Title: Business Ownership
Course: Question Banks

Q: You are thinking about starting your own business. What are the most important factors you should consider when thinking about your form of business ownership?
- Product line, possible employees and supply chain.
- Location, cost of goods and employee motivation.
- Payroll costs, marketing costs, and availability of resources.
- Cost of start up, taxation and risk tolerance.
A: Cost of start up, taxation and risk tolerance.

Q: What are some important factors to consider when choosing an organizational type?
- Starting capital and hours you have available to work.
- Supplier capabilities and retail outlets.
- Your business’s location.
- Control versus responsibility, and risk tolerance.
A: Control versus responsibility, and risk tolerance.

Q: Cost of start up, control vs.responsibility, profits, taxation, entrepreneurial ability, risk tolerance, financing and continuity or transferability are each:
- Factors to consider when looking into a franchise opportunity.
- Factors to consider when evaluating the health of a business.
- Factors to consider when choosing a business location.
- Factors to consider when choosing an organizational type.
A: Factors to consider when choosing an organizational type.

Q: A thirty-five-year old entrepreneur with dependents is considering starting a business. She is concerned about protecting her personal assets and making sure that if her company were to fail, she would not lose her home or personal savings. This is an example of an individual:
- With a high desire for autonomy.
- With a need for financing.
- With a lot of available capital.
- With low risk tolerance.
A: With low risk tolerance.

Q: When starting a business, why is it important to understand and consider tax implications?
- No one likes to pay high taxes. Understanding how to complete your taxes properly can result in more or less tax liability.
- Once you choose a form of ownership, you must stay with that form (and corresponding tax situation) for the life of the company. So, it is important to consider the potential growth of the company for tax purposes.
- It’s not important. All forms of business pay the same taxes.
- Different forms of business ownership result in businesses and owners being taxed differently. It is important to understand these differences in order to choose the scenario that best fits your needs.
A: Different forms of business ownership result in businesses and owners being taxed differently. It is important to understand these differences in order to choose the scenario that best fits your needs.

Q: What is the most important question a business owner needs to ask themselves if they are considering their business continuity or transferability in the future?
- What type of legal structure costs the least amount of money to start?
- Am I a more of a risk taker or more risk averse?
- What type of legal structure pays the lowest tax rates?
- How can I set up my business to either continue on without me or be sold?
A: How can I set up my business to either continue on without me or be sold?

Q: In a sole proprietorship, the owner of the business:
- is able to borrow funds for the business without any personal liability.
- is not personally liable (or responsible) if anyone sues the business.
- has to pay corporate taxes on all profits.
- enjoys complete control over all aspects of the business.
A: enjoys complete control over all aspects of the business.

Q: A ________ is owned by a single individual who is responsible for all decisions and liabilities.
- limited liability partnership
- S corporation
- C corporation
- sole proprietorship
A: sole proprietorship

Q: A(n) ________ is an unincorporated business owned and run by one individual in which there is no distinction between the business and the owner.
- S Corporation
- LLC
- C Corporation
- sole proprietorship
A: sole proprietorship

Q: If an owner of a business were to die, which of the following entities would cease to exist (which type of business would “die” too)?
- a corporation
- a partnership
- a LLC
- a sole proprietorship
A: a sole proprietorship

Q: Anthony is starting a business and he is thinking about the costs associated with getting his business established because he does not have a lot of money to spend. Which form of ownership would cost Anthony the least to set up and why?
- An S Corp because he would not be paying double taxation.
- A partnership because he can share expenses with his business partner.
- An LLC because it gives him limited liability for the risks his business takes on.
- Sole proprietorship because he would not have to hire a corporate attorney to draft corporate charters, agreements, and articles of incorporation.
A: Sole proprietorship because he would not have to hire a corporate attorney to draft corporate charters, agreements, and articles of incorporation.

