MS Contractors Business Law &
Regulation Exam Questions and
Verified Answers
The top reasons businesses fail - <CORRECT ANSWER >>- poor sales
- competitive weakness
- high operating expenses
- difficulty collecting invoices
- inventory problems
- too many fixed assets
- poor location
- fraud
AKA poor planning and inadequate management
Entrepreneur - <CORRECT ANSWER >>a person engaged in strategic activities that involve the
initiation and development of a new business, created to build long term value and steady cash
flow statements
Calculated risk - <CORRECT ANSWER >>a risk that is well - thought through where all outcomes
are considered
Business plan - <CORRECT ANSWER >>- living document that changes as your business and the
market change
- blueprint of your business
- outlines strategies
Key functions of a business plan - <CORRECT ANSWER >>1. Planning tool: road map for growth
of business
,2. Loan or investor document: used to get a loan to show growth, qualifications and
competitive adv.
3. Benchmarking tool: measure company's performance and see why things happened
Elements of a business plan - <CORRECT ANSWER >>- cover page: contact info and
confidentiality statement
- executive summary: highlights of plan, written last
- company summary: vision, mission, legal structure, management, location, and facilities
- products and services: subcontractors and suppliers
- market analysis: your market
- marketing strategy: pricing, advertising, uniqueness of product or service
- financial plan: balance sheets etc.
Guidelines for business plan - <CORRECT ANSWER >>- make sure assumptions are realistic
- keep language simple
- cover the risks and opportunities
- analyze your competition
Benefits of business plan - <CORRECT ANSWER >>- used as a planning and bench marking tool
- sometimes required by bank loan officers
Sole Proprietorships - <CORRECT ANSWER >>- many businesses begin as this
- simplest ownership form to set up
- you are the sole owner of the company
- exposes you to unlimited liability for the business debt
- not good if you are running a significant business
- terminated upon owners death
- you own the assets of the company so if you sell you are selling the assets of the company
,- you bear personal liability for all actions undertaken in the name of the business
- do not pay corporate tax income; your net income from the business is reported as ordinary
income
- business and personal expenses must be kept separate
Advantages of sole proprietorship - <CORRECT ANSWER >>- minimal legal restrictions
- simple ownership form
- low start up costs
- sole ownership of profits
- freedom in decision making process
Disadvantages of a sole proprietorship - <CORRECT ANSWER >>- unlimited personal liability
- less available capital
- difficulty in obtaining long term financing
- dissolution of the business in the event of owners death
Partnership - <CORRECT ANSWER >>relationship between two or more persons who join to
carry on a trade or business
- each person contributes money, property, labor, or skills
- two types: general and limited partnerships
General partnerships - <CORRECT ANSWER >>can be formed through oral agreement
- own the assets of the company just like a sole proprietorship
- have personal and unlimited liability
- each partner is responsible for the acts of other partners when they act in the name of the
business
, Limited partnership - <CORRECT ANSWER >>one or more general partners and one or more
limited partners
- limited liability in the company; no personal liability
- liable only for the previously agreed upon contribution or investment to the business
What happens if a general partner dies? - <CORRECT ANSWER >>the partnership dissolves and
the assets of the partnership must be sold or distributed to first pay the creditors and then the
partners
Financials of partnership: - <CORRECT ANSWER >>should keep separate bank accounts and
financial records for the business so profit and loss can be determined
Taxes of partnership - <CORRECT ANSWER >>business, income and sales taxes are the
responsibility of every partner
- federal income taxes partners must file returns on IRS Form 1065
Advantages of general partnership - <CORRECT ANSWER >>- ease of formation
- direct profit rewards
- larger management base than sole proprietorship
Disadvantages of general partnership - <CORRECT ANSWER >>- unlimited personal liability of
general partners
- multiple decision makers
- limited life of the business
- changes of partners or partnership agreement may be difficult
- partnership dissolves in the event of a general partner's death
Questions to ask before entering a partnership - <CORRECT ANSWER >>- do the partners want
to grow and operate a company long term
Regulation Exam Questions and
Verified Answers
The top reasons businesses fail - <CORRECT ANSWER >>- poor sales
- competitive weakness
- high operating expenses
- difficulty collecting invoices
- inventory problems
- too many fixed assets
- poor location
- fraud
AKA poor planning and inadequate management
Entrepreneur - <CORRECT ANSWER >>a person engaged in strategic activities that involve the
initiation and development of a new business, created to build long term value and steady cash
flow statements
Calculated risk - <CORRECT ANSWER >>a risk that is well - thought through where all outcomes
are considered
Business plan - <CORRECT ANSWER >>- living document that changes as your business and the
market change
- blueprint of your business
- outlines strategies
Key functions of a business plan - <CORRECT ANSWER >>1. Planning tool: road map for growth
of business
,2. Loan or investor document: used to get a loan to show growth, qualifications and
competitive adv.
