52. Lauren, a partner in Jales & Jales Bonding Company, manages its day-to-day operations. She is
considered to be a _____ partner.
a.
directing
b.
general
c.
limited
d.
operating
53. Harvey would like to support his friend’s new business financially but also wants to protect his assets
in case the business fails. Which form of ownership would you recommend?
a.
Sole proprietorship
b.
Partnership
c.
Limited partnership
d.
501(c)(3) corporation
54. One benefit of an S Corporation is that it allows shareholders to receive dividends without
a.
paying taxes.
b.
penalties and interest.
c.
double taxation.
d.
partnership taxation.
55. To be eligible to be an S corporation, a firm must
a.
have more than 75 stockholders.
b.
have no nonresident alien stockholders.
c.
have two or more classes of stock outstanding.
d.
be international in scope.
56. Jeanne, a Canadian citizen, would like to invest in Ingrid’s startup. If Ingrid organizes her business as
a(n) ________________________, Jeanne is prohibited from investing.
a.
Sole proprietorship
b.
Partnership
c.
S Corporation
d.
Limited liability company
57. Which organizational form would be best if the new company owners intend to provide extensive
fringe benefits for owners or employees that would not be treated as taxable income to employees?
a.
sole proprietorship
b.
partnership
c.
C corporation
d.
limited liability company
58. The limited liability company form of organization
a.
avoids the double taxation of C corporations.
b.
affords less protection from liability than partnerships.
c.
is a poor choice for new businesses.
d.
can offer stock incentives to employees.
59. Ingrid has asked 110 of her closest friends to invest in her company, promising them protection from
personal liability. Which form of ownership would you recommend Ingrid use?
a.
Professional corporation
b.
Nonprofit corporation
c.
S Corporation
d.
Limited liability company
60. Collin’s Classic for Children with Cancer is a 501(c)3 nonprofit corporation that sells shirts. The
organization will be taxed as a ____________.
a.
partnerships..
b.
C corporations.
c.
S corporations.
d.
It is not taxed.
61. An owner in a professional corporation is shielded from
a.
their own liability.
b.
the liability of other owners.
c.
both their own and the liability of others.
d.
none of the above.
62. Larry Knave, MD, is an owner in a professional corporation. If Dr. Knave is sued for malpractice,
what is the liability of the rest of the owners?
a.
They are protected from liability for his actions.
b.
They are responsible for his actions.
c.
The professional corporation is liable for his actions.
d.
No one is responsible for Dr. Knave’s actions.
63. Fiction County Sheltered Workshop is a 501(c)(3) corporation. Day Services, a C corporation
operating in the same county, has offered to buy FCSW. If this transaction occurs, what happens to
the money Day Services will pay for FCSW?
a.
The money will go to another nonprofit corporation.
b.
The money will be distributed to the founders of FCSW.
c.
The money will be distributed to the clients of FCSW.
d.
The money will go to the federal government.
64. A strategic alliance is
a.
an organizational relationship that links two separate businesses.
b.
an unimportant organizational form in today’s business environment.
c.
an attempt to duplicate efforts between two firms.
d.
a strategy that, as a result of its unwieldy nature, is falling from practice.
65. Hannah makes delicious baked goods but has no retail space. She has contracted with a local grocer to
sell her wares in the grocery store. This arrangement is known as a(n):
a.
professional company.
b.
joint venture.
c.
strategic alliance.
d.
partnership.
66. Large manufacturers have been known to form strategic alliances with small manufacturers in order to
benefit from the smaller firms’
a.
financial resources.
b.
operational expertise.
c.
research.
d.
product development efforts.
67. A risk for a small firm creating a strategic alliance with a larger company is
a.
not being able to keep up with the fast speed of a large company.
b.
not having enough creative talent to join forces effectively.
c.
being squeezed financially.
d.
being too rigid for a large company’s standards.
68. The strategic alliance between The Center for Systems Management and Technovative Marketing is an
example of how
a.
success can be obtained when a large and a small firm combine technological expertise.
b.
difficulties of two cultures can be overcome when a common goal is desired.
c.
an alliance was formed due a third party bringing two companies together.
d.
the flexibility of a small company can be combined with the financial backing of a larger
firm.
69. For a small firm, which step will increase chance for success of a strategic alliance?
a.
Be protective of any proprietary materials shared with the other company.
b.
Discuss the proposed alliance in enough detail that limited adjustments are needed after
beginning the alliance.
c.
Make sure the alliance is clearly a “win–win” opportunity.
d.
All of these steps will increase success.
70. A corporation’s board of directors
a.
is the governing body for corporate activity.
b.
directly manages the corporation.
c.
determines the taxability of dividends.
d.
usually designs the organizational structure of the firm.
71. Lothian has asked five of his friends to serve on the board of director of his new corporation. Why is
this not a good idea?
a.
Friends are too dispassionate about the operations of the corporation.
b.
Friends are unlikely to disagree with the owner on matters brought before the board.
c.
Only stockholders can elect the board of directors so it is illegal for the owner to invite
friends.
d.
Friends will find out too much about Lothian’s personal business.
