Chapter 04

Business Essentials, Canadian Edition, 9e (Ebert)
Chapter 4 Entrepreneurship, Small Business, and New Venture Creation
4.1 Multiple Choice Questions
1) Self-employed Canadians account for about ________ percent of the workforce.

A) 3
B) 5
C) 15
D) 22
E) 34
Answer: C
Diff: 3 Type: MC Page Ref: 63
Skill: Knowledge
Objective: 4.1
2) Approximately how many new businesses are started each day in Canada?
A) 25
B) 100
C) 250
D) 380
E) 500
Answer: D
Skill: Knowledge
Objective: 4.1
3) Individuals who both recognize and seize opportunities are referred to as

A) speculators.
B) franchisees.
C) entrepreneurs.
D) intrapreneurs.
E) independents.
Answer: C
Skill: Knowledge
Objective: 4.1
1
Copyright © 2020 Pearson Canada Inc.
4) Entrepreneurs often have more than one goal for starting a business and becoming self-
employed. Which of the following reasons is probably the least common goal of entrepreneurs?
A) To seek independence and be their own boss
B) To earn a comfortable living for a period of time
C) To grow and expand a current business
D) To meet community or social obligations
E) To provide for their financial needs
Answer: D
Skill: Knowledge
Objective: 4.1
5) A new firm is
A) one that has been in business for 5 years or less.
B) one that has not yet opened for business.
C) one with less than 10 years' experience.
D) one that has become operational within the previous 12 months.
E) one that opened its doors within the past 6 months.
Answer: D
Skill: Comprehension
Objective: 4.1
6) How are intrapreneurs different from entrepreneurs?

A) The former are women and the latter are men.
B) The former are older than the latter.
C) The former work within an existing business while the latter start their own business.
D) The former earn less money than the latter.
E) There is no difference between the two terms.
Answer: C
Diff: 1 Type: MC Page Ref: 64-65
Objective: 4.1
7) A small business is an owner managed business with less than ________ employees.
A) 25
B) 50
C) 10
D) 500
E) 100
Answer: E
Skill: Knowledge
Objective: 4.1
2
8) What percentage of Canada's GDP is contributed by small businesses?
A) 7 percent
B) 13 percent
C) 19 percent
D) 30 percent
E) 41 percent
Answer: D
Skill: Knowledge
Objective: 4.1
9) Which of the following is correct with regard to small business?

A) Various measures might be used to define a small business, including the number of people
the business employs, the company's sales revenue, the size of the investment required, or the
type of ownership structure the business has.
B) Since the Business Register tracks businesses and the Labour Force Survey tracks individuals,
these sources of information are not useful in defining the term "small business."
C) To be included in the Business Register, a business must have at least five paid employees.
D) In the Business Register, a goods-producing company, is considered small if it has fewer than
500 employees, while a service-producing business is considered small if it has fewer than 100
employees.
E) All of these are correct.
Answer: A
Objective: 4.1
10) According to Industry Canada, there are about ________ people who are "self- employed"
and about ________ "business establishments."
A) 1.2 million; 1.2 million
B) 5 million; 500 000
C) 2.8 million; 2.2 million
D) 725 000; 500 000
E) 225 000; 225 000
Answer: C
Skill: Knowledge
Objective: 4.1
3
11) In the Business Register, a goods-producing business is considered small if it has fewer than
________ employees, and a service-producing business is considered small if it has fewer than
________ employees.
A) 1000; 500
B) 500; 1000
C) 100; 50
D) 500; 250
E) 250; 500
Answer: C
Skill: Knowledge
Objective: 4.1
12) In the 2017 Heritage Foundation index of economic freedom, the top three countries were
________; Canada ranked ________.
A) Australia, Japan, and Singapore; 25th
B) the United States, Germany, and Japan; 8th
C) the United States, Ireland, and Germany; 11th
D) Hong Kong, Singapore, and New Zealand; 7th
E) China, Japan, and South Vietnam; 37th
Answer: D
Skill: Knowledge
Objective: 4.1
13) The Heritage Foundation's "index of economic freedom" measures

