Business A Changing World 8th Edition by O. C. Ferrell Linda Ferrell Test Bank

Business A Changing World  8th Edition by O. C. Ferrell Linda Ferrell  Test Bank
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Chapter 04
Options for Organizing Business

True / False Questions

1. A businesss legal form of organization has no effect on how much taxes it pays.
True False

2. Most sole proprietorships focus on manufacturing.
True False

3. Lack of control is a disadvantage of sole proprietorships.
True False

4. Sole proprietorships have the least degree of secrecy.
True False

5. A sole proprietorship has limited sources of funds, which may affect the growth of the business.
True False

6. In the US, men are twice as likely as women to start their own business.
True False

7. If you want to go into business for yourself, the easiest way is a sole proprietorship.
True False

8. Sole proprietorships typically employ fewer than 50 people.
True False

Multiple Choice Questions

9. Sole proprietorships are taxed as
A. A partnership
B. Individual owners income is taxed
C. Shareholders are taxed
D. Corporations
E. Depends on the kind of sole proprietorship formed

10. One of the most popular and easiest to establish forms of business in the United States is the
A. partnership.
B. sole proprietorship.
C. corporation.
D. joint venture.
E. cooperative.

11. About three-quarters of all businesses in the United States are sole proprietorships, and they earn somewhere around 10 percent of total business income. We may conclude that
A. the average corporation is small, but earns little income.
B. the average corporation hires many people, but makes little income.
C. the average sole proprietorship is large, but earns little income.
D. there are many sole proprietorships, but their average income is small.
E. there are few sole proprietorships, and their average income is small.

12. Which of the following is not a source of funds for a sole proprietorship?
A. Bank loans
B. Family members
C. Personal funds
D. Selling stock or issuing bonds
E. Small Business Administration

13. All of the following are advantages of a sole proprietorship except
A. ease of formation.
B. secrecy.
C. unlimited liability.
D. control of the business.
E. limited government regulation.

14. The following is an advantage of a sole proprietorship:
A. limited sources of funds
B. profits are not shared
C. limited liability
D. ease of hiring qualified employees
E. owners role as a generalist

15. Ruji has realized that she does not like working for others. She wants to open a business in which she will have maximum control and the least interference from government regulation. Which business form might be best for her to use?
A. Joint venture
B. Cooperative
C. Corporation
D. Partnership
E. Sole proprietorship

16. The income earned by sole proprietorships is
A. taxed twice.
B. not taxable.
C. taxed as personal income.
D. too high.
E. audited less often than others.

17. Barber shops, dog kennels, and independent grocery stores are typically
A. franchises.
B. nonprofit agencies.
C. sole proprietorships.
D. partnerships.
E. limited liability partnerships.

18. Which of the following requires owners to perform many functions and possess diverse skills to make decisions?
A. Corporation
B. Partnership
C. Sole proprietorship
D. Cooperative
E. Holding company

19. Which characteristic of a sole proprietorship can be considered both an advantage and a disadvantage?
A. Taxation
B. Fund sources
C. Liability
D. Continuity
E. Secrecy

20. Which of the following forms of business ownership is directly limited by the life of its owner?
A. Sole proprietorships
B. Limited partnerships
C. Corporations
D. Holding companies
E. Subsidiaries

21. A sole proprietorship is a popular form of business because
A. it is heavily regulated by the government.
B. it is taxed more than other forms.
C. it is hard to dissolve.
D. the proprietor does not have direct control.
E. it is easy to form.

Essay Questions

22. What are the advantages of sole proprietorships over other forms of business organization?

23. Why is taxation considered both an advantage and a disadvantage of the sole proprietorship organizational form?

24. What are sole proprietorships? Provide an example.

True / False Questions

25. A limited partnership involves a complete sharing in the management of a business.
True False

26. A limited partnership always has at least one general partner, who assumes unlimited liability.
True False

27. In a partnership, if the goals of one partner change, the result may be friction and even legal disputes.
True False

28. All states require partnerships to have articles of partnership.
True False

29. Partnerships have fewer regulatory controls than corporations.
True False

30. In a general partnership, each partner is liable only for the debts he or she incurs.
True False

31. In a partnership, all partners are equally liable.
True False

Multiple Choice Questions

32. Which of the following is not a disadvantage of forming a partnership?
A. All partners are responsible for all other partners
B. Unlimited liability
C. Fewer regulatory controls than in a corporation
D. The partnership ends when a partner withdraws or dies
E. Sources of funds are limited

33. When are limited partnerships generally used?
A. When one partner has more money than the others
B. They are used most of the time for many reasons
C. Limited partnerships are almost never used
D. When all partners wish to share liability equally
E. When the project is risky and the chance of loss is great

34. Selling interest in a partnership may be difficult because
A. partnerships are subject to unlimited liability.
B. partnerships cant issue bonds.
C. of regulatory controls.
D. it is difficult to place a value on a share of a partnership.
E. of double taxation.

