1) A sole proprietorship is a common form of business ownership for startup businesses.

Answer: TRUE
2) The profits of a sole proprietorship are taxed as the personal income of the owner.
Answer: TRUE
3) One disadvantage of a sole proprietorship is they usually have limited access to additional
financial resources.
Answer: TRUE
4) When establishing a sole proprietorship, it may be necessary to obtain local licensing or
permits.
Answer: TRUE
5) A sole proprietorship can have only one owner, but it can have any number of employees.
Answer: TRUE
6) Partnerships are taxed at the lowest corporate tax rate.
Answer: FALSE
7) To protect partnerships and minimize misunderstandings among partners, all terms of a
partnership should be spelled out in writing.
Answer: TRUE
8) In a general partnership, all partners are entitled to an equal share of the firm's profits.
Answer: FALSE
9) Tom has agreed to become a partner in a business. Since he will provide 30% of the capital
to start the company, he is entitled to 30% of any profits the company earns during its first year
of operation.
Answer: FALSE
10) The biggest difference between general and limited partnerships involves who accepts most
of the business liability.
Answer: TRUE
11) A limited partner is an owner who assumes no management responsibility and has no
liability for losses beyond the amount invested.
Answer: TRUE
12) A corporation is a specific form of business that is legally formed under state laws and is
considered a separate entity.
Answer: TRUE
13) If you want to terminate your ownership in a publicly traded corporation, you simply sell your
shares.

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Answer: TRUE
14) The owners of a corporation are known as general corporate partners.
Answer: FALSE
15) The organizational structure of a corporation allows for shareholders to have control over
the company's daily operations.
Answer: FALSE
16) A disadvantage of corporations is that they generally require extensive paperwork.
Answer: TRUE
17) S corporations are similar to C corporations because they both pay corporate income taxes.
Answer: FALSE
18) Like partnerships, shareholders in an S corporation pay income taxes based on their
proportionate share of the business profits.
Answer: TRUE
19) A company with 200 shareholders can establish itself as an S corporation.
Answer: FALSE
20) S corporations are restricted to a limited number of owners, whereas limited liability
companies can have an unlimited number of owners.
Answer: TRUE
21) Not-for-profit organizations are NOT required to incorporate.
Answer: TRUE
22) Not-for-profit organizations may NOT earn a profit.
Answer: FALSE
23) Members are the most important part of a cooperative.
Answer: TRUE
24) In order to expand more quickly and remain competitive, companies integrate other
established businesses through the process of mergers or acquisitions.
Answer: TRUE
25) All mergers and acquisitions are mutually desired by both companies.
Answer: FALSE
26) A conglomeration occurs when two companies selling different but related products in the
same market combine.
Answer: FALSE
27) More than one-half of all mergers do not succeed in achieving greater market value.
Answer: TRUE

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28) Lucia owns her own dog walking business and has several employees. She filed no legal
paperwork and has no partners. Lucia's business is a ________.
C) sole proprietorship
Answer: C
29) All of the following are advantages of sole proprietorship EXCEPT ________.
D) limited liability
Answer: D
30) One disadvantage of sole proprietorship is the ________.
B) unlimited liability the owner has for the debts of the company
Answer: B
31) Paula is thinking of making homemade perfumes and selling them to her relatives. She has
not filed any legal documents to start her business. Paula would be operating as a(n) ________.
C) sole proprietor
Answer: C
32) A sole proprietor's income and expenses flow through ________.
C) his or her personal tax returns
Answer: C
33) Dan is excited to start marketing and selling his new indoor practice hockey tarps and would
like to start today. He already has several hockey associations waiting to make purchases.
Dan's best option for starting his business quickly and hassle free is a(n) ________.
D) sole proprietorship
Answer: D
34) Arthur is a truck driver who owns his own business. He has been on the road for several
months, and the constant wear and tear on his truck results in the need for several major
mechanical repairs. This generates a loss for his business. Which of the following reflects how
this will affect Arthur's tax obligation?
B) Arthur's tax obligation will be reduced.
Answer: B
35) Unlimited liability with respect to business ownership means ________.
A) to have an obligation to pay all business debt
Answer: A