A) how well command economies are performing compared to market economies.
B) the extent to which entrepreneurs have freedom to pursue new business opportunities.
C) how well entrepreneurs are performing in advanced industrialized countries compared to
developing economies.
D) how much profit entrepreneurs are making in command economies compared to market
economies.
E) the economic freedom entrepreneurs have in various countries, using the United States as the
comparison point.
Answer: B
Objective: 4.1
4
14) At Telus, the redesign of the company's website was the result of ________ in a large firm.
A) product refinement
B) intrapreneurship
C) entrepreneurship
D) starting a business from scratch
E) marketing research
Answer: B
Objective: 4.1
15) The part of the economy that is made up of companies and organizations not owned or
controlled by the government is called
A) crown corporations.
B) split sector.
C) legislated corporations.
D) public sector.
E) the private sector.
Answer: E
Skill: Knowledge
Objective: 4.2
16) Approximately what percentage of businesses in Canada have less than 100 employees?
A) 98
B) 58
C) 88
D) 78
E) 28
Answer: A
Skill: Knowledge
Objective: 4.2
17) During the period from 2005 to 2015, small businesses created approximately ________
percent of all private sector jobs in Canada.
A) 8
B) 15
C) 28
D) 45
E) 88
Answer: E
Skill: Knowledge
Objective: 4.2
5
18) Women account for ________ of all new businesses that are formed, and they lead ________
percent of the small- and medium-sized businesses that export goods and services.
A) about one-fifth; 6
B) about one-quarter; 18
C) about one-third; 18
D) about one-half; 12
E) two-thirds; 24
Answer: D
Skill: Knowledge
Objective: 4.2
19) What are the three key elements in the entrepreneurial process?
A) The entrepreneur, the opportunity, and the marketing plan
B) The marketing plan, the production plan, and the finance plan
C) The product (or service) plan, the entrepreneur, and luck
D) The entrepreneur, the opportunity, and the resources
E) The financing plan, the product (or service) plan, and luck
Answer: D
Skill: Knowledge
Objective: 4.3
20) Which is the most common source of ideas for a new venture?
A) Brainstorming
B) Family
C) Work experiences
D) Children
E) Magazines
Answer: C
Skill: Knowledge
Objective: 4.3
21) When screening ideas, an entrepreneur would ask all of the following questions except
A) is the idea marketable?
B) does this idea have a high entrance cost?
C) does this idea create or add value for the customer?
D) does the idea provide a sustainable competitive advantage?
E) is the idea financially viable?
Answer: B
Objective: 4.3
6
22) With regard to the process of screening possible ideas for a new idea, which of the following
is correct?
A) Determining whether or not the new idea adds value for customers is not essential at this
early stage of the process.
B) It is not possible to determine at this early stage whether a new idea will actually give a
company a sustained competitive advantage.
C) It is important to determine if sales will lead to profits.
D) If the idea is not expected to result in making a profit for a number of years, exit costs are
low.
E) All of these are correct.
Answer: C
Objective: 4.3
23) Erin feels that she has a wonderful opportunity to create a new apple beverage she saw in
Europe by using surplus apples grown near Georgian Bay in Ontario. At this point, which
question must she answer in evaluating this opportunity?
A) What interest rate will be charged for financing the purchase of capital equipment?
B) What depreciation procedures will be used?
C) What kind of computers should I purchase?
D) Where will my business be located?
E) Are there enough customers willing to buy this product?
Answer: E
Objective: 4.3
24) Robert wants to start a new business. At this point, he needs to ask himself all of the
following questions except
A) what is my competitive advantage?
B) how much will the customer buy?
C) what legal form should the business take?
D) what value is created or added to for the customer?
E) what is the marketability of this idea?
Answer: C
Objective: 4.3
7
25) A financial forecast includes all of the following items except
A) a cash budget.
B) an estimate of start-up costs.
C) an income statement.
D) a listing of potential customers.
E) a balance sheet.
Answer: D
Objective: 4.3
26) A ________ typically includes a company description, product description, marketing