Q: The most common form of business ownership in the U.S. is a:
- partnership
- corporation
- LLC
- sole proprietorship
A: sole proprietorship

Q: Which form of business ownership involves tax reporting requirements that are fairly simple and the lowest tax rate of any legal structure?
- LLC
- Partnership
- Corporation
- Sole proprietorship
A: Sole proprietorship

Q: A ________ is owned and managed by a group of individuals who share in decision-making and risk.
- sole proprietorship
- C corporation
- S corporation
- partnership
A: partnership

Q: A partnership is:
- a business where a person runs a local “branch” and pays dues to a corporate owner. The corporate owner provides support to the business in the form of training and marketing materials.
- when one business buys another complimentary business and the relationship benefits both companies.
- a business in which the management is governed by a board of directors.
- a single business in which two or more people share ownership.
A: a single business in which two or more people share ownership.

Q: A legal partnership agreement should include:
- the amount of money each partner will contribute to the business, where the business should be located, and how many employees the company will hire.
- an executive summary, current financial statements and a survey of the marketing environment for the business.
- a description of the responsibilities that the board of directors is expected to fulfill.
- how future business decisions will be made, including how the partners will divide profits, resolve disputes, change ownership, and how to dissolve the partnership.
A: how future business decisions will be made, including how the partners will divide profits, resolve disputes, change ownership, and how to dissolve the partnership.

Q: In a limited partnership:
- all partners are equally liable for business debts.
- it can have no more than four limited partners.
- one partner owns the entire business.
- a general partner runs the business.
A: a general partner runs the business.

Q: A general partnership:
- is similar to a corporation because the business has to pay corporate taxes.
- requires one partner to manage the business (a general manager) and other partners contribute skills and financing to support the business.
- a board of directors resolves disputes among the partners.
- assumes profit, liability and management duties are divided equally among partners.
A: assumes profit, liability and management duties are divided equally among partners.

Q: In an LLP:
- Each partner IS responsible or liable for another partner’s misconduct or negligence.
- One partner is responsible or liable for another partner’s misconduct but not responsible for their negligence.
- A court must decide which partner takes on liability for misconduct and negligence, regardless of which partner is responsible.
- One partner IS NOT responsible or liable for another partner’s misconduct or negligence.
A: One partner IS NOT responsible or liable for another partner’s misconduct or negligence.

Q: Partnerships have several advantages over sole proprietorships including:
- partners are provided with certain marketing materials and support including training.
- the partners are not liable for business debts.
- partnerships are significantly less likely to fail than sole proprietorships.
- the partners bring diverse skills and perspectives.
A: the partners bring diverse skills and perspectives.

Q: The disadvantages of partnerships include:
- the partners bring diverse skills and perspectives.
- the limitations of the highly-restrictive, legal partnership requirements.
- the high taxes partnerships have to pay.
- the need to share decision making across the partners.
A: the need to share decision making across the partners.

Q: Partnerships have several limitations including:
- partnership incentives for employees.
- the ability to pool resources to secure capital.
- the high taxes that partnerships have to pay.
- the potential for disagreements among partners.
A: the potential for disagreements among partners.

Q: You are forming a new company that delivers food to students across college campuses. You have a number of partners, but your primary goals are to avoid personal liability and double taxation. You want to pay each of the partners based on the percentage of the company that they own. You could accomplish this by forming a(n):
- C corporation.
- Partnership.
- LLC
- S corporation.
A: S corporation.

Q: The main thing that makes S Corporations different from C Corporations is:
- The legal requirements to set up an S Corporation are less complicated than setting up a C Corporation.
- Owners of an S Corporation are personally liable for the business. With a C Corporation, owners are not held personally liable.
- C Corporations have to have a board of directors while S Corporations do not.
- That the business is not taxed itself. Only the shareholders are taxed.
A: That the business is not taxed itself. Only the shareholders are taxed.

Q: Advantages of an S Corporation include:
- Unlimited liability, double taxation and it requires more initial paperwork to establish the business.
- The legal requirements to set up an S Corporation are less complicated than setting up a C Corporation.
- S Corporations do not have to have a board of directors.
- Tax savings, business expense tax credits and the business has an independent life from its shareholders.
A: Tax savings, business expense tax credits and the business has an independent life from its shareholders.

Q: Which of the following entities can pursue a broader mission that may sometimes be at odds with maximizing profits for shareholders:
- S corporation.
- limited liability company.
- Partnership
- B corporation.
A: B corporation.

