Question 1

With regard to taxation of partnerships, which of the following statements is true?
A) Profits are taxed twice.
B) Each partner is taxed in the same way as a sole proprietor.
C) A partnership is exempt from taxes.
D) The partnership is taxed as a separate entity.

Accepted Answer

Partnerships are not taxed as a separate entity. Instead, the income or loss of the partnership flows through to the partners' individual tax returns, and each partner is taxed on their share of the partnership income or loss. This is known as pass-through taxation, and it allows partnerships to avoid double taxation. Therefore, option A and D are incorrect. Option C is also incorrect as partnerships are not exempt from taxes.

Question 2

Taraun has always dreamed of starting his own restaurant. He graduated from culinary school and has worked as an executive chef in several restaurants. Now that he is ready to open his own restaurant he realizes he will need some help. Taraun is obviously knowledgeable about all things culinary, but needs some help with management, marketing, and finance. Which of the following is the best choice for Taraun?
A) a partnership, because Taraun can purchase an existing restaurant and maintain all of the employees
B) a corporation, because it has perpetual life and the restaurant can stay open forever
C) a partnership, because it will combine the knowledge of multiple people
D) a sole proprietorship, because Taraun knows everything he needs to know about starting a restaurant

Accepted Answer

A partnership would allow Taraun to combine his culinary knowledge with the expertise of others in management, marketing, and finance. He could choose partners who have experience in these areas to help him run a successful restaurant. Additionally, a partnership would allow for shared liability and potentially greater financial resources to invest in the restaurant.

Question 3

Thomas wants to make money, so he starts his own business as a sole proprietor. Why does he like this form of business?
A) he will get to keep all of the profits the business makes
B) profit is guaranteed because he will be the only owner
C) it will provide a steady income for him
D) he has to split the profits with only one other person

Accepted Answer

Thomas likes the sole proprietorship form of business because he will get to keep all of the profits the business makes.

Question 4

If Cara, Aubrey, and Liam want to limit liability for their business debts and want to avoid double taxation, which type of business ownership would you recommend?
A) regular corporation
B) general partnership
C) sole proprietorship
D) LLP

Accepted Answer

An LLP (Limited Liability Partnership) is a type of partnership in which all partners have limited liability for the actions of the other partners. This means that each partner is only responsible for their own actions and debts, and not for those of the other partners. Additionally, an LLP is taxed like a partnership, which means that the business's profits are only taxed once, as opposed to being taxed at both the corporate and personal level. Therefore, an LLP would be the best choice for Cara, Aubrey, and Liam as they want to limit their liability for business debts and avoid double taxation.

Question 5

Nidal has an idea for a new technology company. He knows the technology industry is constantly changing and in order to be successful his company will require a large amount of capital to keep up with the changes. Which of the following is the best choice for Nidal?
A) a partnership, because Nidal will need someone to help generate ideas for the business
B) a corporation, because it is easiest to exchange shares of ownership for investment capital
C) a sole proprietorship, because it will be easiest for Nidal to remain in control
D) a partnership, because it is easiest to exchange shares of ownership for investment capital

Accepted Answer

A corporation is the best choice for Nidal because it is the easiest way to raise investment capital through the sale of shares of ownership (stocks). Additionally, a corporation provides limited liability protection for its owners, meaning that Nidal's personal assets would not be at risk in case of any financial or legal issues with the company. However, a partnership or sole proprietorship would not be ideal for Nidal's company as they do not offer the same level of liability protection and may make it more difficult to raise the necessary capital.

Question 6

What does corporate taxation mean?
A) Companies have to pay both sales taxes and income taxes.
B) Companies must pay taxes on their earnings, and then shareholders pay taxes on their dividends.
C) Suppliers tax their customers, and in turn these businesses tax the ultimate consumer.
D) Companies must pay taxes on corporate income and then they pay additional taxes on distributions of profit to shareholders.

Accepted Answer

Companies must pay taxes on their earnings, and then shareholders pay taxes on their dividends.

Question 7

Denzel has a lot of expertise in architecture but doesn't know much about management. He'd like to share ownership in a business with another person who could offer the management expertise to make the business successful. Which of the following will he likely form?
A) sole proprietorship
B) corporation
C) partnership
D) joint venture

Accepted Answer

A partnership is a business structure in which two or more people share ownership and management responsibilities. This would be the best choice for Denzel as he can provide his expertise in architecture while the other partner can contribute with management skills to make the new business successful.