analysis and plan, operating plan, financial plan, and other supporting information.
A) bank loan application
B) business plan
C) tax application
D) partnership agreement
E) grant application
Answer: B
Skill: Knowledge
Objective: 4.3
27) Bootstrapping means

A) doing more with less.
B) selling shares.
C) designing new products.
D) preparing a business plan.
E) creating new ideas.
Answer: A
Skill: Knowledge
Objective: 4.3
28) Assets that a borrower uses to secure a loan or other credit are referred to as
A) financed assets.
B) tangible assets.
C) fixed assets.
D) collateral.
E) assignments.
Answer: D
Skill: Knowledge
Objective: 4.3
8
29) One popular source of equity capital is informal capital from private investors who are
known as
A) private loaners.
B) traditional lenders.
C) pseudo loaners.
D) off-the-books financers.
E) angels.
Answer: E
Skill: Knowledge
Objective: 4.3
30) Which one of the following statements is correct?

A) Love money is a form of debt financing.
B) Suppliers typically provide long-term financing.
C) Debt financing refers to money invested by the owner in the company.
D) Borrowing money reduces the potential for higher returns when a business is performing
well.
E) Banks are typically risk averse.
Answer: E
Objective: 4.3
31) Bootstrapping involves all of the following actions except

A) acquiring resources such as people and equipment.
B) doing more with less.
C) purchasing as many resources as possible.
D) using other people's resources.
E) borrowing materials.
Answer: C
Skill: Knowledge
Objective: 4.3
32) Venture capitalists

A) require collateral for all transactions.
B) are risk averse lenders.
C) invest funds from professionally managed pools of investor money.
D) offer loans with a maximum 90-day payback period.
E) are individuals in the United States who are willing to loan money to Canadians who want to
start a business.
Answer: C
Objective: 4.3
9
33) Karen is trying to figure out whether she can start her own small business. But, as with many
small businesses, money is a problem. She asks for your help. You indicate that the most likely
source of money for starting up a small business is
A) family investment.
B) lottery winnings.
C) banks.
D) credit unions.
E) personal savings.
Answer: E
Objective: 4.3
34) With respect to the financing of a business, which one of the following statements is
accurate?
A) Love money is the most popular form of debt financing.
B) Suppliers typically provide long-term financing.
C) Debt financing refers to money invested by the owner in the company.
D) Borrowing money reduces the potential for higher returns when a business is performing
well.
E) Banks are typically risk averse.
Answer: E
Objective: 4.3
35) Which of the following statements is (are) correct with respect to financing a business?
A) Debt financing refers to money that is borrowed, while equity financing refers to money that
is invested in the business by investors in return for a share of the ownership of the company.
B) The most common source of debt financing is venture capitalists.
C) Choosing between debt and equity financing involves trade-offs with regard to immediate vs.
long-term profitability.
D) Most new venture founders prefer equity financing because they are reluctant to give up any
control to outsiders.
E) All these statements are correct.
Answer: A
Objective: 4.3
10
36) Which source of capital is identified as a group of small investors who are willing to invest
money into the new firm in exchange for an ownership share?
A) Venture capital firm
B) Foreign investors
C) Stockbroker syndicate
D) Silent domestic partner
E) Banks
Answer: A
Skill: Knowledge
Objective: 4.3
37) Trade credit is

