Chapter 1 FIN 370 Exam Questions and
Answers Graded A+
The 4 types of firms - Correct answer-1. Sole Proprietorship
2. Partnership
3. Limited Liability Company
4. Corporation
Sole Proprietorship advantages and disadvantages - Correct answer-Business is
owned and run by one person.
Typically has few, if any, employees
Advantages- Easy to create
Disadvantages-No separation between the firm and the owner, Unlimited personal
liability, Limited life
Partnership - Correct answer--All partners are personally liable for all of the firm's
debts. A lender can require any partner to repay all of the firm's outstanding debts.
-The partnership ends with the death or withdrawal of any single partner.
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, Partnership 2 owners - Correct answer-General partners- have the same rights and
liability as partners in a "regular" partnership
-typically run the firm on day-to-day basis
Limited partners- have limited liability and cannot lose more than their initial
investment.
-have no management authority and cannot legally be involved in the managerial
decision for the business.
Limited Liability Companies (LLC) - Correct answer--All owners have limited
liability, but they can also run the business.
-New business form in the United States
Corporation - Correct answer--A legal entity separate from its owners
-Has many of the legal powers individuals have such as the ability to enter into
contracts, own assets, and borrow money
-The corporation is solely responsible for its own obligations. Its owners are not
liable for any obligation the corporation enters into.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
Answers Graded A+
The 4 types of firms - Correct answer-1. Sole Proprietorship
2. Partnership
3. Limited Liability Company
4. Corporation
Sole Proprietorship advantages and disadvantages - Correct answer-Business is
owned and run by one person.
Typically has few, if any, employees
Advantages- Easy to create
Disadvantages-No separation between the firm and the owner, Unlimited personal
liability, Limited life
Partnership - Correct answer--All partners are personally liable for all of the firm's
debts. A lender can require any partner to repay all of the firm's outstanding debts.
-The partnership ends with the death or withdrawal of any single partner.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
, Partnership 2 owners - Correct answer-General partners- have the same rights and
liability as partners in a "regular" partnership
-typically run the firm on day-to-day basis
Limited partners- have limited liability and cannot lose more than their initial
investment.
-have no management authority and cannot legally be involved in the managerial
decision for the business.
Limited Liability Companies (LLC) - Correct answer--All owners have limited
liability, but they can also run the business.
-New business form in the United States
Corporation - Correct answer--A legal entity separate from its owners
-Has many of the legal powers individuals have such as the ability to enter into
contracts, own assets, and borrow money
-The corporation is solely responsible for its own obligations. Its owners are not
liable for any obligation the corporation enters into.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 2
