IDPX, NCIDQ - INTERIOR DESIGN BUSINESS EXAM
QUESTIONS & ANSWERS (UPDATED)
Sole proprietorship - CORRECT ANSWER >>>Simplest business type, company is owned by an
individual and operates under either the individual's name or a company name.
Only needed to establish name and location for business, open company bank account, have
stationary printed, and obtain whatever license are needed by local jurisdiction.
If employees are hired, other state (province) and local requirements must be met.
Sole proprietorship advantages - CORRECT ANSWER >>>1. Ease of set up
2. Total management control by owner
3. Possible tax advantages to owner bcause business expenses and losses may be deducted
from the gross income of business
Disadvantage sole proprietorship - CORRECT ANSWER >>>More difficult to raise capital and
establish credit unless the owner's personal credit rating and assets are adequate.
Business mainly depends on reputation of owner, company ceases to exist if owner quits or
dies.
General partnership - CORRECT ANSWER >>>Two or more people share in management, profits,
risks of business.
Income from business is taxed as ordinary income on personal tax forms.
Employees can be hired like any form of business.
Advantages of partnerships - CORRECT ANSWER >>>1. Easy to form (partnership agreement
usually advisable)
2. Provide a business with skills and talents of several people rather than just one
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,3. Formed because each of the partners brings to the organization a particular talent like
business development, design, or technical knowledge.
Disadvantage of partnership - CORRECT ANSWER >>>1. All the partners are responsible and
liable for the actions of others
2. The personal assets of any of the partners are vulnerable to lawsuits and other claims.
3. Income is taxed at individual rates.
4. Partners may personally disagree on how to run the business
5. If one partner wants to withdraw, partnership usually dissolves
Limited partnership - CORRECT ANSWER >>>Variation of general partnership.
One or more general partners and other limited partners.
General partners invest in the company, manage it, financially responsible.
Limited partners are investors and receive portion of profits. They have no say in the
management of the company and are liable only to the extent of their investment
Corporation - CORRECT ANSWER >>>Sometimes called a C Corporation.
Association of individuals created by statutory requirements, having an existnce independent
from its members.
Formation and conduct of corporations are governed by the laws of individual states, formal
articles of incorporation must be drawn up by attorney and filed with appropriate state office to
legally form a corporationr.
Corporation advantages - CORRECT ANSWER >>>Corporation is a separate legal entity,
financially and legally independent from its stockholders.
Stockholders are financially liable only for the amount of money invested in teh corporation
Greatest advantage: If corp is sued, personal assets of stockholders are not at risk.
Generally taxed at a lower rate than are individuals, great savings.
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, Taxed at 2 levels - taxed on provits and shareholders are taxed on dividends.
Corp have a c ontinuity independent of changes in stockholders, deaths of members of its board
of directors, or changes in the principals.
Relatively easy to raise capital by selling stock in the corporation.
Disadvantages of Corporations - CORRECT ANSWER >>>Initial setup costs and continuing
paperwork and formal requirements necessary to maintain the business Usually
outweighed by the reduced liability and tax benefits
Subchapter S Corporations - CORRECT ANSWER >>>Also known as S Corporations
Variation on corporate form, have certain eligibility requirements and offer all advantages of
standard corporations, but profits or losses are paid or deducted from stockholders' personal
income taxes in proportion to the shares of stock they hold.
Advantage when there are losses or when the state tax rates shift the financial benefits so that
the individual is taxed rather than the corporation
Professional corporation - CORRECT ANSWER >>>Many states allow the formation of
professionals such as interior designer,s architects, lawyers, doctors, accountants
Similar to other corporations, but liability for malpractice is generally limited to the person
responsible.
Each state has its own laws related to liability in professional corporation
Limited liability company LLC & Limited liability partnership LLP - CORRECT ANSWER >>>2
hybrid business organizations that compbine the advantages of the corporation and the
partnerhip.
Requirements vary state to state, basically business is formed like a partnerhsip where investors
are called members and those who manage are called managers.