A) the selling of bonds or debentures.
B) reinvested in the enterprise.
C) paid to the owners in the form of dividends.
D) derived from funds generated from the operation of the business.
E) delayed payment terms offered by suppliers.
Answer: E
Objective: 4.3
38) An example of a debt source of funds is ________ and an example of an equity source of
funds is ________.
A) family and friends; venture capitalists
B) private lenders; family and friends
C) private lenders; trade credit
D) venture capitalists; private lenders
E) family and friends; private lenders
Answer: B
Objective: 4.3
39) A business is normally at its riskiest point during the ________ phase.
A) preliminary
B) growth
C) start-up
D) maturity
E) conception
Answer: C
Skill: Knowledge
Objective: 4.3
11
40) All of the following are common sources of equity for new ventures except
A) banks.
B) personal savings.
C) love money.
D) private investors.
E) venture capitalists.
Answer: A
Skill: Knowledge
Objective: 4.3
41) Which of the following is correct with regard to collateral?

A) It refers to business (but not personal) assets that a borrower uses to secure a loan or other
credit.
B) It consists of tangible assets like buildings as well as intangible assets like goodwill.
C) Collateral can be seized by the lender if the loan is not repaid according to specified terms.
D) It refers to personal (but not business) assets that a borrower uses to secure a loan or other
credit.
E) Banks are most impressed with debt investment.
Answer: C
Objective: 4.3
42) ________ provide new businesses in the early phases of development with support to help
nurture them into a successful future.
A) Angel Banks
B) Venture Capitalists
C) Intrapreneurs
D) Franchisees
E) Business Incubators
Answer: E
Skill: Knowledge
Objective: 4.3
43) The practice of collecting financial contributions from various individuals through an online
platform is known as
A) Angel Investing.
B) Shark Investment.
C) Online Mall Funding.
D) Crowdfunding.
E) Venture Funding.
Answer: D
Skill: Knowledge
Objective: 4.3
12
44) For a new business to succeed, it is important that the entrepreneurs form the right team.
Which of the following should be the top criteria in selecting team members?
A) Personal competencies
B) Family links
C) Personal friendship
D) Successor plans
E) Franchisee demands
Answer: A
Objective: 4.3
45) The ________ fit involves determining if the resources needed to capitalize on the
opportunity can be acquired.
A) resource-entrepreneur
B) personal-entrepreneur
C) entrepreneur-opportunity
D) opportunity-resource
E) entrepreneur-resource
Answer: D
Skill: Knowledge
Objective: 4.3
46) Judy is a graduate from a chiropractor program. Normally, graduates start up their own
business, much like dentists and doctors. She has the choice of starting on her own or buying an
existing practice. What is an advantage for her of starting a new business from scratch?
A) No problems as a result of the prior owner's errors
B) Odds are better to succeed
C) Relationship with suppliers already established
D) Needs and desires of customers known
E) The risks are lower than if she were to buy an existing practice
Answer: A
Objective: 4.4
13
47) Which of the following is the most significant disadvantage of starting a business from
scratch?
A) Having few employees
B) Inability to franchise
C) Having competition
D) Coming up with new ideas
E) The risk of failure
Answer: E
Objective: 4.4
48) Harold's father owns a plumbing business, which Harold will likely take over. However,
Harold needs to understand the problems that family businesses face. Which of the following is
not typically a problem in a family business?
A) Untrained and uneducated family members as personnel
B) Failure to respond to changing market conditions
C) Choosing an appropriate successor
D) Consistent under-financing
E) Disagreement among family members about the future of the business
Answer: D
Objective: 4.4
49) Jody is a young graduate from a business program. She can either help out in the family
business or work with another organization. Which of the following is not a typical advantage
associated with a family business?
A) Highly trained individuals
B) Valuable community relationships
C) Personal sacrifices leading to financial advantage
D) High employee loyalty
E) Unified family management
Answer: A
Objective: 4.4
14
50) Margaret has an opportunity to buy an existing business. She should be knowledgeable about
all of the following issues except
A) the location of the business.
B) legal form of the business.
C) difficulty in determining an appropriate price for the business.
D) incomplete knowledge of the state of the business.
E) the reputation of the business.
Answer: B
Objective: 4.4
51) According to a BDC study there will be many opportunities to buy existing businesses since
________ percent of small business owners are over 50.
A) 60
B) 80
C) 25
D) 35
E) 90
Answer: A
Skill: Knowledge
Objective: 4.4
52) To start up a new business by operating under a license issued by a parent company to local
entrepreneurs who own and manage the business is known as
A) intrapreneurial business.
B) a macroenterprise.
C) an enterprise.
D) a microenterprise.
E) a franchise.
Answer: E
Objective: 4.4
53) What is the most significant disadvantage of owning a franchise?

