54. Two of Diana’s friends have approached her about starting a new business. Diana is
willing to invest money in the business and share in its profits, but she has no desire to be
involved in the day–to-day management of the company, nor is she willing to risk any amount
beyond her initial investment. Diana’s preferences suggest that she prefers a general partnership
form of business ownership.
55. Emma Pebble and Chase Stone formed a partnership in a landscape business. Under
their arrangement, Emma actively manages the company and assumes unlimited liability for the
firm’s debts. Chase has invested several thousand dollars of his money with plans to share in the
profits, but does not actively make management decisions, nor will he assume liability beyond his
initial investment. Emma and Chase participate in a limited partnership.
56. Sergio has agreed to become a partner in his brother’s horse-breeding business. Since he
provided 30 percent of the money to start the firm and built an air-conditioned barn, he is entitled
to 30 percent of any profits the firm earns during its first year of operation.
57. After spending a summer “down under,” two Oregon friends, Rick and Mick, created a
general partnership to import emu from Australia to the U.S. After a year, Rick found himself at
the mercy of Mick, who seemed to keep the books and seldom share the financial results, even
though Rick was out selling the emu idea to farmers and ecologically conscious consumers and
shipments were increasing. As their consultant, one of the first things that you inquire about is
whether they are familiar with the UPA (Uniform Partnership Act), specifically the right to
participate in managing the operations of the business.
58. Marco is a limited partner in an e-commerce company. As a limited partner, Marco can be
involved with the company for a maximum of five years.
59. Last night as you scrolled through the TV channels to find an action flick, you came
across an old movie with tough guy James Cagney, called “Yankee Doodle Dandy.” Although not
particularly your kind of movie, you stayed on that channel for a few minutes because Cagney
and another guy were in partnership together. They were arguing over who was the senior
partner and who was the junior partner, even though, clearly, they started the business at the
same time. If you were brought on board as their present-day business advisor, you would
explain to them that all partnerships have at least one general partner (known as the senior
partner) and one limited partner (known as the junior partner).
60. A conventional corporation is a state-chartered legal entity, with authority to act and have
liability separate from its owners.
61. In today’s economy, only large business enterprises should operate as corporations.
62. The owners of a corporation are known as general corporate partners.
63. A corporation can raise financial capital by selling shares of stock to interested investors.
64. Stockholders in a corporation accept unlimited liability for the corporation’s debts.
65. A disadvantage of corporations is that their charters are only valid for 99 years, so
corporations are less permanent than other types of businesses.
66. When one of the owners of a corporation dies, the corporation legally ceases to exist.
67. Corporations are easy to start and easy to terminate.
68. A disadvantage of corporations is that they generally require extensive paperwork.
69. A disadvantage of corporations is that an owner must get the approval of all other owners
before selling his or her interest in the firm to another investor.
70. Stockholders in a corporation normally exert a significant degree of control over the
company’s daily operations.
71. The stockholders in a corporation elect a board of directors to oversee the company’s
major policy issues.
72. Stockholders in a corporation exert a significant degree of control over the company’s daily
operations.
73. Stockholders in a corporation have limited liability.
74. Stockholders in a corporation entrust control over the company’s daily operations to
managers selected by the board of directors to run the company.
75. One advantage of corporations is that the initial cost of organization is usually lower than
for other forms of business ownership.
76. States may levy special taxes on corporations that are not imposed on other businesses.
77. Most states have legal restrictions that prevent individuals from incorporating.
78. One reason individuals incorporate is to obtain the advantage of limited liability.
79. An
alien
corporation does business abroad but is chartered in the U.S.
80. A
domestic
corporation does business in the state in which it’s chartered.
81. A
foreign
corporation is chartered in a country outside the U.S.
82. Delaware is a popular state in which to seek incorporation due to its reduced costs and
other perks.
83. A closed corporation is one whose stock is held by a few people and is not available to the
general public.
84. A nonprofit corporation does not seek personal profit for its owners.
85. A quasi-public corporation is a corporation chartered by the government as an approved
monopoly to perform services to the general public.
86. A multinational corporation is a firm that operates in several countries.
87. To change ownership in a corporation you simply sell your stock to someone else.
88. Stock options are the right to purchase shares of the corporation for a fixed price.
89. An advantage of corporations is their ability to attract good talent by offering stock options
and other employee benefits.
90. It is said that corporations have perpetual life.
91. One advantage of an S Corporation is that the profits are distributed to the owners and
taxed as each owner’s personal income, thus avoiding the problem of double taxation.
92. By filling out the correct paperwork annually, any corporation can qualify to be classified
as an S corporation.
93. A company that loses its status as an S corporation may not reelect this status for at least
5 years.
94. An S corporation has fewer ownership rules than a limited liability company.
95. The S corporation form of business would be particularly attractive to fast growing
companies that want to attract thousands of new stockholders.
96. A limited liability company is similar to an S corporation, but without the special eligibility
requirements.
97. Limited liability companies have both flexibility in tax treatment of earnings and limited
liability protection for owners.
98. One of the drawbacks of a limited liability company is that most states do not yet
recognize this form of ownership.
99. Like stockholders of a C corporation, owners of a limited liability company (LLC) are free
to sell their ownership without the approval of other members.
100. The limited liability company requires a minimum of 10 members.
101. The organization structure of a corporation allows for stockholders to exert a significant
degree of control over the company’s daily operations.
102. Public utilities are examples of quasi-public corporations.
103. In order to establish a C corporation, it is a requirement that investors run the company,
whereas in an S corporation, this is not the case.
104. If you want to sell your ownership in a publicly traded corporation, you find someone
willing to buy your shares.
105. The stockholders of large, publicly traded corporations have a daily pulse on the
operation of the business.
106. If a corporation distributes after-tax profits to its stockholders in the form of dividends,
the government considers these distributions as part of each stockholder’s personal income.
Stockholders pay taxes on these distributions.
107. If a corporation has after-tax profits of $360,000, and elects to distribute this amount in
the form of dividends to its stockholders, these distributions are free and clear of taxes because
the corporation paid taxes on this amount prior to distribution.