Article

Forms Of Business Structures Question Solutions

by Md Kamrul Hassan Tuhin

1

What form of business ownership is generally the simplest for a small business?

Your Answer

Sole proprietorship

Correct Answer

Sole proprietorship

Explanation

Sole proprietorship is the simplest form of business organization and is free of some of the regulations and formalities of other forms of business structure. It is particularly suitable for small businesses.


2

A group of accountants wish to form a business together. Which of the following types of business arrangement would be most suitable to their needs?

Your Answer

Limited liability partnerships

Correct Answer

Limited liability partnerships

Explanation

Limited liability partnership allows partners to be protected from the actions of the other partners. The income generated flows through to each individual partner. This type of partnerships is often practiced in professions such as accountants and attorneys.


3

Limited partners bear lower risk than general partners because:

Your Answer

Limited partners are liable for up to only the amount they invested in the business

Correct Answer

Limited partners are liable for up to only the amount they invested in the business

Explanation

Limited partners bear lower risk than general partners in a limited partnership because they are liable for up to only the amount of capital they invested in the business, while general partners are personally liable for business debts.


4

Which of the following features is a disadvantage to incorporation?

Your Answer

Taxation rules are complex

Correct Answer

Taxation rules are complex

Explanation

One of the disadvantages to incorporation is that tax rules for corporations are fairly complex and may require expensive professional advice.


5

Which type of business arrangement involves two separate business entities pooling their resources to carry out a particular business transaction (one with a narrow scope)?

Your Answer

Joint venture

Correct Answer

Joint venture

Explanation

Joint venture is used as a mean of pooling the resources of two or more entities (individual or corporate) to complete one particular transaction.


6

Which of the following statements pertain to a joint venture and not to a partnership business arrangement?

I. It has a limited purpose

II. It is a business relationship between several entities

III. Involves the sharing of gross returns rather than profits

IV. Each person or entity involved is liable only for an agreed-upon portion of the liabilities

V. Allows for the right of each person or entity involved to dispose of any interest in the property subject to the agreement

Your Answer

I, II, III, IV and V

Correct Answer

I, II, III, IV and V

Explanation

All of the above statements pertain to a joint venture and not to a partnership business arrangement. JV is normally formed to complete a particular transaction, while a partnership is often formed for long term business operation. Partnership is formed by two or more people, rather than entities. Partnership involves the sharing of profits, while JV shares gross returns among the parties. In a general partnership, partners are jointly liable for all debt obligations of the partnership. Furthermore, JV allows for the right of each person or entity involved to dispose of any interest in the property subject to the agreement.


7

Which statement about the franchisor-franchisee relationship is accurate?

Your Answer

The franchisor allows the franchisee to sell/distribute the franchisor's products/services using the franchisor's marketing plan and trademark

Correct Answer

The franchisor allows the franchisee to sell/distribute the franchisor's products/services using the franchisor's marketing plan and trademark

Explanation

The franchisor allows the franchisee to sell/distribute the franchisor's products/services using the franchisor's marketing plan and the established trademark.


8

A franchisee may feel constrained by the franchisor's operating polices. Why might this disadvantage to the franchisee be considered an advantage to the lender? The franchisee:

Your Answer

Must follow a proven operating procedure

Correct Answer

Must follow a proven operating procedure

Explanation

The franchise agreement may stipulate that the franchisee must personally run the business and not leave its operations to a hired manager. Given the difficulties that absentee or inattentive management can create in a business, this rule can be viewed as a positive feature by a creditor.


9

Which of the following statements about business structures is not true?

Your Answer

In a general partnership, partners are only liable for the portion of capital they invested in the business

Correct Answer

In a general partnership, partners are only liable for the portion of capital they invested in the business

Explanation

In a general partnership, Partners are jointly and severally liable for all debt obligations of the partnership.


10

Which of the following statements about corporations is accurate?

Your Answer

A professional corporation does not limit the professional’s personal liability for claims against his or her professional capacity

Correct Answer

A professional corporation does not limit the professional’s personal liability for claims against his or her professional capacity

Explanation

Professional corporation does not limit the professional’s personal liability for claims against his or her professional capacity.


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