Unlike partnerships, it is possible to have nonmembers as managers in an LLC or LLP. Company
name must include LLC or LLP
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QUESTIONS & ANSWERS (UPDATED)
Sole proprietorship - CORRECT ANSWER >>>Simplest business type, company is owned by an
individual and operates under either the individual's name or a company name.
Only needed to establish name and location for business, open company bank account, have
stationary printed, and obtain whatever license are needed by local jurisdiction.
If employees are hired, other state (province) and local requirements must be met.
Sole proprietorship advantages - CORRECT ANSWER >>>1. Ease of set up
2. Total management control by owner
3. Possible tax advantages to owner bcause business expenses and losses may be deducted
from the gross income of business
Disadvantage sole proprietorship - CORRECT ANSWER >>>More difficult to raise capital and
establish credit unless the owner's personal credit rating and assets are adequate.
Business mainly depends on reputation of owner, company ceases to exist if owner quits or
dies.
General partnership - CORRECT ANSWER >>>Two or more people share in management, profits,
risks of business.
Income from business is taxed as ordinary income on personal tax forms.
Employees can be hired like any form of business.
Advantages of partnerships - CORRECT ANSWER >>>1. Easy to form (partnership agreement
usually advisable)
2. Provide a business with skills and talents of several people rather than just one
1|Page
,3. Formed because each of the partners brings to the organization a particular talent like
business development, design, or technical knowledge.
Disadvantage of partnership - CORRECT ANSWER >>>1. All the partners are responsible and
liable for the actions of others
2. The personal assets of any of the partners are vulnerable to lawsuits and other claims.
3. Income is taxed at individual rates.
4. Partners may personally disagree on how to run the business
5. If one partner wants to withdraw, partnership usually dissolves
Limited partnership - CORRECT ANSWER >>>Variation of general partnership.
One or more general partners and other limited partners.
General partners invest in the company, manage it, financially responsible.
Limited partners are investors and receive portion of profits. They have no say in the
management of the company and are liable only to the extent of their investment
Corporation - CORRECT ANSWER >>>Sometimes called a C Corporation.
Association of individuals created by statutory requirements, having an existnce independent
from its members.
Formation and conduct of corporations are governed by the laws of individual states, formal
articles of incorporation must be drawn up by attorney and filed with appropriate state office to
legally form a corporationr.
Corporation advantages - CORRECT ANSWER >>>Corporation is a separate legal entity,
financially and legally independent from its stockholders.
Stockholders are financially liable only for the amount of money invested in teh corporation
Greatest advantage: If corp is sued, personal assets of stockholders are not at risk.
Generally taxed at a lower rate than are individuals, great savings.
2|Page
, Taxed at 2 levels - taxed on provits and shareholders are taxed on dividends.
Corp have a c ontinuity independent of changes in stockholders, deaths of members of its board
of directors, or changes in the principals.
Relatively easy to raise capital by selling stock in the corporation.
Disadvantages of Corporations - CORRECT ANSWER >>>Initial setup costs and continuing
paperwork and formal requirements necessary to maintain the business Usually
outweighed by the reduced liability and tax benefits
Subchapter S Corporations - CORRECT ANSWER >>>Also known as S Corporations
Variation on corporate form, have certain eligibility requirements and offer all advantages of
standard corporations, but profits or losses are paid or deducted from stockholders' personal
income taxes in proportion to the shares of stock they hold.
Advantage when there are losses or when the state tax rates shift the financial benefits so that
the individual is taxed rather than the corporation
Professional corporation - CORRECT ANSWER >>>Many states allow the formation of
professionals such as interior designer,s architects, lawyers, doctors, accountants
Similar to other corporations, but liability for malpractice is generally limited to the person
responsible.
Each state has its own laws related to liability in professional corporation
Limited liability company LLC & Limited liability partnership LLP - CORRECT ANSWER >>>2
hybrid business organizations that compbine the advantages of the corporation and the
partnerhip.
Requirements vary state to state, basically business is formed like a partnerhsip where investors
are called members and those who manage are called managers.
Unlike partnerships, it is possible to have nonmembers as managers in an LLC or LLP. Company
name must include LLC or LLP
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