A) Start-up costs
B) Operational guidelines
C) Difficulty obtaining loans
D) Double taxation
E) Competition
Answer: A
Objective: 4.4
15
54) Which of the following is not likely to be provided by the seller of a franchise?
A) Financing help
B) Guarantee of success
C) Marketing strategy
D) Training for employees and managers
E) Management advice
Answer: B
Objective: 4.4
55) Which of the following is considered an advantage for both the franchisee and the
franchisor?
A) Guaranteed success
B) Economies of scale in buying
C) Promotion savings
D) Recognition
E) Management assistance
Answer: D
Objective: 4.4
56) The benefits of franchising the franchiser enjoys include all of the following except
A) more revenue.
B) more financing.
C) more involvement in the details of local operations.
D) advertising money is spent more efficiently.
E) rapid growth.
Answer: C
Objective: 4.4
57) In a franchise agreement, the ________ is purchasing the right to sell the products of the
________.
A) franchisee; franchiser
B) franchiser; parent company
C) franchiser; franchisee
D) pigeon; shyster
E) subleaser; leaser
Answer: A
Skill: Knowledge
Objective: 4.4
16
58) Molly believes that success is almost guaranteed when one buys a franchise. You point out
that she should consider the costs such as
A) emergency needs.
B) operational expenses.
C) the franchise sales price.
D) training expenses.
E) all of these.
Answer: E
Objective: 4.4
59) Which of the following is not one of the disadvantages of owning a franchise?
A) High failure rates
B) Sacrifice of independence
C) Difficult to terminate
D) On-going payments to the parent company
E) High start-up costs
Answer: A
Objective: 4.4
60) Which of the following is an advantage for the franchisee?

A) Freed from detail of local operations
B) Recognition
C) Rapid growth for the franchise
D) Low entry cost
E) Guaranteed success
Answer: B
Objective: 4.4
61) Franchising accounts for about ________ percent of retail sales in Canada.
A) 10
B) 20
C) 40
D) 60
E) 80
Answer: C
Skill: Knowledge
Objective: 4.4
17
62) Olivia has found a viable business, a small furniture store, she is interested in purchasing.
She has learned that the store is supplied by reliable vendors and has a steady stream of local and
online buyers. What should Olivia's next step be at this point?
A) Analyze the furniture store's past financial statements.
B) Start negotiating a purchase price with the current owner.
C) Approach a banking institution about financing her purchase.
D) Consult a marketing agency about ways to reach more customers.
E) Search for vendors that can provide similar products at lower costs.
Answer: A
Skill: Application
Objective: 4.4
63) Which of the following is a key contributing factor to the success of a small business?
A) Hard work, drive, and dedication
B) Overcapitalization
C) Strong control systems
D) Creativity
E) Insufficient capital
Answer: A
Objective: 4.5
64) Which is the most important reason for the failure of small business?
A) Poor marketing
B) Managerial incompetence
C) Loss of interest in the business
D) Fraud
E) Poor production capabilities
Answer: B
Objective: 4.5
65) A new business typically adopts one of four main organizational forms. They are
A) franchise, sole proprietorship, partnership, or corporation.
B) franchise, partnership, corporation, or co-operative.
C) sole proprietorship, franchise, corporation, or co-operative.
D) sole proprietorship, partnership, corporation, or co-operative.
E) debt, equity, venture capital, or gifted.
Answer: D
Skill: Knowledge
Objective: 4.6
18
66) The features of a sole proprietorship include all the following except
A) a lot of government paperwork.
B) simple to form.
C) easy to dissolve.
D) limited resources.
E) unlimited liabilities.
Answer: A
Objective: 4.6
67) Which of the following is not typical for a sole proprietorship?

