Question 1

Chad recently invented Wave-Aerobics,a next generation watercraft that can safely perform water stunts similar to an amusement park ride.As the founder of a fast growing business,you think his goal of incorporating,"to remain in steadfast control of the firm's operations for an indefinite number of years" is good strategy.

Accepted Answer

It is not a good strategy for a founder to aim to remain in control of the firm's operations for an indefinite number of years. This can lead to a lack of diversity in ideas and can hinder the growth of the company. It is important for a founder to eventually delegate tasks and allow others to take on leadership roles in order to scale the business and ensure its longevity.

Question 2

If you want to sell your ownership in a publicly traded corporation,you find someone willing to buy your shares.

Accepted Answer

This is true, as shares of a publicly traded corporation are traded on stock exchanges and can be bought and sold through brokers or online trading platforms.

Question 3

The owners of Idle Time Gaming Company would like to switch to an S corporation.Unfortunately,their lawyer advised them that they do not meet some of the requirements necessary to qualify as an S corporation.An alternative form of business that would give them similar advantages is a limited liability company.

Accepted Answer

A limited liability company (LLC) can provide similar advantages as an S corporation, such as pass-through taxation and limited liability, and has fewer restrictions on ownership and operation than an S corporation. Therefore, an LLC could be a suitable alternative for Idle Time Gaming Company.

Question 4

Mojo Motors is a small conventional corporation with only 212 stockholders.Eleven of the stockholders are citizens of Mexico,and eight others are citizens of Canada.Due to its size and diversity in ownership,you would recommend that Mojo Motors change to an S-Corporation.

Accepted Answer

The fact that eleven stockholders are citizens of Mexico and eight are citizens of Canada is not a valid reason to recommend changing to an S-Corporation. The decision to change to an S-Corporation should depend on factors such as tax benefits, potential growth plans, and liability considerations.

Question 5

Like stockholders of a C corporation,owners of a limited liability company (LLC)are free to sell their ownership without the approval of other members.

Accepted Answer

The answer of Like stockholders of a C corporation,owners of...

Question 6

The stockholders of large,publicly traded corporations have a daily pulse on the operation of the business.

Accepted Answer

While stockholders may receive regular updates and reports on the operation of the business, they do not have a daily pulse on it. The day-to-day management and decision-making is typically left to the company's executives and board of directors.

Question 7

The major differences between an S-Corporation and a Limited Liability Company are limits on the number of owners,and,the citizenship status of individuals who are owners.

Accepted Answer

The answer of The major differences between an S-Corporation and...

Question 8

The purpose of corporate by-laws is to maintain a legal structure and also to stipulate how the firm will be managed.

Accepted Answer

Corporate by-laws are the legal document that outlines the rules, regulations, and procedures for running a corporation. It is a legally binding agreement that governs the management and operation of a corporation, and it is vital for ensuring smooth and efficient corporate governance. It serves as a crucial instrument for protecting the interests of the corporation and its stakeholders.

Question 9

If a corporation distributes after-tax profits to its stockholders in the form of dividends,the government considers these distributions as part of each stockholder's personal income.Stockholders pay taxes on these distributions.

Accepted Answer

This is true. Dividends are considered part of a stockholder's personal income and are subject to taxes.

Question 10

The owners of a limited liability company (LLC)must pay self-employment taxes on any profits they earn,even if they did not obtain a salary from the company.

Accepted Answer

Since LLC owners are considered self-employed, they are responsible for paying self-employment taxes on the business profits they earn, regardless of whether or not they receive a salary or distribution from the company.

Question 11

The owners of California Canines,a firm that designs and manufactures coats,sweaters,jackets,and rainwear for dogs want to organize as an LLC.Two members are college students and two others are thirty something couples with young children.This is good strategy because each member can choose to commit to limited or unlimited liability.

Accepted Answer

The answer of The owners of California Canines,a firm that...

Question 12

The limited liability company requires a minimum of 10 members.

Accepted Answer

A limited liability company (LLC) can have as few as one member.

Question 13

A few years back,your friends who are horse fanatics inherited several acres of land that they turned into a retirement haven for race horses.Peaceful Pastures was recently incorporated as a limited liability company.The members are re-evaluating this form of ownership.Unlike an S-corporation,they now pay self-employment taxes on all company profits - not just on the salaries they pay themselves.

Accepted Answer

Limited liability companies (LLCs) are subject to self-employment taxes on all company profits, unlike S-corporations where owners only pay self-employment taxes on the salaries they pay themselves.

Question 14

A group of medical doctors are interested in incorporating their business.There is no advantage due to the costs involved.

Accepted Answer

The statement is false as incorporating a business can provide advantages such as limited liability protection and tax benefits. However, the costs involved in incorporating may outweigh these advantages for some businesses.

Question 15

Double taxation means that a corporation pays twice the amount of taxes as a sole proprietorship or partnership.

Accepted Answer

Double taxation refers to the situation where a corporation pays taxes on its profits at the corporate level, and then the shareholders also pay taxes on the dividends they receive from those profits. Sole proprietors and partnerships do not have separate legal entities, so their profits are only taxed once on the personal income tax returns of the owners.

Question 16

In order to establish a C-Corporation,it is a requirement that investors run the company,whereas in an S-Corporation,this is not the case.

Accepted Answer

In both C-Corporation and S-Corporation, investors (shareholders) own the company, but in both cases, a board of directors oversees the management of the corporation. In S-Corporation, shareholders can also be involved in the management of the company.

Question 17

Public utilities are examples of quasi-public corporations.

Accepted Answer

Public utilities, such as water and electricity providers, are generally considered quasi-public corporations as they provide essential services to the public but are also often owned and operated by private companies.

Question 18

If a corporation has after-tax profits of $360,000,and elects to distribute this amount in the form of dividends to its stockholders,these distributions are free and clear of taxes because the corporation paid taxes on this amount prior to distribution.

Accepted Answer

The answer of If a corporation has after-tax profits of...

Question 19

Nutty Dough is a small chain of donut shops currently owned and operated by a group of seven partners.The owners think that their chain has the potential for rapid growth,but several of the partners are concerned about the growing financial risks that will accompany this growth.One way the partners could deal with this problem would be to incorporate their business.

Accepted Answer

By incorporating their business, the partners could limit their personal financial liability and potentially raise funds through issuing stocks or taking on investors, which could reduce the individual financial risks they bear.

Question 20

The organization structure of a corporation allows for stockholders to exert a significant degree of control over the company's daily operations.

Accepted Answer

The organization structure of a corporation grants power to the board of directors and executive management to make decisions and oversee daily operations. While stockholders have influence through voting rights and can potentially elect members of the board, they do not have direct control over daily operations.

Quiz 5: How to Form a Business