Q: A ________ seeks to provide a return to shareholders while pursuing other goals that benefit community or society.
- C corporation
- limited liability company
- partnership
- B corporation
A: B corporation

Q: You have looked into the various forms of ownership and decide that you would like to establish your business as a B Corporation. Which of the following items will you need to do?
- Obtain a 501(c)(3) business license, choose a worthy cause to support and commit to donating a portion of your revenues to that cause.
- Check to make sure no other business has already secured your preferred business name, find a compatible partner to invest in the business, get a tax ID number.
- Launch an IPO to quickly raise a large sum of capital.
- Declare a commitment to creating general public benefit, adopt a third-party standard and prepare an annual benefit report.
A: Declare a commitment to creating general public benefit, adopt a third-party standard and prepare an annual benefit report.

Q: Which of the following is a legal entity completely separate from the entities who own it?
- sole proprietorship
- limited liability partnership
- general partnership
- corporation
A: corporation

Q: Corporations whose stock can be sold to the general public are, by definition:
- S corporations
- B corporations
- partnerships
- public corporations
A: public corporations

Q: The disadvantages to starting and running a corporation include:
- limited liability
- easier to secure funding
- high probability of legal disagreements among owners
- double taxation
A: double taxation

Q: Which of the following entities are subject to limited liability?
- general partnerships
- sole proprietorships
- limited partnerships
- corporations
A: corporations

Q: Which of the following entities are subject to double taxation?
- partnerships
- sole proprietorships
- LLCs
- corporations
A: corporations

Q: What is an LLC?
- Limited Liability Company—a business structure that is attractive to medium sized business owners because they provide limited liability and double taxation, similar to that of a corporation.
- Limited Liability Company—a business certification that enables businesses to operate with limited liability so that if the business fails, the owners cannot be held liable for the resulting debt.
- Limited Liability Company—a business structure with limited liability, a board of directors, and faces double taxation.
- Limited Liability Company—a business structure that is attractive to small business owners because they provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.
A: Limited Liability Company—a business structure that is attractive to small business owners because they provide the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership.

Q: What makes an LLC different from a C Corporation?
- Owners of an LLC face much greater liability than owners of a C Corporation.
- An LLC can have fewer employees. A C Corporation must have many employees.
- An LLC has limited liability while corporations do not.
- LLCs and C Corporations are taxed differently.
A: LLCs and C Corporations are taxed differently.

Q: You are thinking about starting a business. Of course, you want to maximize your income and not pay taxes both as a business and as an individual. You are also concerned about liability. If something bad happens with your business, you don’t want to be personally liable. What form of business ownership would best meet your needs?
- Sole Proprietorship
- Partnership
- C Corporation
- Limited Liability Company
A: Limited Liability Company

Q: You are forming a new company that delivers food to residents across college campuses. You have a number of partners, but your primary goals are to avoid personal liability and double taxation. You want to pay each of the partners based on their contribution to the success of the company, which is NOT equal to their percentage ownership. You could accomplish this by forming a(n):
- S corporation.
- C corporation.
- general partnership.
- limited liability company.
A: limited liability company.

Q: You form an LLC to protect yourself from personal liability. The business fails and there are debts remaining. Under which of the following circumstances would you be personally liable for business debts.
- You did not have sufficient experience to make good decisions on behalf of the business.
- Customers did not buy the goods that your business produced and now you must pay back your suppliers.
- You couldn’t pay your bills because you were waiting on accounts receivables from customers.
- You signed documents personally securing the debts of the business.
A: You signed documents personally securing the debts of the business.

Q: Your friend Jody comes to you asking for advice. She owns a moving company called “Whatever Moves You, LLC” (they have cute musical notes in logo—very clever). She has owned the business for 45 years and has seen tremendous growth. Jody would like to transfer ownership of her business to her 30 year old daughter so that she may retire. What do you tell Jody?
- “No problem, it’s your business. Just give your daughter the keys!”
- “This could work! Your daughter will need to buy out your shares in the company and then the company is hers.”
- “No problem, find a business transfer agreement online, sign it and the business is hers.”
- “You will need to work with an attorney to see if this is even possible because rules about transferability of LLC’s vary by state.”
A: “You will need to work with an attorney to see if this is even possible because rules about transferability of LLC’s vary by state.”