Question 8

In which of the following do profits from a business go straight to the owners, who then report their share of profits (or losses) in the business on their individual tax returns?
A) corporate dual taxation
B) pass-through taxation
C) single taxation
D) profit rate taxation

Accepted Answer

The option that describes this type of taxation is pass-through taxation, where the profits from the business are not taxed at the corporate level, but instead, pass through to the owners, who report their share of profits or losses on their individual tax returns.

Question 9

If you are a shareholder in a corporation and you receive dividends, they must be reported to the Canada Revenue Agency. How are these dividends taxed?
A) as business income
B) as capital gains
C) as personal income
D) as investment income

Accepted Answer

Dividends received by shareholders are generally considered personal income and taxed at the individual's marginal tax rate. The amount of tax owed on dividends will vary depending on the investor's income level and the province they reside in.

Question 10

Jutta and Carl have a small medical practice that operates as a partnership. Jutta does 70% of the work and Carl does 30%. However, Carl invested 60% of the money required to start the business. If the company makes $100,000 in profit this year, how much will each partner receive?
A) Jutta will receive $70,000; Carl will receive $30,000
B) Jutta will receive $40,000; Carl will receive $60,000
C) Jutta will receive $60,000; Carl will receive $40,000
D) Profits will be shared in the proportion specified in the partnership agreement.

Accepted Answer

The distribution of profits in a partnership depends on the terms specified in the partnership agreement, which may consider factors like work contribution, capital investment, or other agreed-upon terms, not just work done or capital invested.

Question 11

A growing pizza restaurant was originally formed as a sole proprietorship because it was based on the owner's family recipe. The restaurant has become so popular that several wealthy people have inquired about investing money to help the business open more locations. If the owner had known there would be an opportunity to sell shares of the company in exchange for investment capital, which form of business would he have chosen?
A) syndicate
B) partnership
C) joint venture
D) corporation

Accepted Answer

A corporation is the best choice because it allows for the sale of shares to investors in exchange for investment capital, which would help the business expand. It also provides limited liability protection for the owner and potential shareholders. A syndicate is a group of individuals or organizations that come together for a specific purpose, and a joint venture is a partnership for a specific project or venture. While a partnership can also sell shares, it would not provide the same level of limited liability protection as a corporation.

Question 12

The Zebra Corporation is owned by three people. Jun owns 40%, Liu Wei owns 35%, and Minh owns 25%. However, Minh does at least 50% of the work, and Jun is a passive owner who does no work at all. If the company makes $100,000 profit this year and decides to distribute it all to the owners, how much would Jun get?
A) $0
B) $25,000
C) $40,000
D) $50,000

Accepted Answer

Jun owns 40% of the Zebra Corporation, so if the company distributes $100,000 profit according to ownership percentages, Jun would receive 40% of $100,000, which is $40,000.

Question 13

Which form of business organization experiences double taxation?
A) partnership
B) corporation
C) venture company
D) sole proprietorship

Accepted Answer

Corporations experience double taxation, which means that the corporation pays taxes on its profits and then shareholders pay taxes on any dividends they receive.

Question 14

Three construction contractors decide to form a real estate development firm where they will share ownership and decision making. They would like the ability to allow others to "buy in" to the business, but only if those people will be active participants who can add value to the existing ownership team. Which form of business should they most likely choose?
A) sole proprietorship
B) syndicate
C) partnership or LLP
D) joint venture

Accepted Answer

A partnership or LLP (limited liability partnership) would allow the contractors to share ownership and decision making, while also giving them the ability to invite others to invest and become active participants. A sole proprietorship would not allow for additional owners, a syndicate is typically used for short-term investments, and a joint venture is a temporary partnership for a specific project.

Question 15

Twenty young entrepreneurs decide they want to start a dating service; however, they do not want to be held personally liable for losses of the company. They want to avoid double taxation. Which type of business organization would best fit their needs?
A) corporation
B) LLP
C) partnership
D) closed corporation

Accepted Answer

An LLP (Limited Liability Partnership) would best fit their needs as it offers limited liability protection to the partners, meaning that they would not be personally responsible for any losses incurred by the company. Additionally, LLPs are not subject to double taxation like corporations, as the profits and losses are passed through to the individual partners and reflected in their personal tax returns.

