Deck 8: The Organizational Plan: Teams, Legal Structures, Alliances, and Directors

Question 1

A nonprofit corporation must establish a board of directors or trustees to oversee its operations.

Answer 1

True

Question 2

There are no limits on the owner's personal liability in a sole proprietorship.

Answer 2

True

Question 3

Partners must contribute capital or assets to form a partnership.

Answer 3

False

Question 4

Incorporation will not protect a firm's owners from liability if it is used to perpetrate a fraud, skirt a law, or commit some other wrongful act.

Question 5

The management team of a small business should focus on competent insiders as opposed to outside specialists.

Question 6

An ownership interest does not confer a legal right to act for the firm or to share in its management.

Question 7

S corporations can have nondomestic alien stockholders but no more than 50 stockholders.

Question 8

A highly competent management team can rescue a firm that is based on a weak business concept or that lacks adequate
resources.

Question 9

A partnership reports the income it earns to the Internal Revenue Service, but the partnership itself does not pay any taxes.

Question 10

Sole proprietors often benefit from fringe benefits such as tax-free insurance plans.

Question 11

A management team is often stronger than an individual entrepreneur because it provides a diversity of skills and greater assurance of continuity.

Question 12

The liability of owners is greater with a sole proprietorship than with a general partnership.

Question 13

A partnership agreement states explicitly the rights and duties of partners with each party assuming joint and several liability.

Question 14

The concept of balance on the management team means that the entrepreneur should not be wrapped up too much in one area, such as sales or production, but be well rounded.

Question 15

A limited partnership must have at least two general partners and one or more limited partners.

Question 16

A professional corporation shields owners from one another's liability and is set up for individuals in certain professional practices.

Question 17

The LLC differs from the C corporation in that the LLC avoids financial complications from double taxation.

Question 18

Creating a partnership allows a business to pool the managerial talents and capital of those individuals joining together as partners.

Question 19

Partners always share profits and losses equally.

Question 20

The sole proprietorship is a business owned by two or more people but operated by only one person.

Question 21

An entrepreneur can best build social capital by

A) joining several social networking sites.
B) building contacts through community organizations.
C) letting others know when the company has done something well.
D) using reciprocation.

Question 22

Ricardo has a new startup and has hired his brother and nephew as part of the management team. Which of the following is one of the possible disadvantages of this arrangement?

A) Federal wage and hour laws do not apply to family members.
B) They are willing to make personal sacrifices for the venture.
C) The team could lack complementary strengths.
D) They share liability in the event of a business failure.

Question 23

Typically strategic alliances are harder to set up than to maintain.

Question 24

After working together for a few months, disputes begin to arise between two of the young company's leaders. Their differences seem to be irreconcilable. The owner's best action is to

A) let one or both of the individuals go.
B) call in an arbitrator.
C) sell the business.
D) form a strategic alliance with a larger company.

Question 25

Vicenzo is the sole owner and manager of a startup company. As the business grows, he finds it more difficult to fulfill the needs of all the management positions. Although he is the creative genius behind the company, he lacks experience in other areas. At this point, Vicenzo should

A) seek the advice of an investment banker.
B) hire a management team with expertise in complementary areas.
C) encourage his advisors to take an active role in managing the company.
D) form an alliance with another startup company.

Question 26

An advisory board functions like a board of directors does, except that the members are compensated for their services and the company must have directors and officers liability insurance.

Question 27

The number of small business owners who are choosing to go it alone is increasing significantly because this option has been made increasingly manageable by

A) new tax incentives.
B) emerging technologies.
C) expanding social networks.
D) balanced management teams.

Question 28

Startup owners may increase their chances for success by seeking _____ over a management team with family and friends.

A) a good CPA
B) an outstanding law firm
C) members with a balance of expertise
D) a business consultant team

Question 29

Max chose to operate his production studio as a sole proprietorship even though his attorney cautioned that he was

A) reducing its overall profit potential.
B) increasing his taxable income.
C) exposing himself to unlimited personal liability.
D) violating an existing partnership agreement.

Question 30

Webster is reviewing résumés looking for candidates for leadership positions in his very young company. Webster is putting together his:

A) business plan.
B) advisory board.
C) board of directors.
D) management team.

Question 31

Reciprocation is

A) responding to competitor's marketing efforts.
B) a powerful sense of obligation to repay what has been done for you.
C) not important when building social capital.
D) only important once you have established your business.

Question 32

Robbie's financial advisor referred a customer to Robbie's new business. Under the concept of _____, Robbie is now obligated to return the favor.

A) reciprocation
B) social capital
C) social networking
D) unlimited liability

Question 33

By utilizing the experience of a board of directors, the chief executive of a small corporation may have to relinquish active control of its operations.

Question 34

The key to strong management in a new firm is

A) balance, with each member having competence in at least one area.
B) financial competence of the chief executive.
C) a strong marketing manager who understands financial statements.
D) close friendship among all members of the team.