72. Linda has assembled a list of potential directors for he board. Whom should she not include?
a.
her attorney
b.
an owner of a small non-competing company
c.
her college professor
d.
an executive at a large non-competing company
73. The compensation paid to board members
a.
varies from no pay to $10,000 per meeting.
b.
may include a percentage of the profits.
c.
is typically the primary motivation for someone agreeing to be a member.
d.
typically includes Directors and Officers Liability Insurance.
74. An advisory board, as compared to a board of directors,
a.
may be perceived as less of a threat to an owner than a board.
b.
is always compensated unlike persons serving on a board of directors.
c.
have increased legal liability requiring the company to increase their insurance levels.
d.
have greater levels of decision making requiring them to work more cooperatively.
75. A significant difference between a board of directors and an advisory board is:
a.
the advisory board has unlimited liability for the actions of the corporation.
b.
the advisory board is made up only of insiders.
c.
the advisory board is required to meet quarterly, not annually.
d.
the advisory board has no legal authority over the owner or the company.
ESSAY
1. Discuss the concept of achieving balance for a management team.
2. Explain the importance of social capital to a small business owner. How does this concept relate to
reciprocation?
3. Identify the three general forms of legal organization. What are the major differences between these
forms?
4. What are the qualifications of partners?
5. Discuss the differences in the continuity of business for sole proprietorships, partnerships, and
corporations.
6. Rod is starting a new business as a drystone mason where he builds and repairs rock walls that do not
have any mortar. He has completed national certification and will be working most jobs by himself.
What issues should he consider in choosing the legal form? Based on this information what legal
form would you recommend for him to choose?
7. Julie and Diane are starting a new company decorating wedding cakes that are unique in their design
and structure. Both women are certified chefs and have ten years of experience between them. What
issues should they consider in choosing between a general partnership or a limited liability company?
Which form would you recommend?
8. Explain how income is taxed in a sole proprietorship, a partnership, and a C corporation. Include in
your discussion how dividends are taxed.
9. What is the principal advantage of an S corporation over a C corporation?
10. In what situations would it be best for a company to be formed as a C corporation as opposed to a
limited liability company?
11. What advantages do small businesses have in forming a strategic alliance with another small business
as opposed to a small business forming an alliance with a large company? Give an example to
support the answer.
12. Why steps could an entrepreneur take to improve the chances of success in forming a strategic
alliance?
13. Explain the advantages of having outsiders (non-employees) as board members.
14. What are selection characteristics for choosing board members?
15. What services are board members expected to perform for the corporation?
16. Jeff has started a new company that involves building educational toys from local sustainable products.
Should he form a board of directors or an advisory council?
MATCHING
Match the terms with their definitions. Some terms may not be used.
a.
Advisory board
f.
Partnership
b.
C corporation
g.
Professional corporation
c.
Corporate bylaws
h.
S corporation
d.
Corporate charter
i.
Sole Proprietorship
e.
Limited partnership
j.
Unlimited liability
1. An ordinary corporation taxed by the federal government as a separate legal entity
2. A form of corporation that shields owners from liability and is set up for individuals in certain
professional practices
3. A document that establishes a corporation’s existence
4. Liability on the part of an owner that extends beyond the owner’s investment in the business
5. A type of corporation that offers limited liability to its owners and passes taxable income or losses on
to the stockholders
6. A document that specifies the size of the board of directors, the duties and responsibilities of directors
and officers, the scheduling of regular meetings, voting rights, and restrictions on the transfer of stock
7. A business owned by one person, who bears unlimited liability for the enterprise
8. A partnership with at least one general partner and one or more limited partners
9. A legal entity formed by two or more co-owners to operate a business for profit
Match the term with its definition. Some terms may not be used.
a.
Advisory board
f.
limited partner
b.
Board of directors
g.
nonprofit corporation
c.
general partner
h.
partnership agreement
d.
legal entity
i.
social capital
e.
limited liability company
j.
social network
10. The governing body of a corporation, elected by the stockholders
11. A partner who is not active in the management of the partnership and has limited personal liability
12. A business organization that is recognized by the law as having a separate existence
13. A form of corporation for enterprises established to serve civic, educational, charitable, or religious
purposes
14. An interconnected system of relationships with other people
15. A partner who has unlimited personal liability
16. A form of organization in which owners have limited liability but pay personal income taxes on
business profits
17. A group that serves as an alternative to a board of directors
18. The advantage created by an individual’s connections with other people
Match the term with its definition. Some terms may not be used.
a.
Advisory board
f.
Piercing the corporate veil
b.
Corporation
g.
Pre-emptive right
c.
Management team
h.
Reciprocation
d.
Organizational test
i.
Stock certificate
e.
Partnership agreement
j.
Strategic alliance
19. Managers and other key persons who give a company its general direction
20. The right of stockholders to buy new shares of stock before they are offered to the public
21. A business organization that exists as a legal entity and provides limited liability to its owners
22. An organizational relationship that links two or more independent business entities in a common
endeavor
23. A situation in which the courts conclude that incorporation has been used to perpetrate a fraud
24. A document specifying the number of shares owned by a stockholder
25. A document that states explicitly the rights and duties of partners
26. A powerful sense of obligation to repay in kind what another has done for or provided to us
27. Verification of whether a nonprofit organization is staying true to its stated purpose