35. Anand has been asked to join a new partnership that is developing wind energy technologies. Because the business is high risk, he does not want to be liable for the firms debts if the project should fail. He could still participate as a
A. general partner.
B. limited partner.
C. silent partner.
D. working partner.
E. contributor.

36. Which form of business organization is the least used in the U.S.?
A. S-corporation
B. Franchise
C. Sole proprietorship
D. Corporation
E. Partnership

37. The legal documents that identify the basic agreements between partners are called
A. proposals of partnership.
B. a partnership charter.
C. agreements of partnership.
D. articles of partnership.
E. a partnership contract.

38. Articles of partnership are required by many states for businesses that have two or more co-owners. The issues covered usually include all of the following except
A. a statement of what each partner contributes.
B. how the profits and losses will be divided.
C. what duties the partners will have.
D. provisions for leaving the partnership.
E. classes of stock to be issued.

39. It is easier to raise funds in a partnership than in a sole proprietorship because
A. more people means greater earning power and credit.
B. partners have better organizational control.
C. banks know them better.
D. partners have more combined experience.
E. all of the above.

40. The decision-making process in a partnership tends to be faster when the partnership is
A. multifaceted.
B. small.
C. foreign.
D. domestic.
E. large.

41. Which of the following is an advantage of a partnership?
A. Unlimited liability
B. Life of partnership
C. Selling a partnership
D. Limited funding sources
E. Ease of organization

42. Which of the following is a disadvantage of a partnership?
A. Difficulty of selling ownership
B. Ease of organizing business
C. Specialization of partners
D. Relatively fast decision making
E. Limited government regulation

43. According to the Internal Revenue Service,
A. profitable partnerships pay taxes before distributing profits.
B. partners report their share of profits as personal income.
C. partners pay no taxes.
D. partners have the most advantageous tax structure.
E. all of the above.

Essay Questions

44. How does the taxation of partnerships work? How is this different than with a corporation?

45. Why is it more difficult to value a partnership share than a share of stock in a corporation, for example?

46. Define the partnership form of business organization. What are its advantages?

True / False Questions

47. While corporations account for the majority of businesses in the United States, they represent a small minority of profits.
True False

48. S Corporations are more flexible than traditional C corporations.
True False

49. Corporations cannot be sued.
True False

50. In most states, corporations must have corporation, incorporated, or limited in their names to show that their owners have limited liability.
True False

51. Taking a company public means announcing its creation to the public.
True False

52. The biggest advantage of the corporate form of ownership may be the limited liability of its owners.
True False

53. Preferred stockholders receive dividends before common stockholders and have principle voting rights as well.
True False

Multiple Choice Questions

54. A corporation doing business outside the state in which it is chartered is known as a(n)
A. private corporation.
B. multi-state corporation.
C. domestic corporation.
D. alien corporation.
E. foreign corporation.

55. Corporations distribute profits to their owners in the form of
A. tax-free dividends.
B. interest.
C. retained earnings.
D. dividends.
E. bribes.

56. In creating a corporation, once the articles of incorporation are filed with the appropriate state office, the state may then issue a
A. corporate chapter.
B. corporate contract.
C. corporate charter.
D. corporate collaboration.
E. corporate commentary.

57. A private corporation is one that
A. is owned by only a few people and not traded on the open market.
B. does not pay taxes on its income.
C. does not hire employees.
D. can be purchased on the New York Stock Exchange.
E. all of the above.

58. The type of corporation represented by organizations such as the National Aeronautics and Space Administration (NASA) and the U.S. Postal Service is called
A. private.
B. quasi-private.
C. public.
D. quasi-public.
E. private-public.

59. Which stockholders usually have the right to vote and control the board of directors?
A. Preferred
B. Common
C. Cumulative preferred
D. Preemptive
E. Favorite

60. The right of common stockholders to have the opportunity to purchase new shares of stock is called a
A. first offer right.
B. preemptive right.
C. stock split right.
D. profit sharing right.
E. secondary right.

61. Common stockholders do not have the right to
A. vote for the board of directors.
B. share in profits.
C. attend the stockholders meetings.
D. exercise preemptive rights.
E. receive dividends before preferred stockholders.

62. An important advantage of a corporation is its
A. single taxation.
B. limited liability.
C. ease of formation.
D. lack of bureaucracy.
E. double taxation.

63. The type of ownership that has the ability to raise capital most easily is a
A. public corporation.
B. private corporation.
C. sole proprietorship.
D. general partnership.
E. limited partnership.

