1. The corporation is the most common form of business ownership.
2. The three major forms of business ownership in the U.S. are sole proprietorships,
partnerships, and corporations.
3. Few people today start their own business.
4. Once a business is established, it’s almost impossible to change from one form of
business ownership to another.
5. When two or more people legally agree to become co-owners of a business, the form of
business is called a partnership.
6. A legal entity with authority to act and have liability separate from its owners is called a
partnership.
7. Corporations represent 20 percent of all the businesses in the U.S. and earn 81 percent of
the total U.S. business receipts.
8. A comparison of the three major forms of business ownership shows that sole
proprietorships are usually the most difficult type of business to establish.
9. The first step in starting a sole proprietorship is to fill out a proprietorship charter
application form and file it with the state government.
10. It is usually easy to start and end a sole proprietorship.
11. The profits of a sole proprietorship are taxed as the personal income of the owner.
12. The sole proprietorship form of ownership tends to be attractive to people who want to
invest in a company without taking an active role in management.
13. A major advantage of sole proprietorships is that an owner has limited liability for the
debts of his or her business.
14. One of the strengths of the sole proprietorship is its ability to sustain rapid growth by
raising large amounts of financial resources.
15. The debts of a business operated as a sole proprietorship are considered to be the
personal debts of the owner of the business.
16. A drawback of sole proprietorships is that they usually have limited access to additional
financial resources.
17. An advantage of forming a sole proprietorship is that it allows the owner to have more
time for leisure activities.
18. If a sole proprietorship fails, the owner may lose whatever was invested in the business;
however, the owner’s personal assets are not at risk.
19. If the business is designated a sole proprietorship, profits are passed along to the owner.
For tax purposes, these profits are accounted for with any other personal income the owner may
have accumulated and taxed at the owner’s personal income tax rate.
20. A difficulty that sole proprietors try to overcome is the fact that they have trouble
competing with large firms for expert talent. Large firms can usually pay better and offer fringe
benefits that are unaffordable to the sole proprietor.
21. Unlike partnerships, if sole proprietorships find themselves in bankruptcy, they need not
worry about a court of law requiring them to sell off personal assets to pay for the debts of the
firm.
22. Eric wants to start a business. He is attracted to the idea of being his own boss, and
wants to get started with a minimum of expense and hassle. He is confident in his abilities, and
the market he can draw from, so he is not particularly worried about financial risks. All of these
factors suggest that Eric may favor starting his business as a sole proprietorship.
23. Sandy Beech, a talented fashion designer who wants to start her own women’s swimwear
and beach towel line, is trying to decide which form of business ownership is right for her. As a
young mother who aspires to send her children to college some day, she does not want to
jeopardize her savings account in any way. In order to overcome these risks, Sandy should start
her business as a sole proprietorship.
24. Rocky Rhodes is convinced that he has a great idea for a new business. Unfortunately,
the type of business he wants to start would require a fairly high initial investment and Rocky has
a poor credit rating and very little personal wealth. Rocky would be unlikely to find success if he
organized his business as a sole proprietorship.
25. A general partner takes an active role in the management of the business.
26. All partners in a general partnership have limited liability for the debts of their firm.
27. In a general partnership, all partners share in management of the business and in the
liability for the firm’s debts.
28. In a general partnership, all partners are entitled to an equal share of the firm’s profits.
29. Limited partnerships are just like general partnerships, except that they are partners for a
limited time period.
30. A limited partner is an owner who assumes no management responsibility and has no
liability for losses beyond the amount invested.
31. A limited partnership consists of one or more general partners and one or more limited
partners.
32. Although shares of master limited partnerships can be purchased on one of the national
stock exchanges, these companies are taxed like partnerships.
33. The Uniform Partnership Act is law in every state except Louisiana.
34. According to the Uniform Partnership Act, the three key elements of any general
partnership are (1) shares of stock to represent ownership, (2) limited liability, and (3) ease of
ownership transfer.
35. According to the Uniform Partnership Act, the three key elements of any general
partnership are (1) common ownership, (2) shared profits and losses, and (3) the right to
participate in managing the operations of the business.
36. A recent study showed that partnerships are more likely to fail than sole proprietorships.
37. A major objective of limited liability partnerships (LLPs) is to limit each partner’s personal
liability to the consequences of their own acts and those of people under their supervision.
38. One of the major disadvantages of a partnership is that profits must be divided equally.
39. A general partner has unlimited liability for the debts of the partnership only if he or she
personally approved the decisions that resulted in those debts.
40. In order to protect all parties and minimize misunderstandings among partners, all terms
of the partnership should be spelled out in writing.
41. One advantage of a partnership is that there is a simple process for partners to terminate
their business.
42. Compared to sole proprietorships, an advantage of partnerships is their ability to obtain
more financial resources.
43. Setting up a partnership under the terms of a written agreement is a bad idea, because
written agreements tend to be too inflexible and impersonal.
44. Compared to sole proprietorships, partnerships offer the advantage of shared
management and pooled knowledge.
45. A limited partnership refers to a partnership set up for a temporary purpose, such as a real
estate development project.
46. In a limited partnership, the general partners should encourage the limited partners to
take a more active role in the operations of the business. After all, the limited partner has
comparable liability in the business, even though he/she may not be a partner for as long a
period of time as the general partners.
47. If a partner in a limited partnership dies, the partnership ceases to exist.
48. In the Figure 5.2, the authors suggest that potential partners discuss the types of skills
that each brings to the business. Partners with complementary skills may enhance the business.
49. One method to avoid conflicts between partners is to solicit the services of a lawyer to
create a well-written partnership agreement.
50. According to Figure 5.2, attributes such as trust and integrity are not something you
should get overly concerned about when selecting partners, due to the fact that this is a business
decision, not a friendly game of golf.
51. The fairest way to handle profits in any partnership arrangement is to divide things
evenly. If there are two owners in the business, each gets 50%. If there are three owners (even if
one is a limited partner), each gets 33.333% of any accumulated profits.
52. Ted and Mark are partners in a dry cleaning business. They would like their brother Todd
to join them. Unfortunately, partnership law states that only two partners can participate in a
partnership.
53. Connie is a general partner in a retail cookie store. Her personal assets are legally
protected from the debts of the business.