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You have been thinking about starting a business that sells vintage Nike, Converse, and Vans athletic shoes. For several years you have been taking business classes to help you develop the skills needed to run your own business. You finally have enough vintage athletic shoes and sufficient funding to start the business. You want to maintain control of all aspects of the business and do not want to deal with numerous government regulations. The legal form of ownership you have chosen is:
A. S-Corporation
B. Partnership
C. Limited Liability Company (LLC)
D. Corporation
E. Sole proprietorship
E. Sole proprietorship
Right after college you took a month-long vacation in Maui and fell in love with the Hawaiian island. You particularly liked the isolated places such as Hana. Instead of returning to your home in Minnesota, you have decided to stay in Maui and start a business running tours of the isolated Hana Coastline. In deciding which legal form of business ownership to select, you should ask yourself all of the following questions EXCEPT:
A. All of these are questions you should ask yourself in deciding which legal form of business ownership you should select.
B. How much liability exposure are you willing to accept? Are you willing to risk your personal assets-your bank account, your car, maybe even your home-for your business?
C. Do you want to own the company yourself or do you want to share ownership with others?
D. How do you plan to finance your business?
E. Do you have the skills needed to run the business yourself, or would the business benefit from a diverse group of owners?
A. All of these are questions you should ask yourself in deciding which legal form of business ownership you should select.
You have a green thumb and have finally gotten up the courage to open your own flower shop. But there is only one problem: you don't know anything about the business. The reality is that you will succeed only if you share ownership with another person. You have someone in mind and the two of you agree that any legal form of ownership that you select has to be simple to set up. The legal form of ownership you have chosen is:
A. S-Corporation
B. Partnership
C. Sole proprietorship
D. Limited Liability Company (LLC)
E. Corporation
B. Partnership
sole proprietorship
business owned by only one person
unlimited liability
legal condition under which an owner or investor is personally liable for all debts of a business
Which of the following statements is true about a sole proprietorship?
A. It requires the business owner to share control of the business with others.
B. It is subject to both personal and business income taxes.
C. It is fairly difficult to set up.
D. It is the most common form of business ownership.
E. It is owned by more than one person.
D. It is the most common form of business ownership.
The advantages of a sole proprietorship include all of the following EXCEPT:
A. The sole proprietor is subject to few government regulations.
B. The owner has complete control over the business.
C. The owner gets 100 percent of the profits.
D. The sole proprietor bears unlimited personal liability for any losses incurred by the business.
E. Any profits earned are taxed as personal income; the sole proprietor also doesn't pay additional federal and state business income taxes.
D. The sole proprietor bears unlimited personal liability for any losses incurred by the business.
partnership (or general partnership)
business owned jointly by two or more people
limited partnerships
partnership made up of a single general partner (who runs the business and is responsible for its liabilities) and any number of limited partners
You are setting up an asbestos removal company and trying to convince some friends to become partners in the business. You believe you have a better chance of convincing them to join the business if you set it up as a limited partnership rather than a general partnership. All of the following are true of a limited partnership EXCEPT:
A. Individuals with substantial assets who have a lot to lose if they get sued for a partnership obligation might shy away from joining a general partnership, but agree to join a limited partnership (as a limited partner).
B. A general partner in a limited partnership is responsible for all liabilities incurred by a limited partnership.
C. There can be any number of limited partners in a limited partnership each having limited involvement in the business.
D. The limited partner's losses are limited to the amount of their investments.
E. A limited partnership has one or more general partners who run the business.
E. A limited partnership has one or more general partners who run the business.
Your brother-in-law owns a fireworks store in Virginia Beach. Because of your knowledge of business and the fact that you are wealthy, he asked you to become his partner in his general partnership. You are hesitant to accept because you would be personally liable for not only your actions, but for the actions of your brother-in-law and any other partners. You can visualize the fireworks store burning up causing $1 million in uninsured damages and your having to pay this amount because you are the only one with money (and they go after the rich guys first). This type of liability is called:
A. Partial liability
B. Partnership liability
C. Limited liability
D. Unlimited liability
E. Personal liability
D. Unlimited liability
corporation
legal entity that is entirely separate from the parties who own it and that is responsible for its own debts
shareholders
owners of a corporation
stock
share of ownership in a corporation
board of directors
group of people who are legally responsible for governing a corporation
dividends
earnings distributed to stockholders
limited liability
legal condition under which an owner or invest can't lose more than the amount invested
privately-held corporation
corporation that restricts the transferability of its stock
public corporations
corporation whose stock is available to the general public
Which of the following statements about corporations is NOT true?