64. Which of the following organizational forms is most expensive to set up?
A. Sole proprietorship
B. Limited partnership
C. General partnership
D. Cooperative
E. Corporation

65. Which of the following forms of business organization restricts the number and type of shareholder?
A. Sole proprietorship
B. Co-op
C. Limited liability company
D. S-corporation
E. Partnership

66. The organizational form that many consider to be a blend of the best characteristics of corporations, partnerships, and sole proprietorships is the
A. joint venture.
B. cooperative.
C. C corporation.
D. S corporation.
E. limited liability company.

67. A written authorization assigning a stockholders voting privilege to another is a
A. stock sale.
B. stock certificate.
C. stock split.
D. dividend restructuring.
E. proxy.

68. Joint ventures are popular in situations that call for
A. reduced regulations.
B. cooperation among farmers or ranchers.
C. unlimited liability.
D. large investments.
E. small investments.

69. All of the following are advantages of a corporation except
A. limited liability.
B. lower frequency of taxation.
C. perpetual life of organization.
D. ease of transfer of ownership.
E. external funding sources.

70. The group of individuals elected by the stockholders to oversee the general operation of a corporation are known as the
A. middle managers.
B. top managers.
C. board of directors.
D. shareholders.
E. owners.

Essay Questions

71. What is a limited liability company (LLC), and why do some consider it the best form of business ownership?

72. How do preferred stockholders differ from the common stockholders of a corporation?

True / False Questions

73. A conglomerate merger results when two firms in unrelated industries merge.
True False

74. Most tender offers are considered hostile.
True False

75. When firms that make and sell similar products to the same customers merge, it is known as a horizontal merger.
True False

76. A merger occurs when one company buys another by buying its stock.
True False

77. Shark repellant is a method of thwarting a corporate takeover in which management requires a large majority of stockholders to approve the takeover.
True False

78. A leveraged buyout is an organization composed of small businesses that have banded together to reap the benefits of belonging to a larger organization.
True False

79. The government usually will scrutinize high-profile mergers and acquisitions to ensure that they are not creating monopolies.
True False

Multiple Choice Questions

80. Companies of all sizes grow and improve profitability by
A. Choosing the right kind of organizational structure
B. Sticking to domestic markets
C. Not utilizing new technologies as they become available
D. Expanding their operations
E. Creating franchises

81. When firms that make and sell similar products to the same customers merge, it is known as a
A. horizontal merger.
B. vertical merger.
C. acquisition.
D. hostile takeover.
E. poison pill.

82. When a firm is facing a hostile takeover attempt, it may issue a poison pill, which is
A. when it fires its board of directors for incompetence.
B. when the firm allows stockholders to buy up shares of stock at lower than market value.
C. when the executive suite quits en masse before a takeover.
D. a term for plummeting stock values.
E. merely a harshly worded letter to the company attempting to take it over expressing dismay at the maneuver.

83. When two companies combine to form a new company, it is called a(n)
A. merger.
B. acquisition.
C. tender offer.
D. leveraged buyout.
E. white knight.

84. When a company offers to buy some or all of another companys stock at a premium price, it is a(n)
A. acquisition.
B. leveraged buyout.
C. merger.
D. hostile offer.
E. tender offer.

85. When a group of investors borrows money to buy a company or division, using the companys assets to guarantee the loan, it is called a(n)
A. acquisition.
B. merger.
C. leveraged buyout.
D. tender offer.
E. poison pill.

86. Big City Financial is attempting to avoid a hostile takeover by a corporate raider by allowing stockholders to buy more shares of stock at prices lower than current market value. Which of the following methods is being used to avoid the takeover?
A. A leveraged buyout
B. A tender offer
C. A white knight
D. A poison pill
E. Shark repellant

87. When companies operating at different, but related, levels of an industry merge, it is known as a(n)
A. vertical merger.
B. horizontal merger.
C. acquisition.
D. leveraged buyout.
E. diagonal merger.

88. When discussing corporations, What is a white knight?
A. A mythical hero in fairy tales
B. An attempt to fend off a hostile takeover by selling stock at below market value
C. When management requires the approval of a large majority of shareholders to allow a takeover to happen
D. A more acceptable firm that is willing to acquire the firm threatened by hostile takeover
E. A group of investors that has borrowed money to acquire a firm

Essay Questions

89. What is a vertical merger and why would a firm attempt one? What are the benefits?

90. What is a leveraged buyout? What are some of the advantages of mergers and acquisitions?

Multiple Choice Questions

Solve the Dilemma: To Incorporate or Not to Incorporate

91. Bryan thinks their plant resale company should be a corporation because
A. it is cheaper.
B. all good businesses are corporations.
C. they would have limited liability and seem larger.
D. the other forms of corporation are not valid in their case.
E. Bryan does not think the company should be a corporation.

