180. (p. 121) The limited liability provided to limited partners means that they are not responsible for the debts of
the business beyond:
D. their total personal assets.
181. (p. 122) According to the Uniform Partnership Act, the three key elements of any general partnership are:
A. a board of directors, a written partnership agreement, and a well-defined product or service.
182. (p. 121) A___________ looks and acts much like a corporation and is traded on stock exchanges, but is taxed
like a partnership.
A. limited partnership
183. (p. 122) Compared to a sole proprietorship, which of the following is considered an advantage of a general
partnership?
D. ease and flexibility in transferring shares of ownership to others
184. (p. 121 – 122) In a limited liability partnership, each partner’s risk of losing personal assets is:
D. nonexistent.
185. (p. 122) Which of the following is an advantage of a partnership?
A. ease of starting and ending the business
186. (p. 124; figure 5.2) When entering into a new partnership, the partners should:
D. agree to put the first year’s profits back into the partnership.
187. (p. 122) A difference between partnerships and sole proprietorships is that partnerships:
A. are easier to form.
188. (p. 123) Which of the following statements about partnerships is the most accurate?
A. A partnership is simply a corporation with fewer than 100 owners.
189. (p. 122) When comparing partnerships to sole proprietorships, an advantage of partnerships is that they:
A. are less risky, because each partner is responsible for only a specified fraction of the firm’s debts.
190. (p. 121) Finley is a limited partner in Gettout & Associates. Heywood U. Gettout, one of the senior general
partners in the company, must temporarily leave the company to attend to some personal matters. Heywood has
asked Finley to temporarily perform his managerial duties while he is gone. As a limited partner, Finley:
A. can fill in as a manager whenever necessary, as long as it is for only a limited time.
191. (p. 122) A major reason why partners should spell out the details of their arrangements in writing is that:
D. doing so will make it easier to convert the business to a corporation at a later date.
192. (p. 124; figure 5.2) Kristen and her brothers and sisters have decided to form a partnership that specializes in
home design of all types. They would like to maintain the loving relationships they currently enjoy so they are
following the Model Business Corporation Act recommendations as they write the partnership agreement. As a
result they:
A. will decide who will do what once they open for business.
193. (p. 121) Mara plans to open a shop specializing in foods and cultural items from the Middle East. She wants
to be the firm’s only general partner, but she is trying to get several friends to participate as limited partners.
Apparently Mara wants to:
A. limit her personal liability to the amount she personally invests in the company.
194. (p. 121) Homer and Marge have decided to open a floral design shop, which they intend to run as co-owners.
Both intend to take an active role in the management of their new business, and each will accept unlimited
liability. Homer and Marge are planning to operate a:
D. cooperative.
195. (p. 125; Spotlight on Small Business box) According to the “Spotlight on Small Business” box in Chapter 5, which of the
following statements best describes the best way to avoid major conflicts among partners?
D. Enter into partnerships with people who have similar educational and cultural backgrounds and similar
personalities.
196. (p. 121) Jamie and Maria invested all their savings in a small pizzeria they opened outside the University of
Western Kentucky. They operated the business as a general partnership. After 11 months the business went
broke and Jamie and Maria were left with outstanding bills of $37,500, which is more than their investment in
the company. Jamie and Maria can:
D. avoid any liability for these debts since a partnership is considered to be a business entity that is separate and
distinct from the partners who own it.
197. (p. 124; figure 5.2) Randy and Mandy have decided to pool their money and talents to form a general partnership.
One of the first things Randy and Mandy should do is:
A. obtain a permit from the state government.
198. (p. 121) Rhonda has agreed to invest $16,000 in a partnership with her sister and brother-in-law. Rhonda does
not plan to work in the partnership, nor does she wish to risk any of her own wealth other than the $16,000 she
invests, but she does intend to share in any profits earned by the partnership. Evidently, Rhonda will be a(n):
A. restricted partner.
199. (p. 121) Jim is one of several general partners who own Beef ‘N Beer, a small chain of restaurants located in
Missouri and Illinois. Jim is interested in converting the partnership into a master limited partnership. If he
convinces other partners to go along with his idea, Beef ‘N Beer would:
D. have to change its name to include the term Ltd. in its title to indicate its owners have limited liability.
200. (p. 122) Kristen and her brothers and sisters set up a design firm called Houses by Design LLP.
Unfortunately, a design used by one of their clients resulted in water damage to the basement of the client’s new
home. The Houses by Design limited liability partnership:
D. will enable the firm to quickly reorganize with only minor financial losses.
201. (p. 125) A(n) ___________________ is a state-chartered legal entity with authority to act and to have liability
separate from its owners.
D. nonprofit organization
202. (p. 124-125) An owner of a corporation is known as a(n):
A. general partner.
203. (p. 124-125) Which of the following statements about the operation of a corporation is correct?
D. A corporation tends to be much easier to set up than a sole proprietorship or partnership.
204. (p. 125) The form of business ownership that is best suited to raising large amounts of money for expansion is
the:
A. sole proprietorship.
205. (p. 126) The majority of corporations in the U.S. are:
D. classified as S corporations.
206. (p. 125) Which of the following is an advantage of the corporate form of business when compared to sole
proprietorships and partnerships?
A. ease of formation
207. (p. 125) Compared to partnerships and sole proprietorships, a major advantage of the C (conventional)
corporation as a form of business ownership is that it:
D. creates unlimited liability of owners.
208. (p. 127-128) Which of the following is normally considered a major disadvantage of the corporate form of
business?