Q: A business in which some or all partners have limited liabilities is called a:
- Limited Liability Company
- General Partnership
- C Corporation
- Limited Liability Partnership
A: Limited Liability Partnership

Q: You and your dear friend want to start an accounting firm together. You know each other well but you don’t want to be held responsible for your friends negligence or misconduct should such an event occur. You and your friend also want to be sure that you are only taxed once on company profits. Which type of organizational structure might be best for you?
- Partnership
- LLC
- C Corporation
- LLP
A: LLP

Q: Your friend tells you he is working on setting up a business. He tells you he has a business partner who shares in all decision making, it has been fairly easy to set up, he will only be taxed once on company profits, and he has limited liability for the company. What kind of business has your friend most likely described?
- Limited Liability Company
- C Corporation
- General Partnership
- Limited Liability Partnership
A: Limited Liability Partnership

Q: Unlike many types of businesses, ________ are not recognized as legal business structures in every state. Some states even limit the creation of these to professionals such as doctors or lawyers.
- sole proprietorships
- partnerships
- C Corporations
- limited liability partnerships
A: limited liability partnerships

Q: The credits and deductions of the company are passed through to partners to file on their individual tax returns. Credits and deductions are divided by the percentage of individual interest each partner has in the company. This is an example of a benefit enjoyed by which type of organization?
- General Partnership
- S Corporation
- LLCs
- Limited Liability Partnerships
A: Limited Liability Partnerships

Q: In some situations, individual business partners are not obligated to consult with other participants in certain business agreements. The fact that a partner can make business decisions without consulting the other partners is considered to be a disadvantage of a ________.
- LLC
- C Corporation
- S Corporation
- LLP
A: LLP

Q: A franchise:
- allows an individual to run a business that is owned by a large corporation.
- removes all risk associated with starting a business.
- Is the most inexpensive ways to start a business.
- provides a proven product, business model and brand to the franchisee.
A: provides a proven product, business model and brand to the franchisee.

Q: Examples of franchises include:
- Ralphs grocery store.
- Deloitte, Haskins & Sells accounting firm.
- Your local ice cream shop.
- Subway restaurants.
A: Subway restaurants.

Q: For a/the ________, the/an ________ is an alternative to expanding through the establishment of a new location, which avoids the financial investment and liability of a chain of stores.
- Corporation, acquisition
- Partnership, additional business partner
- Partnership, acquisition
- Franchisor, franchise
A: Franchisor, franchise

Q: Benefits of being a franchisee include:
- access to startup funds from the franchiser.
- the elimination of all business risks.
- guaranteed success by using the franchisor’s brand.
- access to a template for the business.
A: access to a template for the business.

Q: Disadvantages for a franchisee include:
- the name or brand might not be well known.
- significant limitations in the range of franchise options that are available in the U.S.
- franchises require more marketing efforts than other types of business to be successful.
- the high cost of start-up.
A: the high cost of start-up.

Q: A franchisee is generally expected to pay:
- a percentage of corporate employee costs to support the franchise.
- a fee to subsidize the start-up costs for future franchisees.
- an annual fixed fee to the franchisor to stay in business.
- royalty fees for support from the franchiser.
A: royalty fees for support from the franchiser.

Q: The typical fee structure for a franchise including initial franchise fees and royalties, is an example of:
- a disadvantage for the franchisor.
- neither.
- a disadvantage for both the franchisor and the franchisee.
- an advantage for the franchisor.
A: an advantage for the franchisor.

Q: A Subway franchisee does not do a good job managing food safety. Customers purchase sandwiches that contain expired turkey and become ill reflecting poorly on the brand and exposing the company to liability. This is an example of:
- A disadvantage for the franchisee—the cost associated with this incident will be a burden to the franchise owner.
- An advantage for the franchisee—the franchisee can expect that the franchisor will cover any legal fees associated with the incident.
- A disadvantage for the franchisee—they are not given enough information to know how to run their business properly.
- A disadvantage for the franchisor—a lack of control over the franchisee resulting in damage to the brand.
A: A disadvantage for the franchisor—a lack of control over the franchisee resulting in damage to the brand.