92. Thomas thinks that organizing as a partnership would be best because
A. it is the most complicated to form.
B. they are a small company and do not need to be a corporation.
C. it gives them limited liability.
D. it would allow them to rely on their own financial resources and talents.
E. Thomas actually thinks that sole proprietorship would be best.

Essay Questions

93. What are some of the advantages and disadvantages of Thomas and Bryan forming a corporation?

94. What are the advantages and disadvantages of their forming a partnership?

95. Which organizational form do you think would be best for Thomas and Bryans company and why?

Chapter 04 Options for Organizing Business Answer Key

True / False Questions

1. (p. 120) A businesss legal form of organization has no effect on how much taxes it pays.
FALSE
A businesss legal form of ownership affects how it operates, how much tax it pays, and how much control its owners have.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

2. (p. 121) Most sole proprietorships focus on manufacturing.
FALSE
Sole proprietorships generally focus on services, rather than manufacturing because manufacturing requires much larger capital outlays.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

3. (p. 122) Lack of control is a disadvantage of sole proprietorships.
FALSE
The sole proprietor has complete control over the business and can make decisions on the spot without anyone elses approval.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

4. (p. 122) Sole proprietorships have the least degree of secrecy.
FALSE
A sole proprietor does not have to publically discuss his or her operating plans nor does he or she have to disclose financial reports.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

5. (p. 96) A sole proprietorship has limited sources of funds, which may affect the growth of the business.
TRUE
The few sources of money available to the sole proprietorship are a bank, family, friends, the Small Business Administration and his or her personal funds.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

6. (p. 121) In the US, men are twice as likely as women to start their own business.
TRUE
Sole proprietorships constitute three-quarters of all businesses in the U.S. and an interesting fact is that men are twice as likely as women to start their own business.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Hard
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

7. (p. 121) If you want to go into business for yourself, the easiest way is a sole proprietorship.
TRUE
Forming a sole proprietorship is easy and inexpensive because of the simple management structure, the low cost of permits and the lack of lawyer involvement.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

8. (p. 121) Sole proprietorships typically employ fewer than 50 people.
TRUE
Sole proprietorships are small businesses and usually employ fewer than 50 people.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

Multiple Choice Questions

9. (p. 122) Sole proprietorships are taxed as
A. A partnership
B. Individual owners income is taxed
C. Shareholders are taxed
D. Corporations
E. Depends on the kind of sole proprietorship formed
Profits from sole proprietorships are considered personal income and are taxed at individual tax rates.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

10. (p. 121-122) One of the most popular and easiest to establish forms of business in the United States is the
A. partnership.
B. sole proprietorship.
C. corporation.
D. joint venture.
E. cooperative.
Forming a sole proprietorship is easy and inexpensive because of the simple management structure, the low cost of permits and the lack of lawyer involvement.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

11. (p. 121) About three-quarters of all businesses in the United States are sole proprietorships, and they earn somewhere around 10 percent of total business income. We may conclude that
A. the average corporation is small, but earns little income.
B. the average corporation hires many people, but makes little income.
C. the average sole proprietorship is large, but earns little income.
D. there are many sole proprietorships, but their average income is small.
E. there are few sole proprietorships, and their average income is small.
If 72% of all businesses are sole proprietorships, we can conclude that many are in existence. If sole proprietorships only contribute 10% of total business income, we can conclude that is a small percentage of total income.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Hard
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

12. (p. 123) Which of the following is not a source of funds for a sole proprietorship?
A. Bank loans
B. Family members
C. Personal funds
D. Selling stock or issuing bonds
E. Small Business Administration
The few sources of money available to the sole proprietorship are a bank, family, friends, the Small Business Administration and his or her personal funds; selling stock or issuing bonds is only applicable to corporations.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

13. (p. 123) All of the following are advantages of a sole proprietorship except
A. ease of formation.
B. secrecy.
C. unlimited liability.
D. control of the business.
E. limited government regulation.
Unlimited liability is a disadvantage of a sole proprietorship because the owner may be forced to use personal leverage to pay off debt such as a car or house.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

14. (p. 122) The following is an advantage of a sole proprietorship:
A. limited sources of funds
B. profits are not shared
C. limited liability
D. ease of hiring qualified employees
E. owners role as a generalist
A sole proprietorship is easy and inexpensive to form, it has the greatest degree of secrecy, all profits belong to the owner, it has complete control, it has the most freedom from government regulation, the owner pays one income tax and the business can be easily dissolved.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