A. unlimited liability of owners
209. (p. 127; figure 5.4) The board of directors for a corporation is elected by its:
D. employees.
210. (p. 127) A separation between ownership and management is most likely to occur in a:
A. sole proprietorship.
211. (p. 128) One disadvantage of _________ is the initial cost of starting this form of business organization.
D. limited partnerships
212. (p. 127) The form of business ownership that usually requires the most detailed record keeping is the:
D. limited partnership.
213. (p. 129) A major advantage of S corporations is that they:
A. can have more stockholders than a C corporation.
214. (p. 129) One reason many companies do not organize themselves as an S corporation is that this form of
business:
A. is subject to a higher tax rate than a general partnership.
215. (p. 129) To qualify as an S corporation, a company must:
A. have no more than 50 shareholders.
216. (p. 130) _____________ are companies that are similar to S Corporations but do not have special eligibility
requirements.
A. Regulated equity companies
217. (p. 130) One disadvantage of a limited liability company is that it:
D. has more restrictive ownership requirements than S corporations.
D. allow owners to avoid paying self-employment taxes on the company’s profits.
219. (p. 127-128) The earnings of C (conventional) corporations are taxed:
D. as if the business was a partnership.
220. (p. 126) A firm can attract skilled employees by offering benefits such as stock options if it is a:
A. sole proprietorship.
221. (p. 121) A master limited partnership (MLP) is:
A. not traded on the stock exchanges.
222. (p. 128) Dr. Driller is a dentist who is interested in incorporating as an individual. If he attempts to do so, Dr.
Driller is likely to find that:
A. most states do not allow individuals to incorporate.
223. (p. 129) Which of the following statements about S corporations is most accurate?
D. Only large corporations with operations in more than one state can qualify to be classified as S corporations.
D. is the same thing as a multinational corporation.
225. (p. 126; figure 5.3) Chris Callier and a few of his relatives own all of the stock in the Double C Corporation.
Double C stock is not sold to the general public. Chris apparently owns stock in a(n)
A. limited liability company.
226. (p. 130) The S corporation is likely to be less popular in the future because:
D. S corporations have been made illegal in several states as a reaction to widespread abuse of the special
benefits available to this type of business.
227. (p. 125) Todd and Jorge have considered starting their own business but are concerned about the possibility of
losing their personal assets if the business fails. One way for both Todd and Jorge to avoid this risk would be to
organize their firm as a(n):
A. general partnership.
228. (p. 124-125) Marie recently purchased 100 shares of stock in the McBun Development Corporation. Marie has
become a(n)_____________ of McBun Development.
D. partner
229. (p. 125) Marshall Officer is a stockholder in Endrun Investments, which is organized as a C Corporation.
Endrun recently lost a major court decision and will probably be forced into bankruptcy. In fact, the damages
awarded are so great that, even if all of its assets are sold and the proceeds are used to pay its debts, Endrun is
likely to still owe money to its creditors. If Endrun does go bankrupt, Marshall and the other stockholders will:
D. automatically qualify for federal reimbursement for any losses suffered by the firm.
230. (p. 129) Ramon lives in Mexico City and is a Mexican citizen. He has several friends in the United States
who own shares in an S corporation. Ramon would like to invest in this company. Ramon:
D. needs approval from the Mexican government before he can invest.
231. (p. 129) Although it is a fairly small company, Diversified Properties, Inc., owns a large number of
inexpensive rental housing units in Texas and Louisiana. The company has always been a C corporation, but the
owners became interested in switching to an S corporation. They consulted a lawyer about making the switch.
After learning more about the company, the lawyer explained to the stockholders that Diversified Properties
could not qualify to become an S corporation. Which of the following characteristics of Diversified Properties
would prevent it from becoming an S corporation? Diversified Properties:
A. has fewer than 75 stockholders.
232. (p. 130) Sally Toone wants to start a new business, and hopes to attract several hundred investors to help
finance its growth. She considered forming a C corporation, but wants to have more flexibility about how the
new business will be taxed. She also wants to offer investors limited liability. Sally can satisfy her objectives by
D. general partnership.
233. (p. 132-133) Mergers and acquisitions:
A. were very popular from the 1950s through the 1980s, but are relatively rare today.
D. avoid problems with antitrust regulations.
235. (p. 132) The result of two firms combining to form one company is called a:
A. joint tenancy.
236. (p. 132) A(n) _________ occurs when one company buys the property and obligations of another company.
A. cooperative
237. (p. 132; figure 5.7) The three major types of corporate mergers are known as:
D. explicit, implicit, and intrinsic.
238. (p. 132) A ______________ merger unites firms at different stages of related businesses.
D. conglomerate
239. (p. 132) When two companies in the same industry combine, the result is called a(n):
A. vertical merger.
240. (p. 132) When two companies in completely unrelated industries combine, the result is called a(n):
A. vertical merger.
241. (p. 133) A major reason given for conglomerate mergers is that they:
D. give the firm a more secure access to needed materials and components and better control over quality.
242. (p. 133) One result of taking a firm private is:
D. the firm will have access to more capital.
243. (p. 133) An attempt by employees, management, or a group of investors to purchase an organization primarily
through borrowing is called a(n):
A. golden parachute.
244. (p. 133) If a group of stockholders or management tries to obtain all the stock of a firm for themselves, this is
referred to as:
A. capitalizing.
245. (p. 132-133) Excursion Corporation recently bought out Suburban Engineering for an undisclosed amount of
money. It now owns all of Suburban’s properties and obligations. This is an example of a(n):
A. merger.
246. (p. 133) A merger involving a trucking firm and a bakery would be an example of a:
A. vertical merger.