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Homework answers / question archive / 1)Which form of business ownership is the most common in the United States?       Sole proprietorship Master limited partnership S corporation Corporations A sole proprietorship is an easy form of business ownership to form with limited start-up expenses, unlimited liability, and no special taxes, meaning the profits from the business are taxed at the individual owner’s personal income tax rate

1)Which form of business ownership is the most common in the United States?       Sole proprietorship Master limited partnership S corporation Corporations A sole proprietorship is an easy form of business ownership to form with limited start-up expenses, unlimited liability, and no special taxes, meaning the profits from the business are taxed at the individual owner’s personal income tax rate


1)Which form of business ownership is the most common in the United States?




  • Sole proprietorship
  • Master limited partnership
  • S corporation
  • Corporations

A sole proprietorship is an easy form of business ownership to form with limited start-up expenses, unlimited liability, and no special taxes, meaning the profits from the business are taxed at the individual owner’s personal income tax rate.




Unlimited liability means ___________.

  • the business is responsible for the majority of debt it incurs, and filing bankruptcy is out of the question
  • the business is responsible for the debt it incurs. If the business cannot pay its bills, the debt burden transfers to the owner(s), and he/she/they are liable for all debt
  • the business is responsible for the debt. If the business cannot pay, the company files bankruptcy. The debt does not fall on the shoulders of individual owners. They are safe from liability
  • that all forms of business are responsible for all the debts a business incurs in its everyday operations

When the business accepts unlimited liability, any debt the business incurs is the burden of the owner(s). The owner assumes all liability for paying these bills.




When Ben joined his Uncle’s oil exploration company in southern Oklahoma, he was given several hundred shares of stock in the firm, and was officially made a partner. The firm’s accountant explained that the company paid taxes the same way as regular partnerships, by passing the profits through to each partner. Ben could purchase more shares of the company on a public stock exchange, as long as someone was willing to sell his/her shares. This firm was likely a special form of ownership called ___________________.

  • master limited partnership
  • limited partnership
  • generally acceptable partnership
  • strategic alliance

A master limited partnership pays taxes like other partnerships, by passing the profits through to the individual owners, and thus accounting for those profits on each owner’s federal tax return. Similar to a corporation, the master limited partnership’s shares actually trade on a stock exchange.







At Sound Off!, a store that buys and sells used CDs, there is only one general partner, Sonia. She spends all her time running the business, and makes all the decisions. Sonia’s mother and brother put up money for her to buy the store, but they work full time at other jobs and have no management say in the running of Sound Off!, but share in some of the profits. This is an example of a ___________________.

  • general partnership
  • master limited partnership
  • S corporation
  • limited partnership

A limited partnership is a partnership with one or more general partners and one or more limited partners. Limited partners are owners who invest money but do not have any management responsibilities.




When going into a partnership, you should always:

  • put all terms of the partnership into writing, in a partnership agreement.
  • make sure that you have limited liability while you are in charge.
  • make sure all the profits are reinvested into the company.
  • divide the profits equally.

When starting a business, a good way to protect yourself and all partners is to put your partnership agreement in writing.




A brother and sister team, Jack and Julie took over the family’s Italian restaurant business when their father died. Julie operated one of the three locations, kept the firm’s books, and ordered supplies and equipment for all three locations. Jack operated the other two restaurants. In the beginning, it was difficult. Jack thought he should get 2/3 of the company profits because he was responsible for the profitability on two out of three locations. Julie saw it differently because she felt her responsibilities spanned the entire business. What’s important for them to remember in their situation is ________.

  • the firm’s limited liability status
  • the fact that Jack should get the profits from two locations because he also assumed all the liability from those locations
  • a 40/60 split with Julie getting the lion’s share since she was spending lots of hours on the books and ordering
  • the fact they both shared unlimited liability, and if one or the other failed to meet his/her financial commitment, the other partner would also be liable for all debts

Julie and Jack are general partners because both are actively involved in the company. As such, both have unlimited liability. If the company is not able to pay its bills, the burden falls to both partners. If one or the other partner is unable to pay, the burden falls on the other partner to pay all.







The owners of a corporation are called:

  • trustees.
  • stockholders.
  • limited partners.
  • proprietors.

Stockholders are the owners of corporations. However, they are not liable for the debts or other problems of the corporation beyond the money they invest.




Which of the following lists characteristics typical of a C corporation?

  • Shareholders must be U.S. citizens. Each business is limited to 100 shareholders.
  • Limited liability, but taxed like a partnership or sole proprietorship.
  • Flexibility to be taxed in several different ways with a limited life.
  • Taxed separate from its owners who also enjoy limited liability.

C corporations are taxed separate from their owners; and owners enjoy limited liability.




