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1.

Identify an accurate statement about a sole proprietorship.

A.
It is a form of business that is seldom found in the United States.

B.
It is a form of business that has only one owner.

C.
It is a separate legal entity, distinct from an owner.

D.
It is a business form in which the owner enjoys limited liability.

Correct :
A sole proprietorship is a form of business that has a single owner, known as the sole proprietor.
The business is not a separate legal entity distinct from the owner.
Materials

Sole Proprietorship

2.
Sara and Cilia run a caf together. They share ownership of and liability for the caf and have
come to an agreement about how the profits from the cafe should be divided between them. If the
cafe runs into debt, both Sara and Celia are responsible for the debt. What form of business is
best demonstrated in this scenario?

A.
A sole proprietorship

B.
A corporation

C.
A general partnership

D.
A limited liability company

Correct :
A general partnership is a form of business that involves two or more individuals acting as coowners. The Uniform Partnership Act codifies law for general partnerships.
Materials

General Partnership

3.
What criterion under the Uniform Partnership Act (UPA) must be met by a business, for it to
qualify as a general partnership?

A.
The objective of the partnership should be to create profits.

B.
One of the owners must be willing to assume completely liability of the business.

C.
The partnership should not involve more than two persons.

D.
Only one owner should take up the legal responsibility of contracts.

Correct :
According to the UPA, a partnership needs to be an association between two or more persons
who act as co-owners to carry out a business to create profits.
Materials

Formation of a General Partnership

Concept: Limited partnerships and special partnerships


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Materials on the concept:

Limited Partnership
Introduction to Limited Partnerships and Special Partnerships
Limited Partnerships and Special Partnerships

4.
What is true about a limited partnership?

A.
All the partners are personally liable for partnership debts.

B.
The partnership cannot involve more than two individuals.

C.
The general partners do not invest capital or participate in the management of the
business.

D.
The limited partners are not personally liable for partnership debts beyond the amount
invested by them.

Correct :
In a limited partnership, the general partners participate in the management of the business and
invest capital; they are also personally liable for the debts of the partnership. Limited partners
invest capital in the partnership but are not personally liable for the debts of the partnership
beyond their capital contributions.
Materials

Limited Partnership

5.
Who among the following is most likely to be a limited partner in a limited partnership?

A.

David, who takes up the task of work delegation in the business.

B.
Kiara, who makes contracts with suppliers for the partnership.

C.
Kevin, who does not have to make up for losses if a contract made by the partnership
fails.

D.
Nelson, who is required to use his personal wealth to pay for any debts incurred by the
partnership.

Correct :
Limited partners in a limited partnership are liable only for the contributions they make. They are
not personally liable for the contracts and debts made by the partnership.
Materials

Limited Partnership

6.
Who has unlimited liability for the debts and obligations of limited partnerships?

A.
Limited partners

B.
General partners

C.
Shareholders

D.
Board of directors

Correct :

The general partners of a limited partnership have unlimited liability for the debts and
obligations of the limited partnerships.
Materials

Limited Partnership

Concept: Corporations
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Materials on the concept:

Introduction to Corporate Formation and Financing


Nature of the Corporation
Corporate Formation and Financing
Publicly Held and Closely Held Corporations

7.
What is a characteristic of a corporation?

A.
It is a separate legal entity.

B.
It is dissolved after the death of any one shareholder.

C.
Its shareholders have unlimited liability.

D.
Its existence cannot be ended by the choice of it's shareholders.

Correct :
A corporation is a separate legal entity under most circumstances. The law treats corporations as
artificial persons.

Materials

Nature of the Corporation

8.
Identify the type of corporations in which there are thousands of shareholders and the shares are
traded on national stock exchanges.

A.
Not-for-profit corporations

B.
Sole proprietorships

C.
Limited partnerships

D.
Publicly held corporations

Correct :
A publicly held corporation has as many as hundreds or thousands of shareholders. The shares of
such a corporation are traded on national stock exchanges. The shareholders of publicly held
corporations rarely involve themselves in the management of the corporation.
Materials

Publicly Held and Closely Held Corporations

9.
Alpha Corp. has very few shareholders and all of the shareholders belong to a single family. The
shareholders are involved in the operations of the business and frequently make management
decisions. What type of corporation does Alpha Corp. best represent?

A.
A closely held corporation

B.