Question 16

Which type of entity exists independent of the owners?
A) sole proprietorship
B) corporation
C) partnership
D) joint venture

Accepted Answer

A corporation is a legal entity that exists independently of its owners, also known as shareholders. It has its own legal rights, such as the ability to enter into contracts and own property, and is responsible for its own debts and liabilities. The other options, sole proprietorship, partnership, and joint venture, all involve the ownership and control of the entity being directly tied to the individuals involved.

Question 17

Big Box Corporation has two owners who share the work equally. Andrea owns 80% of the company shares, and Sheryl owns 20% of the company shares. Andrea invested 60% of the money required to start the business. If the company makes $100,000 profit this year and decides to distribute it all to the owners, how much will Andrea get?
A) $20,000
B) $60,000
C) $80,000
D) $100,000

Accepted Answer

Since Andrea owns 80% of the company shares, she will receive 80% of the profit distribution. Since she invested 60% of the money required to start the business, she will also receive 60% of the profit distribution based on her investment. Therefore, Andrea will receive 80% + (60% of the remaining 20%) = 88% of the profit distribution. 88% of $100,000 is $88,000, so Andrea will receive $80,000.

Question 18

Joan is opening a home-based craft business where she makes high-end greeting cards and sells them on Etsy. Because this will remain a small and simple business, which of the following will she likely form?
A) sole proprietorship
B) corporation
C) partnership
D) joint venture

Accepted Answer

Since Joan's business will remain small and simple, a sole proprietorship is the most logical choice. It is the simplest type of business to form, requires very little paperwork and legal documentation, and provides full control and ownership to the individual running the business.

Question 19

Fifteen years ago, Saul started a small business in which he was the only owner. He is looking to change ownership structure because his business has grown exponentially and he would like to expand overseas. Saul knows his overseas expansion will be expensive and he will need investments from people outside the business to make that happen. Saul would likely consider switching to which form of business?
A) an entrepreneurship
B) a sole proprietorship
C) a partnership
D) a corporation

Accepted Answer

Saul should consider switching to a corporation because it is the best option for raising capital through the sale of stocks and attracting investors. A corporation also provides limited liability protection for the owners, which would be beneficial in case the business were to face legal issues or financial difficulties.

Question 20

Lisa and Aron own a partnership that provides rental equipment for parties and special occasions. Which of the following is true about the way Lisa and Aron would handle company profits?
A) automatically split the profits, with 50% for Lisa and 50% for John
B) divide the profits according to each person's investment in the business
C) distribute the profits according to the terms of the partnership agreement
D) split the profits according to how many hours each person worked

Accepted Answer

Partnerships typically have a partnership agreement that outlines how profits will be distributed among the partners. It is important for Lisa and Aron to follow the terms of their agreement to ensure fairness and avoid disputes.

Quiz 4: Choosing a Form of Business Ownership

With regard to taxation of partnerships, which of the following statements is true?

Thomas wants to make money, so he starts his own business as a sole proprietor. Why does he like this form of business?

If Cara, Aubrey, and Liam want to limit liability for their business debts and want to avoid double taxation, which type of business ownership would you recommend?

Nidal has an idea for a new technology company. He knows the technology industry is constantly changing and in order to be successful his company will require a large amount of capital to keep up with the changes. Which of the following is the best choice for Nidal?

What does corporate taxation mean?

Denzel has a lot of expertise in architecture but doesn't know much about management. He'd like to share ownership in a business with another person who could offer the management expertise to make the business successful. Which of the following will he likely form?

In which of the following do profits from a business go straight to the owners, who then report their share of profits (or losses) in the business on their individual tax returns?

If you are a shareholder in a corporation and you receive dividends, they must be reported to the Canada Revenue Agency. How are these dividends taxed?

Jutta and Carl have a small medical practice that operates as a partnership. Jutta does 70% of the work and Carl does 30%. However, Carl invested 60% of the money required to start the business. If the company makes $100,000 in profit this year, how much will each partner receive?

Which form of business organization experiences double taxation?

Twenty young entrepreneurs decide they want to start a dating service; however, they do not want to be held personally liable for losses of the company. They want to avoid double taxation. Which type of business organization would best fit their needs?

Which type of entity exists independent of the owners?

Joan is opening a home-based craft business where she makes high-end greeting cards and sells them on Etsy. Because this will remain a small and simple business, which of the following will she likely form?

Lisa and Aron own a partnership that provides rental equipment for parties and special occasions. Which of the following is true about the way Lisa and Aron would handle company profits?