Question 35

In a B corporation, shareholders can sue directors if the company falls short of its stated social mission.

Question 36

Sometimes, small business board members are given company stock in lieu of compensation.

Question 37

As it relates to new businesses, one function of a social network is to

A) promote the enterprise during conversations with potential rivals.
B) provide a pool of candidates for leadership positions.
C) assure a steady flow of applicants for production positions.
D) connect the enterprise to a web of contacts that provides access to a wide range of resources.

Question 38

Unlimited liability for business debts is imposed on

A) shareholders in a C corporation.
B) shareholders in an S corporation.
C) sole proprietors.
D) limited partners.

Question 39

For the best success, strategic alliance partners should structure contracts to ensure growth, including an "easy out" clause if the alliance does not go well.

Question 40

The board of directors is elected by the stockholders of a corporation.

Question 41

Millie has a sole proprietorship that is her only source of income. Which of the following legal actions should she take to prevent the business from being ruined if she becomes incapacitated?

A) Give someone who is competent power of attorney to continue the business.
B) State in her will what she would like done with the company.
C) Find a partner and change the legal organization of the company.
D) Tell her heirs to sell as she can't prevent ruin with a sole proprietorship.

Question 42

Which of the following legal forms allows owners to contribute no capital but still play a part in managing the business and share in its profits?

A) S corporation
B) C corporation
C) Partnership
D) Sole proprietorship

Question 43

As she considered becoming a partner in a new business venture, Valerie asked her potential partner about a(n) _____ in the event that the partnership did not work out as expected.

A) liquidation plan
B) equity split
C) exit strategy
D) asset distribution plan

Question 44

A corporation

A) is chartered under state laws.
B) is chartered under federal laws.
C) remains in existence only as long as its owners are alive.
D) shifts liability of its debts to its owners.

Question 45

Trevor is in his early 60s but still wants to "strike out on his own" by starting a new business. One roadblock he may face is resistance from

A) creditors to lend money for the enterprise.
B) his heirs about the distribution of assets at his death.
C) customers who fear he may become ill and unable to fulfill their orders.
D) the federal government regarding his tax identification number.

Question 46

The legal document that spells out the partners' rights and duties is called the

A) articles of incorporation.
B) partnership agreement.
C) partnership bylaws.
D) SS-4 form.

Question 47

Becky wants to organize her startup as a regular corporation. One of the first steps Becky should take is to

A) hire the officers (president, treasurer, etc.) of her company.
B) file her corporate charter with the secretary of state.
C) apply for permission to incorporate in her state.
D) obtain financing for her venture.

Question 48

Abby, Adam, and Arnold are partners. They have planned to continue the partnership even after the death of any one partner. To this end, the partners have

A) stipulated in their wills that their share of the partnership is bequeathed to the other two partners.
B) purchased life insurance policies naming the other two partners as beneficiaries.
C) created trust funds that can be used to pay off the heirs of the deceased partner.
D) secretly signed documents to be opened only after the death of the deceased partner that relinquish all claims to the partnership.

Question 49

Which of the following entities is liable for a corporation's debts?

A) Stockholders
B) Board of directors
C) The corporation itself
D) The corporation's president

Question 50

A corporate charter should

A) be detailed.
B) be in accordance with state law.
C) include bylaws.
D) indicate profit potential.

Question 51

Any person capable of _____ may legally become a business partner.

A) assenting to liability
B) contracting
C) contributing capital
D) having a claim on assets

Question 52

For a corporate charter to be obtained,

A) one or more persons must apply to the secretary of state for permission to incorporate.
B) the owner(s) must agree to be interviewed by a state department official.
C) the owner(s) must negotiate an incorporation fee.
D) the partners involved must outline a division of assets.

Question 53

Cameron is creating the document that specifies the size of the board, the duties of the directors, voting rights, etc. This document is known as the

A) corporate bylaws.
B) partnership agreement.
C) employment contract.
D) stock certificate.

Question 54

A corporate charter should be

A) very detailed.
B) prepared by the founder.
C) broad in its statement of the firm's power.
D) lengthy and precise.

Question 55

Which of the following legal forms has the smallest percentage of new businesses?

A) Sole proprietorship
B) Partnership
C) C corporation
D) S corporation

Question 56

If partners cannot resolve disputes between themselves, they may be wise to hire a(n)

A) business mediator.
B) arbitrator.
C) business judge.
D) business attorney.

Question 57

Upton was surprised to find his partner had signed an agreement to sell product to a customer at below cost. He tried to cancel the contract but found out that

A) partners have legal power of attorney to do as they please.
B) each partner is in essence a sole proprietor.
C) partners are seldom trustworthy.
D) any partner can legally bind the company without the consent of any other partner.

Question 58

Which of the following best defines a partnership?

A) A business owned and operated by one person who hires part-time employees
B) A voluntary association of two or more persons to operate a business for profit
C) The governing body for a corporation
D) A group of three persons in which each person has limited personal liability

Question 59

A key characteristic of a partnership is that each partner

A) must contribute capital to the business.
B) shares in company assets upon the dissolution of the partnership.
C) is capable of legally contracting.
D) must manage the business.