Joe and Mark would like to start a new business selling a product new to the U.S., the Peraves Monotracer. This is a motorcycle-type vehicle that is encased in a sort of shell, so that the rider can ride this product in any kind of weather. Joe and Mark have done a considerable amount of research on this product, and think it would be successful in the U.S. However, they are still concerned about the risk of a new venture and both would like to avoid losing any personal assets. They should organize their firm as a:

  • corporation.
  • limited partnership.
  • general partnership.
  • sole proprietorship.

Joe and Mark would want to organize their firm as a corporation because of limited liability. They would also have the ability to raise more money for investment.




When Dave, Dan, and Darwin lost their jobs during the recent recession, they pooled their resources, borrowed a little more, and bought a couple of houses to renovate. Darwin was a single guy with two other residential properties that he rented out. Dan and Dave had families with college-age children; they owned their homes, and Dan had a wife who worked at a professional job. All three were concerned about the risk involved in owning their own business, particularly the risk of losing personal assets. As their advisor, which of the following forms of business ownership would you recommend?

  • Sole proprietorship
  • General partnership
  • Limited liability company
  • Master limited partnership

The advantage of the LLC, limited liability company, is limited liability (members are only liable for the funds each invested) and a choice of how the organization will be taxed. In this case, the partners were concerned with liability. The other three forms of ownership have unlimited liability.






You inherited 500 shares of GE stock from your Great Aunt Martha. As you contemplate selling the shares, your accountant informs you that the company pays a generous dividend, and advises you to start watching the firm’s profits. When you are awarded the first dividend, you learn that it is considered a source of income and you will be taxed on that amount. You find this bothersome because the firm paid the dividend from after-tax profits (these dollars were already taxed). This phenomenon is called __________.

  • corporate taxation adjusting
  • double taxation
  • shareholder tax penalty points
  • entitlement tax

If corporations issue dividends to stockholders, these amounts are considered income and as such are taxed as the personal income of the stockholders. After-tax profits, though, have already been taxed and paid by the corporation prior to issuing them as dividends. This is a situation that involves double taxation.




A firm’s management purchases all the issued and outstanding stock of the firm and takes the company off the stock market. The management of this company has engaged in ____________.

  • a leveraged buyout
  • a conglomerate merger
  • taking the firm private
  • forming a master limited partnership

Taking a firm private involves the efforts of a group of stockholders or management to obtain all of the firm’s stock for themselves.




If the employees of San Simeon Company successfully borrowed a large sum of money and purchased the firm from its current owners, we would call this event a(n) ___________.

  • leveraged buyout
  • stock grab
  • management merger
  • hostile takeover

Leveraged buyout (LBO) is an attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing. The funds borrowed are used to buy out the stockholders in the company. The employees, managers, or investors now become the owners of the firm. When managers buy all of the stock of a firm and take it off the open market, it is referred to as taking the firm private.




Maverick Motors was a small manufacturing company that made motors for compressors used in air conditioning systems. Maverick purchased the Calvert Compressor Company, which was Maverick Motors’ largest customer. This strategic decision bringing the two companies together is termed a ________.

  • conglomerate merger
  • vertical merger
  • horizontal merger
  • hostile acquisition

A vertical merger is the joining of two firms at different stages of related businesses.




When Patty Sloane bought a Tidy Maid franchise, she became a:

  • franchisor.
  • limited stockholder.
  • venture capitalist.
  • franchisee. .

Franchisees are the people who buy franchises




One of the key advantages of a franchise is:

  • receiving management and marketing expertise from the franchisor.
  • fewer restrictions on selling than in other forms of businesses.
  • lower start-up costs than all other businesses.
  • getting to keep all the profits of your business after taxes. .

The advantages of a franchise include: (1) management and marketing assistance, (2) personal ownership, (3) nationally recognized name, (4) financial advice and assistance, and (5) lower failure rate.




When your profitable franchise fails simply because other franchisees have failed, this is known as the:

  • royalty rate.
  • coattail effect.
  • participative failure rate.
  • greenback ceiling. .

The coattail effect is when the actions and success or failure of other franchises have an impact on your future growth and profitability, positively or negatively.




Advantages of ________ include reduced start-up fees and no territory restrictions.

  • fast-food franchising
  • online franchising
  • international franchising
  • multiple sector franchising

Starting an online franchise has its advantages in reduced franchise fees, lower start-up costs, and no territory restrictions.




International franchising is:

  • a successful growth area for both small and large franchises.
  • about the same as domestic franchising in terms of costs.
  • becoming increasingly difficult and thus is not growing.
  • easy because you do not have to adapt your product at all to different markets.

International franchising is an area that offers good opportunities for both large, established franchises (i.e. McDonald?s) and smaller, emerging franchises that offer distinctive products and opportunities.




In a ________, members democratically control the business by electing a board of directors that hires professional management to run the business.

  • corporation
  • cooperative
  • franchise
  • master limited partnership

A cooperative is a business owned and controlled by the people who use it.


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