Entrepreneurship & Small Business v.2 - U.S. Practice Exam 1
Questions and Answers with Verified Solutions | Latest Update
QUESTION
What is Entrepreneurship?
Answer:
Entrepreneurship is setting up a business with the aim to make a profit.
QUESTION
You've been asked to classify several businesses as either B2B or B2C. For each business, select
B2B or B2C.
Answer:
"B2B" is an acronym for "business to business," while "B2C" means "business to consumer."
B2B businesses sell products and services directly to other businesses; whereas B2C businesses
sell products and services directly to customers for personal use. B2B sales usually require a sales
tax exemption certificate from the buyer.
B2B:
-Wholesale flooring distributor (because the transition implies the materials purchased will be
resold through a retail business, such as an installer, or a store open to the general public)
-Purchases requiring a tax exemption certificate (because the transaction states the buyer is
reselling the goods and that is why the purchase is tax exempt) B2C:
-Chain of local grocery stores (because purchases at the store are typically made by buyers for
personal use. The number of grocery stores managed by the owner is irrelevant)
-Motorcycle repair shop (because the service provided is typically for personal use)
QUESTION
You need to create a legal structure for your small business. You would like some of the benefits
enjoyed by large corporations, but do not want to be taxed twice. You have four partners who will
be shareholders. None of you plan to sell your own shares to the public, but do want to be
protected from business liabilities. Which legal structure should you set up for your business?
Answer:
S-Corporation
, QUESTION
Explain S-Corporation, C-Corporation, Sole Proprietorship, & Limited Liability Company (LLC)
Answer:
S-Corporation:
-Offers many of the same benefits as a C Corporation, but better for smaller businesses
-100 shareholders maximum allowed. All must be U.S. citizens or residents
-Shareholders are not personally responsible for business liabilities
-Taxed once--only the shareholders pay on profits received. A separate tax return is required for
the business C-Corporation:
-Best if the company plans to sell stock to the public someday; can issue shares to founders,
employees, and investors
-Unlimited owners (shareholders) allowed
- Shareholders are not personally responsible for business liabilities
-Taxed twice--business pays at the corporate level, and shareholders pay on income received. A
separate tax return is required for the business. Sole Proprietorship:
-Best if you need an easy set-up. You may still need a DBA or business license to operate legally,
but no other paperwork is
-One owner maximum
-The owner is personally responsible for business liabilities. No personal liability protection
-Taxed once--you pay on profits in your personal tax return. Separate tax returns are not needed
Limited Liability Company (LLC):
-Popular choice for businesses concerned about liability protection
-Unlimited owners (members) allowed. No shareholders. LLCs cannot go public
-Members are not personally responsible for business liabilities
-An LLC can choose how to be taxed by filing form 8832 with the IRS. An LLC can elect to be
taxed as a Sole Proprietorship, Partnership, S Corp, or C Corp. An LLC is not recognized
globally; you may be taxed as a corporation in other countries
QUESTION
For each statement about owners of equity in a business, select True or False.
Answer:
True:
-A partner owns equity
-Founders own equity False:
-All stakeholders own equity
-Contractors own equity
By default, owners of equity in a business are founders, partners, and shareholders. Although it is
possible that employees, contractors, and other stakeholders might purchase equity or be awarded
equity in a business, it is not the default.
Questions and Answers with Verified Solutions | Latest Update
QUESTION
What is Entrepreneurship?
Answer:
Entrepreneurship is setting up a business with the aim to make a profit.
QUESTION
You've been asked to classify several businesses as either B2B or B2C. For each business, select
B2B or B2C.
Answer:
"B2B" is an acronym for "business to business," while "B2C" means "business to consumer."
B2B businesses sell products and services directly to other businesses; whereas B2C businesses
sell products and services directly to customers for personal use. B2B sales usually require a sales
tax exemption certificate from the buyer.
B2B:
-Wholesale flooring distributor (because the transition implies the materials purchased will be
resold through a retail business, such as an installer, or a store open to the general public)
-Purchases requiring a tax exemption certificate (because the transaction states the buyer is
reselling the goods and that is why the purchase is tax exempt) B2C:
-Chain of local grocery stores (because purchases at the store are typically made by buyers for
personal use. The number of grocery stores managed by the owner is irrelevant)
-Motorcycle repair shop (because the service provided is typically for personal use)
QUESTION
You need to create a legal structure for your small business. You would like some of the benefits
enjoyed by large corporations, but do not want to be taxed twice. You have four partners who will
be shareholders. None of you plan to sell your own shares to the public, but do want to be
protected from business liabilities. Which legal structure should you set up for your business?
Answer:
S-Corporation
, QUESTION
Explain S-Corporation, C-Corporation, Sole Proprietorship, & Limited Liability Company (LLC)
Answer:
S-Corporation:
-Offers many of the same benefits as a C Corporation, but better for smaller businesses
-100 shareholders maximum allowed. All must be U.S. citizens or residents
-Shareholders are not personally responsible for business liabilities
-Taxed once--only the shareholders pay on profits received. A separate tax return is required for
the business C-Corporation:
-Best if the company plans to sell stock to the public someday; can issue shares to founders,
employees, and investors
-Unlimited owners (shareholders) allowed
- Shareholders are not personally responsible for business liabilities
-Taxed twice--business pays at the corporate level, and shareholders pay on income received. A
separate tax return is required for the business. Sole Proprietorship:
-Best if you need an easy set-up. You may still need a DBA or business license to operate legally,
but no other paperwork is
-One owner maximum
-The owner is personally responsible for business liabilities. No personal liability protection
-Taxed once--you pay on profits in your personal tax return. Separate tax returns are not needed
Limited Liability Company (LLC):
-Popular choice for businesses concerned about liability protection
-Unlimited owners (members) allowed. No shareholders. LLCs cannot go public
-Members are not personally responsible for business liabilities
-An LLC can choose how to be taxed by filing form 8832 with the IRS. An LLC can elect to be
taxed as a Sole Proprietorship, Partnership, S Corp, or C Corp. An LLC is not recognized
globally; you may be taxed as a corporation in other countries
QUESTION
For each statement about owners of equity in a business, select True or False.
Answer:
True:
-A partner owns equity
-Founders own equity False:
-All stakeholders own equity
-Contractors own equity
By default, owners of equity in a business are founders, partners, and shareholders. Although it is
possible that employees, contractors, and other stakeholders might purchase equity or be awarded
equity in a business, it is not the default.
