Question 1

Which of the following factors should an entrepreneur consider when selecting the form of organization for a business?&#10;A) The cost of organization&#10;B) Reporting requirements&#10;C) Tax consequences&#10;D) Impacts on succession planning or future sale of the business&#10;E) All of the above

Accepted Answer

All of the factors listed - the cost of organization, reporting requirements, tax consequences, and impacts on succession planning or future sale of the business - are important considerations for an entrepreneur when selecting the form of organization for a business. Each of these factors can significantly affect the operation, financial health, and legal obligations of the business.

Question 2

Which of the following answers correctly present the order of business organization based on numbers of tax filings, i.e. number of business entities? (From largest to smallest)&#10;A) Corporation, partnership, sole proprietorshop&#10;B) Partnership, sole proprietorship, corporation&#10;C) Sole proprietorship, corporation, partnership&#10;D) Sole proprietorship, partnership, corporation&#10;E) Corporation, sole proprietorship, partnership

Accepted Answer

C

Question 3

Which of the following answers correctly present the order of business organization based on business receipts, i.e. total revenues, reported? (From largest to smallest)&#10;A) Corporation, partnership, sole proprietorshop&#10;B) Partnership, sole proprietorship, corporation&#10;C) Sole proprietorship, corporation, partnership&#10;D) Sole proprietorship, partnership, corporation&#10;E) Corporation, sole proprietorship, partnership

Accepted Answer

Corporations typically have the highest total revenues due to their ability to raise capital through the sale of stock, access to various markets, and generally larger scale of operations. Sole proprietorships, being individual-owned businesses, usually have the smallest scale of operations and hence, lower total revenues compared to corporations and partnerships. Partnerships fall in between, varying widely but generally not reaching the revenue levels of large corporations.

Question 4

Which of the following factors is the least important when drawing up a partnership agreement?&#10;A) Simplicity&#10;B) Comprehensiveness&#10;C) Clarity&#10;D) Fairness&#10;E) Enforceability

Accepted Answer

Simplicity, while beneficial for understanding, is the least important compared to comprehensiveness, clarity, fairness, and enforceability, which are crucial for a functional and legally sound partnership agreement.

Question 5

The distribution of profits in partnerships and LLCs is always based on:&#10;A) original cash contributions&#10;B) accumulated cash contributions&#10;C) accumulated cash and labor contributions&#10;D) accumulated cash, labor, and asset contibutions&#10;E) terms specified in the partnership agreement and does not need to be based on contributions

Accepted Answer

The distribution of profits in partnerships and LLCs is determined by the terms specified in the partnership agreement or LLC operating agreement. This means that distributions do not need to be based on contributions of cash, labor, or assets, but rather on whatever terms the partners or members agree upon.

Question 6

Corporate bylaws are:&#10;A) uniform across all corporations&#10;B) the same as the articles of incorporation&#10;C) only useful for large corporations traded on stock exchanges&#10;D) oral agreements among the founders&#10;E) written documents that specify how a corporation will be governed

Accepted Answer

Corporate bylaws are written documents that outline how a corporation is to be governed, detailing the rules, regulations, and procedures for the corporation's operations and management. They are not uniform across all corporations, as they can be tailored to meet the specific needs of each entity. They differ from the articles of incorporation, which are the primary legal document filed with a governmental body to legally document the creation of the corporation. Bylaws are not limited to large corporations or those traded on stock exchanges; they are essential for all types of corporations, including small and privately held ones. They are also not merely oral agreements but must be documented in writing.

Question 7

Voting rights of LLCs are always based on:&#10;A) accumulated cash, labor, and asset contibutions&#10;B) number of shares of all stocks&#10;C) number of shares and classes of stocks as specified in the corporate bylaws&#10;D) terms specified in the partnership agreement and does not need to be based on contributions&#10;E) levels of participation of each member

Accepted Answer

The answer of Voting rights of LLCs are always based...

Question 8

Which of the following is not an advantage of LLC over S Corporation?&#10;A) Pass-through tax status is recognized in all 50 states&#10;B) No limit on the maximum number of owners&#10;C) No limit on non-human legal entity as owners&#10;D) Allow nonresident aliens as owners&#10;E) No limit on corporate characteristics

Accepted Answer

LLCs and S Corporations both offer pass-through taxation, but S Corporations have restrictions such as a limit on the number of shareholders (owners), restrictions on who can be a shareholder (e.g., no nonresident aliens), and limitations on the type of shareholders (e.g., cannot be other corporations or partnerships in most cases). However, S Corporations are subject to more corporate formalities and restrictions compared to LLCs, such as requirements for a board of directors and corporate officers, making "No limit on corporate characteristics" not an advantage of LLCs over S Corporations.

Question 9

For tax planning purposed, which form of business organization is ALWAYS the best?&#10;A) Limited Partnership&#10;B) S Corp&#10;C) C Corp&#10;D) LLC&#10;E) None of the above

Accepted Answer

There is no one-size-fits-all answer for the best form of business organization for tax planning purposes. The optimal choice depends on various factors, including the specific circumstances of the business, its goals, and the tax implications of each business structure.

Question 10

Which of the following is a common strategy to reduce taxes for business founders?&#10;A) Form partnerships instead of corporations&#10;B) Form sole proprietorship instead of partnerships&#10;C) Designate capital contributions as loans to the business&#10;D) Designate capital contributions as charitable gifts to the business&#10;E) Always incorporate in a foreign country

Accepted Answer

Designating capital contributions as loans allows founders to potentially receive tax-deductible interest payments and reduce taxable income.

Deck 1: Forms of Business Organization