MGMT 3850 CHAPTER 5 HOMEWORK QUESTIONS AND ANSWERS

MGMT 3850 CHAPTER 5
HOMEWORK QUESTIONS AND
ANSWERS
Essentials of Entrepreneurship & Small Business Mgmt., 7e (Scarborough)
Chapter 5 Forms of Business Ownership

1) The key to choosing the right form of ownership is:
A) envisioning where your business will be in 10 years.
B) understanding the characteristics of each form and knowing how they affect your business
and personal circumstances.
C) forming either an S corporation or a limited liability company since they are the only forms
that offer owners liability protection.
D) irrelevant since choosing a form of ownership is merely a technicality and has little impact on
the business and its owner(s).
Answer: B
Diff: 2 Page Ref: 165
AACSB: Analytic Skills
Learning Obj.: 1

2) Which of the following issues would influence an entrepreneur's choice of a form of business
ownership?
A) Tax considerations
B) Management succession plans
C) Liability exposure
D) All of the above
Answer: D
Diff: 1 Page Ref: 165
AACSB: Analytic Skills
Learning Obj.: 1

3) The most common form of business ownership that is also the simplest to create is the:
A) sole proprietorship.
B) partnership.
C) corporation.
D) S corporation.
Answer: A
Diff: 1 Page Ref: 169
AACSB: Analytic Skills
Learning Obj.: 1

4) Marco is opening a new computer repair shop. He is owner and sole employee. He has paid
the appropriate fees and licensing costs and begun his business. This is an example of a(n):
A) S corporation.
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,B) partnership.
C) corporation.
D) sole proprietorship.
Answer: D
Diff: 1 Page Ref: 169
AACSB: Reflective Thinking
Learning Obj.: 1

5) The most critical disadvantage of the sole proprietorship is:
A) the owner's unlimited personal liability.
B) limited access to capital.
C) lack of continuity.
D) limited skills and abilities of the owner.
Answer: A
Diff: 3 Page Ref: 170
AACSB: Analytic Skills
Learning Obj.: 1

6) Which form of ownership generally has the least ability to accumulate capital?
A) Partnership
B) Sole proprietorship
C) Corporation
D) S corporation
Answer: B
Diff: 1 Page Ref: 169
AACSB: Analytic Skills
Learning Obj.: 1

7) A partnership agreement defines how the partners will be compensated. Normally,
A) partners are not entitled to salaries or wages, but are compensated by a share of the profits of
the business.
B) the general partner's salary is set at two times the salaries of the limited partners.
C) both general and limited partners are permitted salaries, but all silent or dormant partners are
compensated only by sharing in the profits.
D) while the agreement establishes payout schedules, it does not spell out what constitutes profit.
Answer: A
Diff: 3 Page Ref: 171
AACSB: Analytic Skills
Learning Obj.: 1

8) Probably the most important reason to have a partnership agreement is that:
A) it identifies the name of the partnership and protects that name from infringement by others.
B) it states the location and the purpose of the business.
C) it determines how the partnership and the partners will pay taxes.
D) it resolves potential sources of conflict that, if not addressed in advance, could later result in
partnership battles and dissolution of an otherwise successful business.
Answer: D
2

, Diff: 2 Page Ref: 173
AACSB: Communication
Learning Obj.: 1




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