A. Corporations are owned by shareholders who invest money in the business by buying shares of stock in the corporation.
B. Corporations account for 18 percent of all businesses in the United States, but generate almost 82 percent of the revenues.
C. The board of directors approves the distribution of income to shareholders in the form of cash payments called dividends.
D. The chief executive officer (CEO) of the corporation elects the board of directors - a group of people primarily from outside the company who are legally responsible for governing the corporation.
E. The board of directors hires and evaluates the chief executive officer (CEO).
D. The chief executive officer (CEO) of the corporation elects the board of directors - a group of people primarily from outside the company who are legally responsible for governing the corporation.
The corporate form of ownership offers a number of advantages. The most important of these advantages is _______________________.
A. limited liability for shareholders
B. that it can (at least in theory) exist forever because the corporation has a legal life separate from the lives of its owners
C. greater access to financial resources
D. transferring ownership of a corporation is easy: shareholders simply sell their stock to others
E. the ability to attract skilled and talented employees
A. limited liability for shareholders
s-corporation
corporation that gives small business owners limited liability protection, but taxes company profits only once, when they are paid out as dividends
limited-liability company
corporation whose members are not personally liable for company debts and whose earnings are taxed only once, when they are paid out as dividends. It has fewer rules and restrictions than does an S-corporation
cooperative
a business owned and controlled by those who use its services
not-for-profit corporation (nonprofit)
an organization formed to serve some public purpose rather than for financial gain
The most attractive feature of a corporation is _____; the least attractive feature is ______?
A. Double taxation; Transferability of shares
B. Double taxation; Ease of raising funds
C. Transferability of shares; Limited liability
D. Unlimited liability; Ease of raising funds
E. Limited liability; Double taxation
E. Limited liability; Double taxation
What is the most attractive feature of sole proprietorships and partnerships?
A. Inexpensive to set up
B. No "double" taxation
C. Double taxation
D. Unlimited liability
E. Subject to few government regulations
B. No "double" taxation
It is common to see company names on the side of trucks or on storefronts with names such as Rowan Home Restorations, LLC or Housecall Veterinarian, LLC. The popularity of the limited liability company form of organization can be attributed to all of the following EXCEPT:
A. Profits have to be divided evenly among its members.
B. Its owners are not personally liable for debts of the company.
C. It doesn't have to elect a board of directors, hold annual meetings, or contend with a heavy record-keeping burden.
D. Profits do not have to be allocated to the owners based on percentage of ownership.
E. Its earnings are taxed only once, at the personal level, when they are paid out as dividends.
A. Profits have to be divided evenly among its members.
(Profits do not have to be divided evenly among its members. Members can distribute profits in any way they want.)
A(n) _________________ is a business owned and controlled by those who use its services.
A. association
B. service organization
C. cooperative
D. not-for-profit corporation
E. limited liability company
C. cooperative
merger
the combination of two companies to form a new company
acquisition
the purchase of one company by another with no new company being formed
Acquiring complementary products and benefiting from endorsement deals was the motivation behind Adidas' purchase of Reebok. Reebok's management and its board of directors was in favor of the purchase, which was called a(n) _____________________.
A. acquisition
B. merger
C. investment
D. hostile takeover
E. combination
A. acquisition
Unilever, a large Dutch/British company that owns three ice cream brands, wanted to buy Ben & Jerry's. Ben Cohen, Jerry Greenfield, and the company's board of directors objected to the purchase, however, the deal offered by Unilever to pay Ben & Jerry's stockholders twice the market rate for their stock was too attractive for the majority of the company's shareholders to pass up. Because of this, the deal went through. This type of deal is called a(n)_________________.
A. hostile takeover
B. purchase
C. stockholder buyout
D. acquisition
E. merger
A. hostile takeover