Finance 3001 Exam Questions and Answers Fully Solved Latest Version 2025-2026
sole proprietorship - Answers-a business owned and run by one person
-usually very small with few, if any, employees
-most common type of firm in the world
Key features of sole proprietorship - Answers-1) advantage of being straightforward to set up, many new
businesses use this org form
-2) principle limitation is that there is no separation between the firm and the owner- the firm can only
have one owner who runs the business
-3) owner has unlimited personal liability for the firm's debts. That is, if the firm defaults on any debt
payment, the lender can (and will) require the owner to repay the loan from personal assets. Owner
who can't afford to repay a loan for which they are personally responsible must declare personal
bankruptcy
-4) life is limited to the life of the owner. It is also difficult to transfer ownership of a sole proprietorship
partnership - Answers-a business owned and run by more than one another
key features of partnership: - Answers-1) all partners are liable for the firms debt. Lender can require
any partner to repay all the firm's outstanding debts
-2) partnership ends in the event of the death or with drawl of any single partner
-3) partners can avoid liquidation if the partnership agreement provides for alternatives such as a
buyout of a decreased or withdrawn partner
limited partnership - Answers-a partnership with 2 kinds of owners: general partners and limited
partners
-general partners have same rights and privileges as partners in any general partnership- they are
personally liable for the firm's debt obligations
limited liability - Answers-when an investor's liability is limited to her investment
-their private property cannot be seized to pay off the firm's outstanding debt. Furthermore, the death
or with drawl of a limited partner does not dissolve the partnership , and a limited partner's interest is
transferable. Limited partner has no management authority and cannot legally be involved in the
managerial decision making for the business
limited liability company (llc) - Answers-a limited partnership without a general partner
-all the owners )or members) have limited liability, but unlike limited partners, they can also run the
business (or managing members)
, corporation - Answers-a legally defined, artificial being, separate from its owners
-it can enter into contracts, acquire assets, and incur obligations, and it enjoys protection under the US
constitution against seizure of its property.
-solely responsible for its own obligations
-not liable for any personal obligations of its owners
-must be legally formed, which means that the state in which it is incorporated must formally give its
consent to the incorporation by chartering it. For jurisdictional purposes, a corporation is a citizen of the
state in which it is incorporated
stock - Answers-the ownership or equity of a corporation devided into shares
equity - Answers-the collection of all the outstanding shares of a corporation
-shareholders - Answers-an owner of a share of stock or equity in a corporation
divided payments - Answers-payments made at the discretion of the corporation to its equity holders
S Corporation - Answers-those corporations that elect subchapter S tax treatment and are exempted by
the US Internal Revenue Service's tax code from double taxation
-allocated directly to shareholders based on their ownership share. Shareholders must include these
profits as income on their individual tax returns. After the shareholder have paid income taxes on these
profits, no further tax is due
C Corporation - Answers-corporations that have no restrictions on who owns their shares or the number
of shareholders; they cannpt qualify for subchapter S tax treatment and are subject to direct taxation
Within the corporation, financial manger has 3 main tasks: - Answers-1) make investment decisions
-2) make financing decisions
-3) manage short term cash needs
board of directors - Answers-a group of people elected by shareholders who have the ultimate decision
making authority in the corporation
-each share of stock gives a shareholder one vote in the election of the board of directors, so investors
with more shares have more influence
Chief Executive Officers (CEO) - Answers-the person charged with running the corporation by instituting
the rules and policies set by the BOD
agency problems - Answers-when managers, despite being hired as the agents of shareholders, put their
self-interest ahead of the interests of those shareholders
sole proprietorship - Answers-a business owned and run by one person
-usually very small with few, if any, employees
-most common type of firm in the world
Key features of sole proprietorship - Answers-1) advantage of being straightforward to set up, many new
businesses use this org form
-2) principle limitation is that there is no separation between the firm and the owner- the firm can only
have one owner who runs the business
-3) owner has unlimited personal liability for the firm's debts. That is, if the firm defaults on any debt
payment, the lender can (and will) require the owner to repay the loan from personal assets. Owner
who can't afford to repay a loan for which they are personally responsible must declare personal
bankruptcy
-4) life is limited to the life of the owner. It is also difficult to transfer ownership of a sole proprietorship
partnership - Answers-a business owned and run by more than one another
key features of partnership: - Answers-1) all partners are liable for the firms debt. Lender can require
any partner to repay all the firm's outstanding debts
-2) partnership ends in the event of the death or with drawl of any single partner
-3) partners can avoid liquidation if the partnership agreement provides for alternatives such as a
buyout of a decreased or withdrawn partner
limited partnership - Answers-a partnership with 2 kinds of owners: general partners and limited
partners
-general partners have same rights and privileges as partners in any general partnership- they are
personally liable for the firm's debt obligations
limited liability - Answers-when an investor's liability is limited to her investment
-their private property cannot be seized to pay off the firm's outstanding debt. Furthermore, the death
or with drawl of a limited partner does not dissolve the partnership , and a limited partner's interest is
transferable. Limited partner has no management authority and cannot legally be involved in the
managerial decision making for the business
limited liability company (llc) - Answers-a limited partnership without a general partner
-all the owners )or members) have limited liability, but unlike limited partners, they can also run the
business (or managing members)
, corporation - Answers-a legally defined, artificial being, separate from its owners
-it can enter into contracts, acquire assets, and incur obligations, and it enjoys protection under the US
constitution against seizure of its property.
-solely responsible for its own obligations
-not liable for any personal obligations of its owners
-must be legally formed, which means that the state in which it is incorporated must formally give its
consent to the incorporation by chartering it. For jurisdictional purposes, a corporation is a citizen of the
state in which it is incorporated
stock - Answers-the ownership or equity of a corporation devided into shares
equity - Answers-the collection of all the outstanding shares of a corporation
-shareholders - Answers-an owner of a share of stock or equity in a corporation
divided payments - Answers-payments made at the discretion of the corporation to its equity holders
S Corporation - Answers-those corporations that elect subchapter S tax treatment and are exempted by
the US Internal Revenue Service's tax code from double taxation
-allocated directly to shareholders based on their ownership share. Shareholders must include these
profits as income on their individual tax returns. After the shareholder have paid income taxes on these
profits, no further tax is due
C Corporation - Answers-corporations that have no restrictions on who owns their shares or the number
of shareholders; they cannpt qualify for subchapter S tax treatment and are subject to direct taxation
Within the corporation, financial manger has 3 main tasks: - Answers-1) make investment decisions
-2) make financing decisions
-3) manage short term cash needs
board of directors - Answers-a group of people elected by shareholders who have the ultimate decision
making authority in the corporation
-each share of stock gives a shareholder one vote in the election of the board of directors, so investors
with more shares have more influence
Chief Executive Officers (CEO) - Answers-the person charged with running the corporation by instituting
the rules and policies set by the BOD
agency problems - Answers-when managers, despite being hired as the agents of shareholders, put their
self-interest ahead of the interests of those shareholders