A) Limited liability
B) Losing money at start-up
C) Lack of continuity
D) Easy to dissolve
E) Hard to borrow money
Answer: A
Objective: 4.6
68) Sam Clark has a custom cheesecake business that he owns and operates out of his home.
Sam's ownership structure likely is
A) a franchise.
B) a limited partnership.
C) a partnership.
D) a cooperative.
E) a sole proprietorship.
Answer: E
Objective: 4.6
69) Shirley is opening a flower shop and has decided to operate as a sole proprietorship. Which
of the following is not an advantage Shirley will have in operating her business?
A) Freedom
B) Simplicity of operation
C) Limited liability
D) Low start-up costs
E) Choice of location
Answer: C
Objective: 4.6
19
70) Tax laws permit ________ to treat the sales revenues and operating expenses of the business
as part of their personal finances.
A) sole proprietorships
B) joint ventures
C) privately-held corporations
D) either publicly-held or privately-traded corporations
E) publicly-held corporations
Answer: A
Objective: 4.6
71) Low start-up costs, simplicity in formation, and freedom are advantages in establishing a
A) corporation.
B) sole proprietorship.
C) partnership.
D) joint venture.
E) co-operative.
Answer: B
Objective: 4.6
72) A major disadvantage of the sole proprietorship is the

A) ability to grow by adding talent.
B) high start-up costs.
C) unlimited liability.
D) lack of freedom in making business decisions.
E) difficulty in beginning business activities.
Answer: C
Objective: 4.6
73) A general partnership has advantages which are similar to a sole proprietorship, such as
A) easy to transfer ownership.
B) limiting owner's liability.
C) being simple to organize.
D) providing for continuity.
E) being dependent upon resources of an individual.
Answer: C
Objective: 4.6
20
74) A limited partnership attempts to
A) avoid the problem of unlimited liability for the owners.
B) limit the number of partners who may purchase a share of ownership.
C) provide for continuity of operation upon the departure of one of the partners.
D) limit the number of partners who may vote at board meetings.
E) limit the geographical area of operation for a business firm.
Answer: A
Objective: 4.6
75) Partnerships are generally more advantageous than sole proprietorships because
A) the talents of the partners can be pooled.
B) some businesses can only be formed as partnerships.
C) there are many types of partnerships.
D) partners are jointly and severally liable.
E) many people can be the president of the company.
Answer: A
Objective: 4.6
76) Which of the following statements about partnerships is false?

A) A partner cannot sell their interest without the other partners' consent.
B) The partnership terminates upon the death of a partner.
C) A partner cannot retire without the other partners' consent.
D) General partnerships are limited to ten partners.
E) It is easier to borrow money than a sole proprietorship.
Answer: D
Objective: 4.6
77) If sole proprietor Tom decided to merge his business with that of Cindy, another sole
proprietor, a ________ would result.
A) partnership
B) T-4A special corporation
C) publicly-traded corporation
D) dual proprietorship
E) co-operative
Answer: A
Diff: 1 Type: MC Page Ref: 77-78.SKILL
Objective: 4.6
21
78) Low start-up costs and simplicity of operations are among the main advantages of
A) a sole proprietorship.
B) selling shares.
C) incorporating.
D) a co-operative.
E) none of these.
Answer: A
Skill: Knowledge
Objective: 4.6
79) Many professional organizations, such as law firms and accounting firms, are formed as
A) joint ventures.
B) partnerships.
C) public corporations.
D) private corporations.
E) sole proprietorships.
Answer: B
Skill: Knowledge
Objective: 4.6
80) The size of a partnership is

