels among business associates have become common. The associates quarrel over what products the firm
should sell, division of authority, selection of personnel, whether to bring family members into the business, whether
to expand, and who is contributing most to the firm’s success. Such feuding, which damages business relationships,
occurs most frequently in what form of business?
a. Partnerships
b. Cooperatives
c. Corporations
d. Sole proprietorships
e. S-corporations
71. Daniel, Thomas, and Lucas are partners in a law firm under a typical partnership agreement in which each owns an
equal share of the business. Thomas dies suddenly of a heart attack. What will most likely become of the
partnership?
a. It will immediately cease to exist and Daniel and Lucas will have to find new jobs.
b. Thomas’s share of the business will automatically be split between Daniel and Lucas.
c. Daniel and Lucas will be able to purchase Thomas’s interest from his estate.
d. Daniel and Lucas will have to quickly find a new partner to take Thomas’s place.
e. It will dissolve, and Daniel and Lucas will lose personal property to pay business debts.
72. Jack has been saving his excess funds for several years and has contemplated entering a partnership with a friend
from college. Jack hesitates because he knows that it is
money back out.
a. difficult; difficult
b. easy; difficult
c. easy; impossible
d. easy; easy
e. difficult; easy
to invest money in a partnership and to get the
73. What is the primary disadvantage of both a sole proprietorship and a partnership that a corporation overcomes?
a. No access to capital
b. Taxing complications
c. Unlimited liability
d. Ease of start-up
e. Lack of secrecy
74. The form of business organization that accounts for 82 percent of all sales revenues in the United States is the
a. sole proprietorship.
b. partnership.
c. corporation.
d. joint venture.
e. syndicate.
75. The form of business organization that comprises about 19 percent of all businesses in the United States is the
a. joint venture.
b. syndicate.
c. sole proprietorship.
d. partnership.
e. corporation.
76. Kayla purchases shares of ownership in General Electric. These shares are referred to as
a. ownership documents.
b. stock.
c. articles of ownership.
d. incorporation.
e. corporate certificates.
77. A corporation whose stock can be purchased by anyone and is traded in stock markets is known as a(n)
a. sole proprietorship.
b. S-corporation.
c. closed corporation.
d. open corporation.
e. not–for-profit corporation.
78. Mars, Inc., maker of M&Ms and other candy, is 100 percent owned by the Mars family and is therefore referred to
as a(n)
a. open corporation.
b. public corporation.
c. syndicate.
d. cooperative.
e. closed corporation.
79. Nortons, Inc. is a hardware store that is owned by members of the Norton family as well as a few close friends of
the family. This company is a(n)
a. sole proprietorship.
b. partnership.
c. open corporation.
d. closed corporation.
e. public corporation.
80. Shares of Burger House stock cannot be purchased on any stock exchange or by just any individual. This means
that Burger House is a(n)
a. alien corporation.
b. partnership.
c. open corporation.
d. family corporation.
e. closed corporation.
81. Anyone with the money can purchase shares of Coca-Cola’s stock. This makes Coca-Cola a(n) corporation.
a. closed
b. open
c. domestic
d. foreign
e. alien
82. Susan has a commercial laundry service that has been growing rapidly. She wants to continue to grow the business,
but she needs access to more money and does not want to risk her personal assets. Susan contacts her lawyer to
see if all the legal requirements are met to start the process of
a. partnering.
b. selling her business.
c. incorporating.
d. consulting.
e. corporate opening.
83. When incorporating, a business
a. may incorporate in any state it chooses.
b. must incorporate in the state in which its headquarters are located.
c. must incorporate in the state in which it does the most business.
d. must receive the secretary of state’s permission to incorporate in any state other than the one in which its
corporate headquarters will be located.
e. must do none of the above.
84. Allied Services is a transportation company that operates in most of the United States. If Allied Services decided to
incorporate, in which state would it incorporate?
a. Nebraska, the state in which it started
b. Whatever state contributes the most to company revenues
c. The state where the company headquarters are located
d. Any state that the company chooses
e. A centrally located state within the United States