BUAD Exam 2 with Complete
Solutions
Single owner who manages the company - ANSWER-Sole Proprietorship
2 or more people act as co owners of a business for profit - ANSWER-partnership
All partners actively manage business and have unlimited liability for any claims against
firm - ANSWER-general partnership
business is considered a legal entity that is separate and distinct from its owners -
ANSWER-Corporation
the document filed with a state government to establish the existence of a new
corporation - ANSWER-articles of incorporation
are not personally liable for claims again, lose investment in the company but other
personal assets are protected - ANSWER-limited liability: owners
Offers both limited liability to its owners and flexible tax treatment - ANSWER-Limited
Liability Company (LLC)
ease of formation, retention of control, pride of ownership, retention of profits, possible
tax advantage - ANSWER-Advantages of Sole Proprietorship
limited financial resources, unlimited liability, limited ability to attract and maintain
talented employees, heavy workload and responsibilities, lack of permanence -
ANSWER-Disadvantages of Sole Proprietorship
no limit to on the number of partners , must agree on duties, profits, etc - ANSWER-
General Partnership
ability to pool financial resources, ability to share responsibilities and capitalize on
complementary skills, ease of formation, possible tax advantages - ANSWER-
advantages of partnerships
unlimited liability, division of profits, disagreements among partners, difficulty of
termination - ANSWER-disadvantages of partnerships
a corporation that is organized to sell stock to the general public - ANSWER-C
Corporation
, the operating procedures for the corporation - ANSWER-corporate bylaws
organization that pools contributions from investors, clients, and depositors - ANSWER-
stockholders can be institutional investors, meaning
board of directors - ANSWER-advantage of common stock
elected by stockholders to represent their ownership interests
oversee the operation of their company to protect their interest
appoint chief executive officer and others to among the company - ANSWER-board of
directors
Limited liability of owners, easy to transfer ownership to others, easy to raise money
and add additional owners, ability to continue in perpetuity - ANSWER-C Corporation
Advantages
Expense and complexity of formation and operation
Complications when operating in multiple states
Double taxation of earning and additional taxes
More paperwork and regulation and less secrecy
Possible conflicts of interest - ANSWER-C Corporation Disadvantages
An organization that does not pay taxes and does not exist to make a profit. -
ANSWER-Non-Profit Corporation
limited liability, tax pass-through, simplicity and flexibility in management and operation,
flexible ownership - ANSWER-advantages of LLC
complexity of formation, annual franchise tax, foreign status in other states, limits on
types of firms that can form LLCs, differences in state laws - ANSWER-Disadvantages
of LLC
arrangement in which a buyer (franchisee) purchases the right to sell the good or
service of the seller (franchiser) - ANSWER-Franchise
franchisor makes a product and licenses the franchise to sell it - ANSWER-
Distributorship
franchise pays for the right to use the name, trademark, and business and production
methods of the franchisor - ANSWER-business format franchise
- Expansion into foreign markets is greater because competition is less intense and less
saturated
Solutions
Single owner who manages the company - ANSWER-Sole Proprietorship
2 or more people act as co owners of a business for profit - ANSWER-partnership
All partners actively manage business and have unlimited liability for any claims against
firm - ANSWER-general partnership
business is considered a legal entity that is separate and distinct from its owners -
ANSWER-Corporation
the document filed with a state government to establish the existence of a new
corporation - ANSWER-articles of incorporation
are not personally liable for claims again, lose investment in the company but other
personal assets are protected - ANSWER-limited liability: owners
Offers both limited liability to its owners and flexible tax treatment - ANSWER-Limited
Liability Company (LLC)
ease of formation, retention of control, pride of ownership, retention of profits, possible
tax advantage - ANSWER-Advantages of Sole Proprietorship
limited financial resources, unlimited liability, limited ability to attract and maintain
talented employees, heavy workload and responsibilities, lack of permanence -
ANSWER-Disadvantages of Sole Proprietorship
no limit to on the number of partners , must agree on duties, profits, etc - ANSWER-
General Partnership
ability to pool financial resources, ability to share responsibilities and capitalize on
complementary skills, ease of formation, possible tax advantages - ANSWER-
advantages of partnerships
unlimited liability, division of profits, disagreements among partners, difficulty of
termination - ANSWER-disadvantages of partnerships
a corporation that is organized to sell stock to the general public - ANSWER-C
Corporation
, the operating procedures for the corporation - ANSWER-corporate bylaws
organization that pools contributions from investors, clients, and depositors - ANSWER-
stockholders can be institutional investors, meaning
board of directors - ANSWER-advantage of common stock
elected by stockholders to represent their ownership interests
oversee the operation of their company to protect their interest
appoint chief executive officer and others to among the company - ANSWER-board of
directors
Limited liability of owners, easy to transfer ownership to others, easy to raise money
and add additional owners, ability to continue in perpetuity - ANSWER-C Corporation
Advantages
Expense and complexity of formation and operation
Complications when operating in multiple states
Double taxation of earning and additional taxes
More paperwork and regulation and less secrecy
Possible conflicts of interest - ANSWER-C Corporation Disadvantages
An organization that does not pay taxes and does not exist to make a profit. -
ANSWER-Non-Profit Corporation
limited liability, tax pass-through, simplicity and flexibility in management and operation,
flexible ownership - ANSWER-advantages of LLC
complexity of formation, annual franchise tax, foreign status in other states, limits on
types of firms that can form LLCs, differences in state laws - ANSWER-Disadvantages
of LLC
arrangement in which a buyer (franchisee) purchases the right to sell the good or
service of the seller (franchiser) - ANSWER-Franchise
franchisor makes a product and licenses the franchise to sell it - ANSWER-
Distributorship
franchise pays for the right to use the name, trademark, and business and production
methods of the franchisor - ANSWER-business format franchise
- Expansion into foreign markets is greater because competition is less intense and less
saturated