A) limited to a maximum of $100 million in annual sales.
B) unlimited.
C) limited to a maximum of 100 partners.
D) limited to a maximum of 1000 employees.
E) limited to a maximum of $10 million in annual sales.
Answer: B
Objective: 4.6
81) Jeanne is not an active participant in Highline Food Company, but she has contributed a
significant amount of capital as a partner to the business. Jeanne is known as a(n) ________
partner.
A) managing
B) general
C) limited
D) dormant
E) secret
Answer: C
Objective: 4.6
22
82) There are two basic types of partners: ________ and ________.
A) dormant; active
B) key; secondary
C) secret; open
D) general; limited
E) primary; secondary
Answer: D
Skill: Knowledge
Objective: 4.6
83) Paul invests $50 000 in a partnership with his sister to operate a computer sales outlet. Paul
is not involved in the operation of the store and has limited liability through the written
partnership agreement. What kind of partner is Paul?
A) Secret
B) Ostensible
C) Limited
D) Dormant
E) General
Answer: C
Objective: 4.6
84) Two architects are considering forming a partnership. Both want a partnership agreement.
All of the following should be part of their agreement except
A) the formal reporting relationship between the two partners.
B) the amount of the individual investment.
C) how the company will be dissolved.
D) how the profits will be shared.
E) how new employees will be hired.
Answer: E
Objective: 4.6
85) Ann and David want to form a partnership. They should consider all of the following except
A) possibility of disagreement.
B) unlimited liability.
C) ease of setting up a partnership.
D) the combined talents of both partners.
E) ease in transferring ownership.
Answer: E
Objective: 4.6
23
86) Disadvantages of the general partnership form of business organization include
A) limited liability.
B) ability to provide dividends to shareholders.
C) lack of continuity.
D) simplicity of establishment.
E) difficult to organize.
Answer: C
Skill: Knowledge
Objective: 4.6
87) What is the most important advantage of general partnerships?

A) The unlimited liability of the partnership
B) The ability to grow with the addition of new talent and money
C) The ease of implementing an effective control system
D) The increased role of luck
E) The need for minority partners
Answer: B
Skill: Knowledge
Objective: 4.6
88) What do both sole proprietorships and partnerships lack?

A) Trust
B) Legal standing
C) Continuity
D) Shared vision
E) Adaptable processes
Answer: C
Skill: Knowledge
Objective: 4.6
89) In a partnership,
A) partners are not liable for debts of other partners if there is no partnership agreement.
B) each partner pays only his or her share of the liability even if one partner runs out of money
before that partner's share is paid.
C) a partner is not responsible for debts if another partner created the liability through some
action that violated the partnership agreement.
D) each partner is responsible for the debts even if the debt was the result of the actions of only
one partner.
E) each partner is responsible only for the debts he or she incurred.
Answer: D
Objective: 4.6
24
90) Computers-B-Us is a new company. Its owners all have no personal liability for any debts of
the company. All five of its owners invested the same amount and will share equally in the
profits. The structure of Computers-B-Us is most likely a
A) private corporation.
B) co-operative.
C) limited partnership.
D) general partnership.
E) sole proprietorship.
Answer: A
Objective: 4.6
91) What is the fundamental difference between a sole proprietorship and a corporation?
A) A corporation is larger than a sole proprietorship.
B) A corporation is a legal entity that is separate from its owners, while in a sole proprietorship,
there is no such distinction.
C) A sole proprietor has unlimited liability, while investors in a corporation have limited
liability.
D) A corporation is more bureaucratic than a sole proprietorship.
E) There isn't really a fundamental difference between a sole proprietorship and a corporation.
Answer: B
Objective: 4.6
92) What was the largest corporation in Canada in 2017, as measured by sales revenue?
A) Imperial Oil
B) Manulife Financial Corp.
C) Bank of Nova Scotia
D) General Motors Canada
E) Suncor Energy
Answer: B
Skill: Knowledge
Objective: 4.6
93) Which of the following is a private corporation?

