Question 1

Which of the following is an advantage of limited liability companies (LLCs) ?

Accepted Answer

A)   They can have any number of owners.
B)   The process of formation of an LLC is simple and fast.
C)   They are exempted from paying annual franchise tax.
D)   They do not need to register as foreign companies when doing business in other states.

Question 2

Jovi's Corner, a toy store, abruptly closes down after the death of its owner. Without an heir or an experienced person to manage the store, Jovi's Corner is shut down, and the property is sold off to another party. The profits are donated to an orphanage. In the given scenario, Jovi's Corner is most likely an example of a _____.

Accepted Answer

A)   limited liability company
B)   corporation
C)   limited partnership
D)   sole proprietorship

Question 3

Which of the following is a challenge faced by a franchisor?

Accepted Answer

A)   Keeping all the franchisees satisfied
B)   Paying for the rights to use the resources of the franchisee
C)   Executing expansion plans with the franchisee's approval
D)   Following the franchisee's procedures to the letter

Question 4

The most common type of corporation is an S corporation.

Accepted Answer

A) True 
 B)False

Question 5

A(n)  _____ is a voluntary agreement under which two or more people act as co-owners of a business for profit.

Accepted Answer

A)   vertical merger
B)   partnership
C)   S corporation
D)   acquisition

Question 6

Charles wants to start a décor business and takes a loan of $35,000 from the bank to set up the business. Once the business is up and running, Charles will have full control of the business and its profits. However, he will also be responsible for any losses that the business incurs. In this scenario, which of the following forms of business ownership is Charles planning to start?

Accepted Answer

A)   A limited liability company
B)   A corporation
C)   A limited partnership
D)   A sole proprietorship

Question 7

One of the reasons why C corporations have an edge over sole proprietorships is:

Accepted Answer

A)   the ease of its formation.
B)   because single individuals can retain the total profits of the company.
C)   because members have unlimited liability toward the company.
D)   the permanence of the business.

Question 8

The benefits of a general partnership include its _____.

Accepted Answer

A)   ability to pool financial resources
B)   ease of withdrawal
C)   limited liability
D)   permanence

Question 9

Fabotels is a hotel aggregator that buys budget hotels that succumb to financial losses and then refurbishes them under the company's brand name. Fabotels recently purchased Ravine Comforts, a small lodge that was running into huge debts. The business deal between Fabotels and Ravine Comforts exemplifies a(n)  _____.

Accepted Answer

A)   acquisition
B)   horizontal merger
C)   corporate spin-off
D)   divestiture

Question 10

A limited partnership is an agreement between two or more individuals to operate a business as co-owners for a limited period of time.

Accepted Answer

A) True 
 B)False

Question 11

Norman owns a large number of shares in a telecommunications corporation. Despite that, he does not have the right to vote in a meeting held specifically to elect the CEO of the company. In this scenario, Norman is most likely a _____.

Accepted Answer

A)   general partner
B)   limited partner
C)   common stockholder
D)   preferred stockholder

Question 12

Inkglot Technologies, a medium-sized corporation, is allowed to have only 35 stockholders at any point of time. However, all stockholders of the company can actively participate in the management of the company while still maintaining limited liability. Given this information, Inkglot Technologies is most likely a(n) :

Accepted Answer

A)   S corporation.
B)   C corporation.
C)   not-for-profit corporation.
D)   statutory close corporation.

Question 13

Mikhail, a Korean, wishes to be a stockholder in an airline company in the United States. However, he is told that he cannot buy shares of the company as he is neither a U.S. citizen nor a permanent resident of the country. Besides this, he can become a stockholder only if any of the current stockholders decide to sell their shares as the company already has 100 stockholders. Given this information, it can be assumed that Mikhail wants to be a stockholder of a(n)  _____.

Accepted Answer

A)   S corporation
B)   C corporation
C)   not-for-profit corporation
D)   statutory close corporation

Question 14

Which of the following is a difference between limited partnerships and limited liability partnerships?

Accepted Answer

A)   In limited partnerships, only the general partners assume unlimited personal liability of the debts, whereas in limited liability partnerships, the partners do not hold any liabilities.
B)   In limited liability partnerships, all partners have limited liability of company debts, whereas in limited partnerships, both partners hold unlimited liabilities.
C)   In limited liability partnerships, all the partners actively participate in the management of the company, whereas in limited partnerships, only the general partners actively manage the company.
D)   In limited partnerships, only the limited partners actively participate in managing the company, whereas in limited liability partnerships, all the members participate in the management of the company.

Question 15

Which of the following statements is true of the formation of general partnerships?