15. (p. 122) Ruji has realized that she does not like working for others. She wants to open a business in which she will have maximum control and the least interference from government regulation. Which business form might be best for her to use?
A. Joint venture
B. Cooperative
C. Corporation
D. Partnership
E. Sole proprietorship
A sole proprietorship is easy and inexpensive to form, it has the greatest degree of secrecy, all profits belong to the owner, it has complete control, it has the most freedom from government regulation, the owner pays one income tax and the business can be easily dissolved.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Medium
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

16. (p. 122) The income earned by sole proprietorships is
A. taxed twice.
B. not taxable.
C. taxed as personal income.
D. too high.
E. audited less often than others.
Profits from the sole proprietorship are considered personal income to the sole proprietor and are taxed at individual tax rates.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

17. (p. 121) Barber shops, dog kennels, and independent grocery stores are typically
A. franchises.
B. nonprofit agencies.
C. sole proprietorships.
D. partnerships.
E. limited liability partnerships.
Sole proprietorships are small businesses such as restaurants, barber shops, flower shops, dog kennels and independent grocery stores.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

18. (p. 123) Which of the following requires owners to perform many functions and possess diverse skills to make decisions?
A. Corporation
B. Partnership
C. Sole proprietorship
D. Cooperative
E. Holding company
The sole proprietor must be able to perform many functions and possess skills in diverse fields such as management, marketing, accounting, finance, bookkeeping and personnel.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

19. (p. 122, 124) Which characteristic of a sole proprietorship can be considered both an advantage and a disadvantage?
A. Taxation
B. Fund sources
C. Liability
D. Continuity
E. Secrecy
Under current tax rates, small corporations on income less than $75,000 pay a lower marginal tax rate than a sole proprietorship.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Medium
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

20. (p. 124) Which of the following forms of business ownership is directly limited by the life of its owner?
A. Sole proprietorships
B. Limited partnerships
C. Corporations
D. Holding companies
E. Subsidiaries
The life expectancy of a sole proprietorship is directly related to that of the owner and his or her ability to work.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Medium
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

21. (p. 121) A sole proprietorship is a popular form of business because
A. it is heavily regulated by the government.
B. it is taxed more than other forms.
C. it is hard to dissolve.
D. the proprietor does not have direct control.
E. it is easy to form.
A sole proprietorship is easy and inexpensive to form, it has the greatest degree of secrecy, all profits belong to the owner, it has complete control, it has the most freedom from government regulation, the owner pays one income tax and the business can be easily dissolved.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Medium
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

Essay Questions

22. (p. 121-123) What are the advantages of sole proprietorships over other forms of business organization?
The advantages of sole proprietorships are: ease and cost of formation; high degree of secrecy is possible; all profits belong exclusively to the owner; high degree of flexibility and control of the business; most freedom from government regulation; profits are considered personal income and are taxed at individual tax rates; and a sole proprietorship can be dissolved easily.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Medium
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

23. (p. 122, 124) Why is taxation considered both an advantage and a disadvantage of the sole proprietorship organizational form?
Taxation is an advantage because owners of sole proprietors only have to pay one tax at the individual tax rate. However, this advantage can become a disadvantage for businesses earning less than $75,000 because owners will pay a higher marginal tax rate than do small corporations. It is for this reason that some people opt to incorporate.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Medium
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

24. (p. 94) What are sole proprietorships? Provide an example.
Sole proprietorships are owned and operated by one individual and are the most popular form of business organization in the United States. Examples include most restaurants, barber shops, flower shops, financial advisors, child care providers, and independent grocery stores.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 04-01 Define and examine the advantages and disadvantages of the sole proprietorship form of organization.
Topic: Sole Proprietorships

True / False Questions

25. (p. 124) A limited partnership involves a complete sharing in the management of a business.
FALSE
A general partnership involves a complete sharing in the management of a business.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

26. (p. 125) A limited partnership always has at least one general partner, who assumes unlimited liability.
TRUE
A limited partnership has at least one general partner, who assumes unlimited liability, and at least one limited partner, whose liability is limited to his or her investment in the business.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

27. (p. 127) In a partnership, if the goals of one partner change, the result may be friction and even legal disputes.
TRUE
If there is a change in goals of one partner and not the other, it may cause friction and many partner disputes wind up in court or mediation.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

28. (p. 126) All states require partnerships to have articles of partnership.
FALSE
Most states require articles of partnership but even if they are not required, it makes good sense for partners to draw them up.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

29. (p. 127) Partnerships have fewer regulatory controls than corporations.
TRUE
Similar to a sole proprietorship, a partnership has fewer regulatory controls than corporations such as publically disclosing financial statements.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

30. (p. 127) In a general partnership, each partner is liable only for the debts he or she incurs.
FALSE
In a general partnership, each partner has unlimited liability for the debts of the business.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