Q: Once a franchise is established with multiple locations, the company may be able to take advantage of economies of scale with suppliers, advertisers and vendors. This is an example of:
- an advantage for the franchisee.
- a disadvantage for the franchisee.
- a disadvantage for the franchisor.
- an advantage for the franchisor.
A: an advantage for the franchisor.

Q: When two companies combine to form a new company it is called a(n):
- acquisition
- franchise
- partnership
- merger
A: merger

Q: ________ usually creates one larger company and one of the original two companies ceases to exist.
- An acquisition
- A leveraged buyout
- A partnership
- A merger
A: A merger

Q: Disney and Pixar coming together was a “match made in cartoon heaven” some say. This undertaking enabled the two companies to collaborate freely and easily resulting in some of the highest grossing animated films of all time. This is a successful example of:
- a partnership.
- vertical integration.
- a licensing agreement.
- an acquisition.
A: an acquisition.

Q: When one company purchases and absorbs another company it is called a(n):
- merger.
- franchise.
- partnership
- acquisition.
A: acquisition.

Q: In 2014 Microsoft purchased the popular game Minecraft for $2.5B. This is an example of a(n):
- merger.
- hostile takeover.
- Licensing agreement.
- acquisition.
A: acquisition.

Q: In 2016, Microsoft announced that it would buy LinkedIn for $26.2 billion, in an all cash deal, making it the 6th largest deal if its kind on record. This is an example of:
- a hostile takeover
- a partnership
- a licensing agreement
- an acquisition
A: an acquisition

Q: Charter Communications is seeking to purchase and bring together Time Warner Cable and Bright House Networks, creating a company that will serve a collective 18.8 million Internet broadband subscribers and 17 million TV subscribers. Charter has specifically cited a desire to have greater bargaining power in negotiating with channel owners like Disney. This is an example of a:
- hostile takeover.
- vertical merger.
- partnership
- horizontal merger.
A: horizontal merger.

Q: AT&T’s proposed $39 billion acquisition of T-Mobile USA would have combined two of the four major national providers of mobile telephone services for both individuals and businesses. As a result of this acquisition, AT&T would be the provider of almost 40% of all mobile service, with Verizon and Sprint making up the remainder of the market. This is an example of:
- vertical acquisition.
- horizontal merger.
- a partnership.
- horizontal acquisition.
A: horizontal acquisition.

Q: Why would a company undertake a horizontal merger or acquisition?
- To increase synergies by merging firms that would be more efficient operating as one.
- To tap into a new market formerly unavailable to one of the companies.
- To use its expertise to improve the company then sell it for a higher price.
- To take advantage of synergies and potential market share gains.
A: To take advantage of synergies and potential market share gains.

Q: “Klucky Farms” merges with supermarket giant “Super Fresh Foods.” Klucky Farms is excited to be able to supply Super Fresh Foods with a steady supply of quality chicken and Super Fresh Foods is glad to have a reliable farm with fair prices under the same corporate leadership. This is an example of:
- horizontal merger or acquisition.
- synergistic partnership.
- diagonal merger or acquisition.
- vertical merger or acquisition.
A: vertical merger or acquisition.

Q: Smart Phone Inc. manufactures its custom phone cases for its awesome phones and tablets. It also manufactures its custom touch screen sensors and owns its own shipping company that delivers its phones and tablets straight to customer homes. Smart Phone Inc. is great at ________.
- horizontal integration
- horizontal merger
- licensing agreement
- vertical acquisitions
A: vertical acquisitions

Q: Why would a company choose to engage in a vertical merger or acquisition?
- To take advantage of greater market share.
- To reduce the threat of competition in the same market space.
- To enter a new market they haven’t yet been able to access.
- To increase synergies by merging firms that would be more efficient operating as one.
A: To increase synergies by merging firms that would be more efficient operating as one.