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36) In a sole proprietor ownership, if business assets are not enough to pay business debts,
then personal assets, such as the sole proprietor's house, personal investments, and retirement
plans can be used to pay the debt. This is called ________.
A) unlimited liability
Answer: A
37) All of the following EXCEPT ________ would be an advantage to partnership.
D) unlimited liability
Answer: D
38) The most significant difference between a partnership and a sole proprietor is the
________.
D) number of people contributing resources
Answer: D
39) A good reason why partners should spell out the details of their partnership arrangements in
writing is because ________.
B) a written agreement will help reduce misunderstandings and disagreements among the
partners
Answer: B
40) Jenny and Rose are hairstylists that have decided to open their own salon by starting a
general partnership. The first step to ensuring a successful partnership would be to ________.
C) draw up a partnership agreement
Answer: C
41) In a partnership, all profits and losses flow through each partner's ________.
A) tax returns
Answer: A
42) Which of the following parts of a partnership agreement spells out the policy regarding
partners entering into key financial or contractual agreements?
C) responsibilities of partners
Answer: C
43) Policies regarding all of the following points should be included in a partnership agreement
EXCEPT ________.
A) division of stock
Answer: A
44) Jaden and Noel are starting a computer repair business together. Jaden insists on outlining
rules for the departure of partners in the partnership agreement, although Noel does not think it

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is necessary. Which of the following statements might Jaden use to explain his insistence to
Noel?
A) Provisions to remove a partner's ownership interest are necessary so the business would not
have to liquidate.
Answer: A
45) In a partnership, the type of partner that is responsible for all claims against the company is
called a(n) ________.
B) general partner
Answer: B
46) Kris and Amy own a workout facility in which they are co-owners. Both take an active role in
the management of the business and each accepts unlimited liability. Kris and Amy operate as a
________.
B) general partnership
Answer: B
47) A partner who invests money in a business but is not involved in the day-to-day operation
and is only risking capital equal to what they have contributed is called a ________.
B) limited partner
Answer: B
48) Which of the following is the limit of liability of a limited partner?
A) the amount of their investment
Answer: A
49) Alex and Bailey opened a dance studio together as general partners. They each invested
$10,000 of their personal savings. After one year in business, they decided to close the doors.
Their partnership agreement said they would divide profits and losses 50/50. They have more
debt than assets. Alex and Bailey will each ________.
B) lose personal assets to repay the debt since a partnership is not considered to be a separate
entity from the partners who own it
Answer: B
50) Nick is investing $25,000 in a partnership with his sister and brother. Nick does not want to
be an active part of the partnership and can only afford to risk the $25,000 he is investing. His
brother and sister agree to let him share a proportionate amount of the profits. Nick is a
________ in this partnership.
A) limited partner
Answer: A

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51) Which of the following statements about the operation of a corporation is correct?
A) A corporation is a separate entity and is legally formed under state laws.
Answer: A
52) All of the following are advantages of forming a corporation EXCEPT ________.
D) ease of set up
Answer: D
53) Which of the following is the MOST compelling argument for incorporating a business?
C) to protect the owners' personal assets
Answer: C
54) Traci and Sally have considered starting their own business but are concerned about the
possibility of losing their personal assets if the business fails. One way for Traci and Sally to
avoid this risk would be to organize their company as a ________.
C) corporation
Answer: C
55) Ben recently purchased 100 shares of stock in Feger's Sports, Inc. Ben is a(n) ________ of
Feger's Sports, Inc.
A) owner
Answer: A
56) If a corporation provides medical insurance, it will actually lower the company's taxes
because ________.
A) medical insurance benefits are legally deductible expenses
Answer: A
57) Management and ownership roles would most likely be separate in what type of business
structure?
C) corporation
Answer: C
58) Owners of limited liability companies are referred to as ________, while owners of
corporations are called ________.
D) members; shareholders
Answer: D
59) In a large corporation, shareholders responsibilities include ________.
D) electing a board of directors
Answer: D