31. (p. 125) In a partnership, all partners are equally liable.
FALSE
If one partners personal financial resources are much greater than another partners resources, he or she would have more financial responsibility in times of financial trouble. Also, under a limited partnership, the limited partner(s) is only liable for his/her initial investment.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

Multiple Choice Questions

32. (p. 127-129) Which of the following is not a disadvantage of forming a partnership?
A. All partners are responsible for all other partners
B. Unlimited liability
C. Fewer regulatory controls than in a corporation
D. The partnership ends when a partner withdraws or dies
E. Sources of funds are limited
The presence of fewer regulatory controls is an advantage of partnerships.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

33. (p. 125) When are limited partnerships generally used?
A. When one partner has more money than the others
B. They are used most of the time for many reasons
C. Limited partnerships are almost never used
D. When all partners wish to share liability equally
E. When the project is risky and the chance of loss is great
Limited partnerships exist for risky investment projects where the chance of loss is great.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

34. (p. 128) Selling interest in a partnership may be difficult because
A. partnerships are subject to unlimited liability.
B. partnerships cant issue bonds.
C. of regulatory controls.
D. it is difficult to place a value on a share of a partnership.
E. of double taxation.
Unless a method of valuation is specified in the articles of partnership, it is difficult to place a value on a share of a partnership because no public value is placed on the partnership.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

35. (p. 125) Anand has been asked to join a new partnership that is developing wind energy technologies. Because the business is high risk, he does not want to be liable for the firms debts if the project should fail. He could still participate as a
A. general partner.
B. limited partner.
C. silent partner.
D. working partner.
E. contributor.
A limited partners liability is limited to his or her initial investment in the business. Limited partnerships are most often used for risky investments where the chance for loss is great.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Medium
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

36. (p. 124) Which form of business organization is the least used in the U.S.?
A. S-corporation
B. Franchise
C. Sole proprietorship
D. Corporation
E. Partnership
Partnerships account for only 10% of sales and 19% of income which equates to the least used form of business.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

37. (p. 126) The legal documents that identify the basic agreements between partners are called
A. proposals of partnership.
B. a partnership charter.
C. agreements of partnership.
D. articles of partnership.
E. a partnership contract.
Articles of partnership are legal documents that usually specify the money or assets that each partner has contributed, each partners role, how the profits and losses will be divided and how a partner may leave the partnership.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

38. (p. 126) Articles of partnership are required by many states for businesses that have two or more co-owners. The issues covered usually include all of the following except
A. a statement of what each partner contributes.
B. how the profits and losses will be divided.
C. what duties the partners will have.
D. provisions for leaving the partnership.
E. classes of stock to be issued.
Articles of partnership are legal documents that usually specify the money or assets that each partner has contributed, each partners role, how the profits and losses will be divided and how a partner may leave the partnership. Stock is not issued in a partnership.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Medium
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

39. (p. 126) It is easier to raise funds in a partnership than in a sole proprietorship because
A. more people means greater earning power and credit.
B. partners have better organizational control.
C. banks know them better.
D. partners have more combined experience.
E. all of the above.
When a business has several partners, it has the benefit of pooled financial resources.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

40. (p. 127) The decision-making process in a partnership tends to be faster when the partnership is
A. multifaceted.
B. small.
C. foreign.
D. domestic.
E. large.
Small partnerships can react quickly to changes in the business environment than can large partnerships and corporations.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

41. (p. 126) Which of the following is an advantage of a partnership?
A. Unlimited liability
B. Life of partnership
C. Selling a partnership
D. Limited funding sources
E. Ease of organization
The advantages of a partnership are ease of formation, availability of capital and credit, combined knowledge and skills, ability to react quickly to changes and lack of regulatory controls.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Hard
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

42. (p. 128-129) Which of the following is a disadvantage of a partnership?
A. Difficulty of selling ownership
B. Ease of organizing business
C. Specialization of partners
D. Relatively fast decision making
E. Limited government regulation
The disadvantages of a partnership are unlimited liability, all partners are responsible for the business actions of others, the partnership is terminated if one partner dies or withdraws, the distribution of profits, and the limited sources of funding.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Hard
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

43. (p. 129) According to the Internal Revenue Service,
A. profitable partnerships pay taxes before distributing profits.
B. partners report their share of profits as personal income.
C. partners pay no taxes.
D. partners have the most advantageous tax structure.
E. all of the above.
Partners must report their share of profits on their individual tax returns and pay taxes at the income tax rate for individuals.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