A government-owned corporation

C.
A private corporation

D.
A publicly held corporation

Correct :
In a closely held corporation, the shareholders are often members of a family or are friends. In
such a corporation, the shareholders participate in management activities. They may also enter
into buy-and-sell agreements to keep outsiders from becoming shareholders.
Materials

Publicly Held and Closely Held Corporations

Concept: Limited liability companies and limited liability


partnerships
Mastery 67% Questions

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Materials on the concept:

Introduction to Limited Liability Companies and Limited Liability Partnerships


Limited Liability Company (LLC)
Limited Liability Companies and Limited Liability Partnerships
Limited Liability Partnership (LLP)

10.
Identify the true statement about limited liability companies.

A.
They are created by federal and not state laws.

B.
They are not separate legal entities like corporations.

C.
They can be taxed as partnerships.

D.
They are incorporated business entities.

Correct :
Limited liability companies bring together the favorable characteristics of general partnerships,
limited partnerships, and corporations. The owners of a limited liability company can choose to
have the company taxed as a partnership.
Materials

Limited Liability Company (LLC)

11.
What is true about the formation of limited liability companies?

A.
Doctors and lawyers most frequently form limited liability companies.

B.
Owners can establish their limited liability company in only one state.

C.
Owners of limited liability companies cannot conduct business in other states.

D.
Sole proprietors cannot form limited liability companies in any state.

Incorrect :
Owners can organize their limited liability company in only one state. However, they can
conduct business in different states.
Materials

12.

Limited Liability Company (LLC)

Delta Group is a business firm created by a team of doctors. The business was formed as per the
state's laws and is not taxed as a separate entity. The owners of the business are not personally
liable for the losses, debts, and obligations of the firm. Identify the business form that is best
illustrated in the scenario.

A.
A limited liability company

B.
A general partnership

C.
A corporation

D.
A limited liability partnership

Correct :
A limited liability partnership is formed by professionals such as doctors, lawyers, and
accountants. In most states, nonprofessionals may not be allowed to form limited liability
partnerships.
Materials

Limited Liability Partnership (LLP)

Concept: Franchising, licensing, and joint ventures


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Materials on the concept:

Franchise
Types of Franchises
Introduction to Franchises and Special Forms of Business
Joint Venture
Licensing

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13.
Nutristar is a soft drink manufacturing company that wishes to expand its business. The company
has licensed another firm to manufacture its soft drinks and provided the firm with the necessary
confidential information about manufacturing. The licensed company manufactures the soft
drinks and distributes them. What type of franchise is best illustrated in this scenario?

A.
A processing plant franchise

B.
A distributorship franchise

C.
An area franchise

D.
A chain-style franchise

Correct :
In a processing plant franchise, the franchisor licenses a firm to manufacture its products and
distribute them to retail dealers.
Materials

Types of Franchises

14.
Identify the business arrangement that involves two business firms pooling resources to work on
a single, mostly temporary, business project.

A.
Franchise

B.
Sole proprietorship

C.

Merger

D.
Joint venture

Correct :
In a joint venture, two business firms pool their resources to work on a project or transaction.
Joint ventures share characteristics of partnerships but are formed only to pursue temporary
projects.
Materials

Joint Venture

15.
Gamma Inc. has permitted another firm to operate under its name and use its trademarks and
service marks. This firm can now use the intellectual property of Gamma Inc. to produce and
distribute products. What business concept is best illustrated in this scenario?

A.
Merging

B.
Licensing

C.
Divesting

D.
Acquiring

Correct :
In a licensing arrangement, one firm permits another firm to use its intellectual property
including trademarks, service marks, and trade names. The licensee can manufacture and
distribute the products under the licensor's name.
Materials

Licensing

Concept: Alternative forms of dispute resolution


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Materials on the concept:

Alternative Dispute Resolution


Negotiation
Arbitration
Mini-Trial

16.
Identify the true statement about negotiation as an alternative form of dispute resolution.

A.
The final decision is always approved by a third party.

B.
The two parties involved may be represented by attorneys.

C.
The court does not permit the parties to negotiate before the trial.

D.
The court has to approve an agreement before it is signed by the two parties.

Correct :
In negotiation, two parties involved in a dispute bargain and negotiate to arrive at an agreement.
Negotiation can happen before a lawsuit is filed. The two parties may be represented by
attorneys during the negotiation.
Materials

17.

Negotiation

Identify the form of alternative dispute resolution in which the two involved parties go to a
neutral third party, who makes the final decision.

A.
Arbitration

B.
Negotiation

C.
Mediation

D.
Mini-trial

Correct :
In arbitration, a neutral third party who is known as the arbitrator hears the dispute and makes the
decision. The arbitrators are generally the members of the American Arbitration Association.
Materials

Arbitration

18.
Synergy Inc. is involved in a dispute with Alpha Corp. Both companies have agreed to conduct a
private proceeding involving representatives from each side. They have also appointed lawyers
to present their arguments to these representatives. What type of alternative dispute resolution is
most likely being used in this scenario?

A.
Mediation

B.
Arbitration

C.
Mini-trial

D.
Negotiation

Correct :
A mini-trial is a private proceeding in which the representatives and lawyers of the two parties
involved present their arguments. The representatives generally make decisions based on the
discussions during the proceedings.
Materials

Mini-Trial