Question 60

Zeno, Zella, and Zorro wish to form a partnership. Zeno is putting up 60 percent of the capital, Zella is putting up 40 percent, and Zorro is putting in no capital but will manage the business. In the absence of a provision in the partnership agreement, how will the liability and profits be distributed?

A) According to the input of capital
B) According to the amount of work each does in the business
C) Equally
D) According to the laws of the state where the partnership is formed

Question 61

A basic legal principle involving stockholders is that

A) an ownership interest in a corporation does not confer a legal right to manage the firm.
B) the board of directors cannot elect the principal owner as president.
C) all dividends are nontaxable.
D) stockholders cannot buy new stock until it is offered for public sale.

Question 62

A typical common stockholder of a corporation

A) has the right to act for the firm.
B) has the right to receive declared dividends.
C) can always buy new stock in proportion to stock already owned.
D) can fire employees of the corporation.

Question 63

Which of the following is the preferred form of organization with regards to transferability of ownership?

A) Sole proprietorship
B) General partnership
C) C corporation
D) It depends on the circumstances.

Question 64

Frank would like to avoid personal financial loss if his business idea does not work. Which of the following forms of ownership would you suggest?

A) Sole proprietorship
B) Partnership
C) Professional corporation
D) Corporation

Question 65

Ownership in a corporation

A) is difficult to transfer.
B) is more easily transferable than ownership in other forms of organization.
C) is transferred in much the same way as stock in a partnership.
D) noticeably affects the operation of the business.

Question 66

Emile has very little money with which to start his business so he wants to keep the cost of forming his company as low as possible. Which of the following forms of ownership would you recommend for Emile?

A) Sole proprietorship
B) Partnership
C) C corporation
D) S corporation

Question 67

Harvey would like to support his friend's new business financially but also wants to protect his assets in case the business fails. Which form of ownership would you recommend?

A) Sole proprietorship
B) Partnership
C) Limited partnership
D) 501(c)(3) corporation

Question 68

Which of the following organizational types results in the business owner having unlimited liability?

A) Sole proprietorship
B) LLC
C) Limited partnership
D) Corporation

Question 69

Stockholders have limited liability unless they

A) are active in the management of the corporation.
B) assume personal liability for debt.
C) own preferred stock.
D) convert their shares to partnership status.

Question 70

The two dimensions of management control of a small corporation usually involve which of the following individuals?

A) Stockholders owning the majority of the voting common stock
B) Corporate officers in conducting daily operations
C) Both stockholders and corporate officers
D) Neither the stockholders nor the corporate officers

Question 71

To maintain status as a corporation, the corporation must

A) reapply for a charter annually.
B) submit its bylaws to the secretary of the state of incorporation every year.
C) hold annual meetings of both the shareholders and the board of directors.
D) properly declare annual dividends.

Question 72

Glenda, an employee of a corporation, caused a traffic accident while on company business. Which of the following will pay for the damages?

A) The stockholders
B) The board of directors
C) The founder
D) The corporation

Question 73

Lauren, a partner in Jales & Jales Bonding Company, manages its day-to-day operations. She is considered to be a _____ partner.

A) directing
B) general
C) limited
D) operating

Question 74

Ralph formed a corporation as a fund manager. He accepted money from his customers, promising to invest it and build cash value for them. Instead, he kept the money for himself to enjoy a lavish lifestyle. The court removed liability protection from his corporate entity because the incorporation had been used to perpetuate fraud. This is an example of

A) piercing the corporate veil.
B) unlimited liability.
C) reciprocation.
D) a preemptive right.

Question 75

Because the corporation is a legal entity, one of its responsibilities is to

A) have its accounting records audited.
B) sell stock.
C) pay dividends.
D) file annual tax returns.

Question 76

Upon the death of the majority stockholder in a corporation, direct control may pass to

A) an heir's dependents.
B) an executor.
C) the founder of the firm.
D) employees as directed by an employee stock ownership plan.

Question 77

The right to buy new shares of stock in proportion to stock already owned is called a

A) stock right.
B) stock option.
C) Section 1244 right.
D) preemptive right.

Question 78

In a limited partnership, which of the following types of partner remains bound by all debts of the business?

A) Limited partner
B) Special partner
C) Partner with the greatest capital investment
D) General partner

Question 79

One benefit of an S corporation is that it allows shareholders to receive dividends without

A) paying taxes.
B) penalties and interest.
C) double taxation.
D) partnership taxation.

Question 80

Jane and Randy have a partnership with their company, JR Enterprises. Which of the following statements reflects how the partnership pays taxes?

A) JR Enterprises does not pay any taxes.
B) JR Enterprises pays taxes only as a partnership.
C) Jane and Randy each pay taxes on the total income.
D) Jane and Randy do not pay taxes since they are married.