Essay Questions

44. (p. 129) How does the taxation of partnerships work? How is this different than with a corporation?
Partnerships are quasi-taxable organizations. This means that partnerships do not pay taxes when submitting the partnership tax return to the Internal Revenue Service. The tax return simply provides information about the profitability of the organization and the distribution of profits among the partners. Partners must report their share of profits on their individual tax returns and pay taxes at the income tax rate for individuals.
This is different than under a corporation, where the founders of the organization must pay personal taxes on their income, as well as taxes on the business.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Medium
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

45. (p. 129) Why is it more difficult to value a partnership share than a share of stock in a corporation, for example?
Because no public value is placed on the business (such as the current trading price of a corporations stock), potential partners do not know what one partnership share is worth. Moreover, because partnership shares cannot be bought and sold easily in public markets, potential owners may not want to tie up their money in assets that cannot be readily sold on short notice.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

46. (p. 97-99) Define the partnership form of business organization. What are its advantages?
A partnership is defined by the Uniform Partnership Act as an association of two or more people who carry on as co-owners of a business for profit. Partnerships, the least used form of business organization, are typically larger than sole proprietorships but smaller than corporations. Advantages of partnerships include ease of organization, availability of capital and credit, diversity of management skills, ability to react more quickly to changes in the business environment, and fewer regulatory controls.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Easy
Learning Objective: 04-02 Identify two types of partnership; and evaluate the advantages and disadvantages of the partnership form of organization.
Topic: Partnerships

True / False Questions

47. (p. 129) While corporations account for the majority of businesses in the United States, they represent a small minority of profits.
FALSE
Corporations account for the majority of U.S. sales and income, although there are many more sole proprietorships than there are corporations.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

48. (p. 129) S Corporations are more flexible than traditional C corporations.
TRUE
Many smaller firms elect to incorporate as S Corporations, which operate under slightly different rules and have greater flexibility than do traditional C Corporations.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

49. (p. 135) Corporations cannot be sued.
FALSE
Corporations have similar rights to that of a person and they can enter contracts with individuals or other legal entities, and they can sue and be sued in court.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

50. (p. 130) In most states, corporations must have corporation, incorporated, or limited in their names to show that their owners have limited liability.
TRUE
In most states, a corporations name must end in company, corporations, incorporated, or limited to show that their owners have limited liability.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

51. (p. 132) Taking a company public means announcing its creation to the public.
FALSE
Going public through an initial public offering (IPO) is becoming a public corporation by selling its stock so it can be traded in public markets.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

52. (p. 135) The biggest advantage of the corporate form of ownership may be the limited liability of its owners.
TRUE
The biggest advantage of a corporation is limited liability because the corporations assets and liabilities are separate from its owners.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

53. (p. 134) Preferred stockholders receive dividends before common stockholders and have principle voting rights as well.
FALSE
Common stockholders do not have voting rights, but they do receive dividend payouts before common stockholders.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

Multiple Choice Questions

54. (p. 131) A corporation doing business outside the state in which it is chartered is known as a(n)
A. private corporation.
B. multi-state corporation.
C. domestic corporation.
D. alien corporation.
E. foreign corporation.
A foreign corporation does business outside the state in which it was chartered.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

55. (p. 134) Corporations distribute profits to their owners in the form of
A. tax-free dividends.
B. interest.
C. retained earnings.
D. dividends.
E. bribes.
Dividends are profits of a corporation that are distributed in the form of cash payments to stockholders.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

56. (p. 130) In creating a corporation, once the articles of incorporation are filed with the appropriate state office, the state may then issue a
A. corporate chapter.
B. corporate contract.
C. corporate charter.
D. corporate collaboration.
E. corporate commentary.
The state issues a corporate charter to the company based on the information of the articles of incorporation.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

57. (p. 131) A private corporation is one that
A. is owned by only a few people and not traded on the open market.
B. does not pay taxes on its income.
C. does not hire employees.
D. can be purchased on the New York Stock Exchange.
E. all of the above.
A private corporation is owned by one person or a few people who are closely involved in managing the business and own all of the corporations stock and no stock is sold to the public.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

58. (p. 133) The type of corporation represented by organizations such as the National Aeronautics and Space Administration (NASA) and the U.S. Postal Service is called
A. private.
B. quasi-private.
C. public.
D. quasi-public.
E. private-public.
Quasi-public corporations are owned by the federal, state or local government and focus on providing a public service rather than earning a profit such as NASA and U.S. Postal Service.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

59. (p. 134-135) Which stockholders usually have the right to vote and control the board of directors?
A. Preferred
B. Common
C. Cumulative preferred
D. Preemptive
E. Favorite
Common stockholders are the voting owners of a corporation because they are usually entitled to one vote per share of common stock and they elect the board of directors.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

