Self-Test: Multiple Choice

You can find the answers on the last page of this text.

6-1 Omar and Sam are physical therapists who work together. Their office is on the first floor of a building Omar owns. They need protection of their personal assets as well as to protect themselves from any errors their partner makes. Which business structure would best suit their company?
1. A general partnership
2. A sole proprietorship
3. A not-for-profit organization
4. An LLC
6-2 Why might a potential business owner want to establish a business as a sole proprietorship?
1. The owner can use personal assets to satisfy any business liabilities.
2. The owner can take into consideration the opinions of other business owners.
3. The owner can generate a separate tax return for business expenses.
4. The owner is not required to file legal paperwork to start up the business.
6-3 Trudy and Yvonne have come together to run Salford Children’s Center. The center receives state and federal grants, and whatever is left over is put back into the center to improve and expand its services. Salford Children’s Center would best be described as a(n)
1. partnership.
2. LLC.
3. not-for-profit organization.
4. sole proprietorship.
6-4 Jackson Eats is a partnership owned by Jesse and Robert Jackson. They need additional capital to expand to a new location, so they have decided to bring in Sean, who will only contribute capital. Sean would best be considered as a(n)
1. general partner.
2. limited partner.
3. owner.
4. None of the above
6-5 Which of the following is not an advantage of a C corporation?
1. The owner’s personal assets are protected.
2. The owner can raise greater sources of funds by selling shares of ownership.
3. The corporation can continue to exist even if the owner leaves the business.
4. There is little paperwork involved.
6-6 Warren Buffet runs Berkshire Hathaway, which owns companies such as GEICO insurance, Dairy Queen, Fruit of the Loom, and Helzberg Diamonds. Berkshire Hathaway is considered to be which of the following?
1. A conglomeration
2. An acquisition
3. A merger
4. A cooperative
6-7 A group of people elected by a firm’s shareholders to oversee the operation of a corporation are
1. the firm’s CEO, CFO and COO.
2. the firm’s board of directors.
3. the firm’s line managers.
4. All of the above
6-8 Which is a benefit of cooperatives?
1. The power of the group enables them to negotiate for goods and services at favorable prices.
2. They are exempt from paying federal and state taxes.
3. They are established to serve the public interest rather than make a profit.
4. They provide services to people with a variety of interests and needs.
6-9 Dad’s Camping Equipment Co. buys tents from Son’s Outdoor Tent Co. If Dad’s company merges with Son’s company to form Family Outdoor Equipment Store, which of the following best describes the type of transaction that occurred between the two companies?
1. A vertical merger
2. A product extension merger
3. A horizontal merger
4. A conglomeration
6-10 The management team of Company A has contacted the shareholders of Company B encouraging them to replace their current managers with a new group who are more in line with the goals of Company A. Company A is launching a
1. proxy fight.
2. tender offer.
3. friendly acquisition.
4. friendly takeover.

True/False

You can find the answers on the last page of this text.

6-11 Any business can elect to be an S corporation.
1. □ True or □ False
6-12 Liabilities include losses associated with breaches of contract or from damages.
1. □ True or □ False
6-13 A small, privately owned company can be structured as a corporation.
1. □ True or □ False
6-14 A significant disadvantage of forming a partnership is the amount of paperwork and reporting it requires.
1. □ True or □ False
6-15 A partnership agreement should include procedures that outline how a partner’s departure from the business will be handled as well as how new partners are to be brought in.
1. □ True or □ False

Critical Thinking Questions

6-16 Why might it be important to structure your business as a C corporation, even if you are the only person running the business?
6-17 What are the similarities and differences between a general partnership and a limited partnership?
6-18 Approximately 70 percent of all businesses are sole proprietorships. Why is sole proprietorship a popular form of business ownership? What are the circumstances when it might be important to consider a different form of ownership?

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Self-Test: Multiple Choice