Accepted Answer

A)   Expert legal assistance can be acquired when drawing up a partnership agreement.
B)   It is illegal to start a partnership on the basis of a verbal agreement.
C)   A general partnership consists of a limited number of members.
D)   A general partnership refers to business unions formed through involuntary partnership agreements.

Question 16

Ronald, Jamie, Ben, and Joseph are colleagues who want to start a company of their own. All of them want to be actively involved in managing the business. However, they do not want any personal liability for any debts incurred by the company. In this scenario, they should most likely get involved in a _____.

Accepted Answer

A)   general partnership
B)   joint liability partnership
C)   limited liability partnership
D)   limited partnership

Question 17

The owners of limited liability companies (LLCs)  are called members because:

Accepted Answer

A)   they can only be individuals and not foreign investors or other corporations.
B)   LLCs are not considered separate and distinct from their owners.
C)   they share the same interests in the firm as common stockholders.
D)   LLCs are neither corporations nor partnerships.

Question 18

Which of the following is an advantage of general partnerships?

Accepted Answer

A)   Partners capitalize on complementary skills.
B)   All partners have limited liability.
C)   A partner's investment stays with the company even when he or she withdraws.
D)   Partnerships have negligible scope for disagreements.

Question 19

Albert is the owner of a car service center. As a sole proprietor, any profit that he earns is:

Accepted Answer

A)   subjected to double taxation.
B)   treated as Albert's personal income.
C)   not subjected to any form of taxation.
D)   taxable only when he acquires shareholders.

Question 20

A Franchise Disclosure Document (FDD)  is:

Accepted Answer

A)   a public document that contains a detailed description of all aspects of a franchise.
B)   a document provided by a franchisor to the franchisee.
C)   issued by the government to every new franchise.
D)   submitted by a franchisee to the franchisor.

Exam 6: Business Formation: Choosing the Form That Fits

Which of the following is an advantage of general partnerships?

Correct Answer
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Correct Answer
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The most common type of corporation is an S corporation.

Correct Answer
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A limited partnership is an agreement between two or more individuals to operate a business as co-owners for a limited period of time.

Correct Answer
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Correct Answer
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Which of the following statements is true of the formation of general partnerships?

Correct Answer
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Which of the following is a challenge faced by a franchisor?

Correct Answer
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Norman owns a large number of shares in a telecommunications corporation. Despite that, he does not have the right to vote in a meeting held specifically to elect the CEO of the company. In this scenario, Norman is most likely a _____.

Correct Answer
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Correct Answer
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One of the reasons why C corporations have an edge over sole proprietorships is:

Correct Answer
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A(n) _____ is a voluntary agreement under which two or more people act as co-owners of a business for profit.

Correct Answer
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Correct Answer
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The benefits of a general partnership include its _____.

Correct Answer
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The owners of limited liability companies (LLCs) are called members because:

Correct Answer
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Albert is the owner of a car service center. As a sole proprietor, any profit that he earns is:

Correct Answer
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Which of the following is a difference between limited partnerships and limited liability partnerships?

Correct Answer
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Correct Answer
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A Franchise Disclosure Document (FDD) is:

Correct Answer
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Which of the following is an advantage of limited liability companies (LLCs) ?

Correct Answer
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Exam 6: Business Formation: Choosing the Form That Fits

Which of the following is an advantage of general partnerships?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The most common type of corporation is an S corporation.

Correct AnswerverifiedShow Answer

A limited partnership is an agreement between two or more individuals to operate a business as co-owners for a limited period of time.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following statements is true of the formation of general partnerships?

Correct AnswerverifiedShow Answer

Which of the following is a challenge faced by a franchisor?

Correct AnswerverifiedShow Answer

Norman owns a large number of shares in a telecommunications corporation. Despite that, he does not have the right to vote in a meeting held specifically to elect the CEO of the company. In this scenario, Norman is most likely a _____.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

One of the reasons why C corporations have an edge over sole proprietorships is:

Correct AnswerverifiedShow Answer

A(n) _____ is a voluntary agreement under which two or more people act as co-owners of a business for profit.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The benefits of a general partnership include its _____.

Correct AnswerverifiedShow Answer

The owners of limited liability companies (LLCs) are called members because:

Correct AnswerverifiedShow Answer

Albert is the owner of a car service center. As a sole proprietor, any profit that he earns is:

Correct AnswerverifiedShow Answer

Which of the following is a difference between limited partnerships and limited liability partnerships?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A Franchise Disclosure Document (FDD) is:

Correct AnswerverifiedShow Answer

Which of the following is an advantage of limited liability companies (LLCs) ?

Correct AnswerverifiedShow Answer

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