60. (p. 135) The right of common stockholders to have the opportunity to purchase new shares of stock is called a
A. first offer right.
B. preemptive right.
C. stock split right.
D. profit sharing right.
E. secondary right.
When a corporation decides to sell new shares of common stock in the marketplace, common stockholders have a preemptive right to purchase enough new shares to maintain their percentage of ownership in the corporation.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

61. (p. 134) Common stockholders do not have the right to
A. vote for the board of directors.
B. share in profits.
C. attend the stockholders meetings.
D. exercise preemptive rights.
E. receive dividends before preferred stockholders.
Preferred stockholders receive profits, in the form of dividends, before any other stockholder of a corporation.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

62. (p. 135) An important advantage of a corporation is its
A. single taxation.
B. limited liability.
C. ease of formation.
D. lack of bureaucracy.
E. double taxation.
The biggest advantage of a corporation is limited liability because the corporations assets and liabilities are separate from its owners.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

63. (p. 136) The type of ownership that has the ability to raise capital most easily is a
A. public corporation.
B. private corporation.
C. sole proprietorship.
D. general partnership.
E. limited partnership.
The public corporation finds it easiest to raise money because it can issue stocks or bonds when it needs to raise capital.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

64. (p. 136) Which of the following organizational forms is most expensive to set up?
A. Sole proprietorship
B. Limited partnership
C. General partnership
D. Cooperative
E. Corporation
The formation of a corporation can be costly due to the need of an attorneys services and annual fees paid to maintain the charter.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

65. (p. 138) Which of the following forms of business organization restricts the number and type of shareholder?
A. Sole proprietorship
B. Co-op
C. Limited liability company
D. S-corporation
E. Partnership
S corporations have restrictions on the number (75) and types (individuals, estates, and certain trusts) of shareholders.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Other Types of Ownership

66. (p. 138) The organizational form that many consider to be a blend of the best characteristics of corporations, partnerships, and sole proprietorships is the
A. joint venture.
B. cooperative.
C. C corporation.
D. S corporation.
E. limited liability company.
A limited liability company (LLC) is a form of business ownership that provides limited liability, as in a corporation, but is taxed like a partnership.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Other Types of Ownership

67. (p. 135) A written authorization assigning a stockholders voting privilege to another is a
A. stock sale.
B. stock certificate.
C. stock split.
D. dividend restructuring.
E. proxy.
A proxy is a written authorization by which stockholders assign their voting privilege to someone else, who then votes for his or her choice at the stockholders meeting.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

68. (p. 137) Joint ventures are popular in situations that call for
A. reduced regulations.
B. cooperation among farmers or ranchers.
C. unlimited liability.
D. large investments.
E. small investments.
A joint venture is a partnership established for a specific project or for a limited time and it is popular in situations that call for large investments.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Other Types of Ownership

69. (p. 136) All of the following are advantages of a corporation except
A. limited liability.
B. lower frequency of taxation.
C. perpetual life of organization.
D. ease of transfer of ownership.
E. external funding sources.
The advantages of a corporation are limited liability, ease of transfer of ownership, perpetual life, external sources of funds and expansion potential.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

70. (p. 133) The group of individuals elected by the stockholders to oversee the general operation of a corporation are known as the
A. middle managers.
B. top managers.
C. board of directors.
D. shareholders.
E. owners.
A board of directors is elected to oversee the general operation of a corporation as well as ensure that long range objectives are achieved on schedule.

AACSB: Reflective Thinking
Blooms: Knowledge
Difficulty: Easy
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

Essay Questions

71. (p. 138) What is a limited liability company (LLC), and why do some consider it the best form of business ownership?
A limited liability company (LLC) is a form of business ownership that provides limited liability, as in a corporation, but is taxed like a partnership. Although relatively new in the United States, LLCs have existed for many years abroad. Many consider the LLC a blend of the best characteristics of corporations, partnerships, and sole proprietorships. One of the major reasons for the LLC form of ownership is to protect the members personal assets in case of lawsuits. LLCs are flexible, simple to run, and do not require the members to hold meetings, keep minutes, or make resolutions, all of which are necessary in corporations.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Hard
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Other Types of Ownership

72. (p. 105) How do preferred stockholders differ from the common stockholders of a corporation?
While common stockholders usually have voting rights and share in profits, preferred stockholders have no vote in the election of the board of directors but get a preference in the distribution of the companys profits. Preferred stockholders have first claim to profits, usually paid at a fixed percentage of the initial issuing price.

AACSB: Reflective Thinking
Blooms: Comprehension
Difficulty: Medium
Learning Objective: 04-03 Describe the corporate form of organization; and cite the advantages and disadvantages of corporations.
Topic: Corporations

True / False Questions

73. (p. 140) A conglomerate merger results when two firms in unrelated industries merge.
TRUE
A conglomerate merger results when two firms in unrela

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