3. Benchmarking tool: measure company's performance and see why things happened
Elements of a business plan - <CORRECT ANSWER >>- cover page: contact info and
confidentiality statement
- executive summary: highlights of plan, written last
- company summary: vision, mission, legal structure, management, location, and facilities
- products and services: subcontractors and suppliers
- market analysis: your market
- marketing strategy: pricing, advertising, uniqueness of product or service
- financial plan: balance sheets etc.
Guidelines for business plan - <CORRECT ANSWER >>- make sure assumptions are realistic
- keep language simple
- cover the risks and opportunities
- analyze your competition
Benefits of business plan - <CORRECT ANSWER >>- used as a planning and bench marking tool
- sometimes required by bank loan officers
Sole Proprietorships - <CORRECT ANSWER >>- many businesses begin as this
- simplest ownership form to set up
- you are the sole owner of the company
- exposes you to unlimited liability for the business debt
- not good if you are running a significant business
- terminated upon owners death
- you own the assets of the company so if you sell you are selling the assets of the company
,- you bear personal liability for all actions undertaken in the name of the business
- do not pay corporate tax income; your net income from the business is reported as ordinary
income
- business and personal expenses must be kept separate
Advantages of sole proprietorship - <CORRECT ANSWER >>- minimal legal restrictions
- simple ownership form
- low start up costs
- sole ownership of profits
- freedom in decision making process
Disadvantages of a sole proprietorship - <CORRECT ANSWER >>- unlimited personal liability
- less available capital
- difficulty in obtaining long term financing
- dissolution of the business in the event of owners death
Partnership - <CORRECT ANSWER >>relationship between two or more persons who join to
carry on a trade or business
- each person contributes money, property, labor, or skills
- two types: general and limited partnerships
General partnerships - <CORRECT ANSWER >>can be formed through oral agreement
- own the assets of the company just like a sole proprietorship
- have personal and unlimited liability
- each partner is responsible for the acts of other partners when they act in the name of the
business
, Limited partnership - <CORRECT ANSWER >>one or more general partners and one or more
limited partners
- limited liability in the company; no personal liability
- liable only for the previously agreed upon contribution or investment to the business
What happens if a general partner dies? - <CORRECT ANSWER >>the partnership dissolves and
the assets of the partnership must be sold or distributed to first pay the creditors and then the
partners
Financials of partnership: - <CORRECT ANSWER >>should keep separate bank accounts and
financial records for the business so profit and loss can be determined
Taxes of partnership - <CORRECT ANSWER >>business, income and sales taxes are the
responsibility of every partner
- federal income taxes partners must file returns on IRS Form 1065
Advantages of general partnership - <CORRECT ANSWER >>- ease of formation
- direct profit rewards
- larger management base than sole proprietorship
Disadvantages of general partnership - <CORRECT ANSWER >>- unlimited personal liability of
general partners
- multiple decision makers
- limited life of the business
- changes of partners or partnership agreement may be difficult
- partnership dissolves in the event of a general partner's death
Questions to ask before entering a partnership - <CORRECT ANSWER >>- do the partners want
to grow and operate a company long term