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60) The Sarbanes-Oxley Act of 2002 was enacted to provide a new set of standards of
accountability for ________.
B) board of directors
Answer: B
61) Which of the following is a benefit of forming a corporation?
D) Corporations can offer stock options to employees.
Answer: D
62) Which of the following tasks is NOT the responsibility of the board of directors?
D) managing the company's daily operations
Answer: D
63) Which of the following is a disadvantage of forming a corporation?
D) double taxation
Answer: D
64) Leslie is excited to begin a personal shopping business. She is planning on having
employees and is concerned about losing personal assets should something happen to the
business. She would like to focus on profits and building a business but she does not want her
business to pay its own taxes. What ownership structure is Leslie's best choice?
C) S corporation
Answer: C
65) Which of the following statements about S corporations is MOST accurate?
A) S corporations enable owners to avoid the problem of double taxation.
Answer: A
66) Many new business owners prefer a limited liability structure because there are ________.
A) fewer corporate formalities
Answer: A
67) Which of the following types of ownership is limited to 100 owners?
B) S corporation
Answer: B
68) Compared to the C corporation, the limited liability company is an attractive form of business
ownership because ________.
D) a limited liability company does not require the firm to hold annual meetings and it can avoid
double taxation
Answer: D
69) A disadvantage of a limited liability company is that it ________.

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B) must dissolve when an owner leaves the company
Answer: B
70) Limited liability companies are unable to offer stock options or stock bonus incentives to
their employees because ________.
C) limited liability companies do not have shareholders or stock
Answer: C
71) Becca and Bob own a car rental business. Becca contributes 75 percent of the capital but
does only 20 percent of the work, while Bob contributes 25 percent of the capital but does 80
percent of the work. Both decide on a 50/50 allocation of profits. In which types of business
structures would this arrangement be possible?
A) limited liabilities and partnerships
Answer: A
72) All of the following are reasons business owners consider using a corporation structure of
ownership EXCEPT ________.
C) ease of forming and setting up the structure
Answer: C
73) The following are characteristics shared by both for-profit and not-for-profit corporations
EXCEPT ________.
D) issuing shares of stock
Answer: D
74) Which of the following statements BEST describes the distinction between a not-for-profit
corporation and a for-profit corporation?
B) Not-for-profits cannot be organized for any person's private gain.
Answer: B
75) When a not-for-profit corporations dissolves, its assets are ________.
D) given to a similar not-for-profit group
Answer: D
76) Which of the following methods do not-for-profit corporations primarily use to generate
revenues?
C) organizing fund-raising events
Answer: C
77) A not-for-profit corporation such as a church or ministry may be exempt from ________.
B) property tax
Answer: B

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78) A cooperative is a type of business that is owned by ________ who use its products or
services.
A) members
Answer: A
79) Mr. Gonzales wants to help fellow farmers in his community, but he is not interested in
making a personal profit. His main goal is to join with other farmers so they can have better
bargaining power when purchasing supplies. Which of the following business types will Mr.
Gonzales MOST likely form?
C) cooperative
Answer: C
80) A(n) ________ occurs when two companies of about the same size mutually agree to create
a new combined company.
A) merger
Answer: A
81) Companies MOST often resort to mergers and acquisitions when they want to expand their
markets and product lines because ________.
B) it minimizes time and investment to research and develop new products
Answer: B
82) A proxy fight occurs when a company attempts to persuade the target company's
shareholders to replace the existing management with one that is ________ the goals of the
acquiring company.
D) sympathetic to
Answer: D
83) Which of the following moves would MOST likely initiate a hostile takeover?
A) The buying company offers to buy the target company's stocks at a price higher than their
current value.
Answer: A
84) Lizzie is the CEO of a large corporation that offers accounting services to several
companies. She has tried to acquire her closest rival, but her rival's management is opposed to
the idea. In order to gain a competitive edge, Lizzie starts a campaign to persuade her rival
company's shareholders to vote out its existing management in the hopes of replacing it with a
management team more sympathetic to the goals of the acquiring company. Which method of
acquiring a company is Lizzie using?
B) proxy fight

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Answer: B
85) A(n) ________ acquisition occurs when one company tries to take control over another
company against its wishes.
B) hostile
Answer: B
86) At a meeting to announce a merger with another company, which of the following
buzzwords is a business leader MOST likely to use to justify the decision?
D) synergy
Answer: D
87) A merger involving a computer manufacturer and an electronics retailer that sells its
computers would be an example of a ________.
A) vertical merger
Answer: A
88) When two companies in entirely different industries combine, it is known as a ________.
D) conglomeration
Answer: D
89) A dance studio and a dancewear manufacturer decide to combine. This type of merger is
called a ________.
A) vertical merger
Answer: A

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