A) General Motors Canada
B) Suncor Energy
C) Cirque du Soleil
D) Manulife Financial Corp.
E) Bank of Nova Scotia
Answer: C
Skill: Knowledge
Objective: 4.6
25
94) A public corporation is
A) one that must do business with the general public.
B) chartered by the federal government.
C) one whose stock is available for sale to the general public.
D) one that cannot keep secrets from its competitors.
E) one whose shares are for sale at public auctions.
Answer: C
Objective: 4.6
95) ________ is the governing body of a corporation.

A) The board of directors
B) The majority shareholders committee
C) The audit committee
D) The CEO
E) A shareholders' board
Answer: A
Skill: Knowledge
Objective: 4.6
96) The two most widely used methods to form a corporation include
A) traditional or contemporary incorporation.
B) limited or unlimited incorporation.
C) private or public incorporation.
D) inside or outside incorporation.
E) federal or provincial incorporation.
Answer: E
Skill: Knowledge
Objective: 4.6
97) Bill is starting up a new business. In order to raise the capital needed for the business, Bill
has sold shares of his company to a few close relatives. This type of structure is known as a
A) sole proprietorship.
B) private corporation.
C) macroenterprise.
D) public enterprise.
E) public corporation.
Answer: B
Objective: 4.6
26
98) An organization designed to avoid paying corporate tax by distributing all or most of their
earnings to their shareholders is
A) an income trust.
B) a shareholders co-operative.
C) a public company.
D) a limited partnership.
E) a private corporation.
Answer: A
Objective: 4.6
99) An outside director is

A) a person who is not an employee of the company.
B) a person from the employee group outside the upper level ranks.
C) a person selected by the CEO.
D) a person who is a high ranking company official.
E) a person from the audit committee.
Answer: A
Objective: 4.6
100) What is the difference between a public and private corporation?

A) Public corporations issue shares, whereas private corporations do not.
B) Public corporations are owned by a government, whereas private corporations are owned by
private individuals.
C) Public corporations are always large, whereas private corporations are not allowed by law to
be large.
D) Public corporations have articles of incorporation, whereas private corporations do not.
E) Public corporations issue shares that are widely held, whereas private corporations issue
shares that are held by only a few people.
Answer: E
Objective: 4.6
27
101) Shareholders are ________ of a company and profits are distributed among shareholders in
the form of ________.
A) owners; proxies
B) owners; products
C) managers; proxies
D) owners; dividends
E) managers; profit sharing
Answer: D
Skill: Knowledge
Objective: 4.6
102) Start-up costs and complexities are among the main disadvantages of
A) starting up a partnership.
B) incorporating.
C) starting up a sole proprietorship.
D) selling shares.
E) none of these.
Answer: B
Objective: 4.6
103) For the first time, Liz has decided to sell shares of her company to the public in order to
raise some capital to build a new factory. Liz is launching a(n)
A) initial public offering.
B) an extended corporation.
C) blended corporation.
D) private corporation.
E) income tax trust.
Answer: A
Objective: 4.6
104) ________ is defined as "an artificial being, invisible, intangible, and existing only in
contemplation of the law."
A) A corporation
B) A co-operative
C) A partnership
D) A business owner
E) A sole proprietorship
Answer: A
Skill: Knowledge
Objective: 4.6
28
105) Which type of business is legally considered a separate entity from its owners and is liable
for its own debts?
A) Sole proprietorship
B) Corporation
C) Limited partnership
D) Co-operative
E) General partnership
Answer: B
Skill: Knowledge
Objective: 4.6
106) A share of ownership in a corporation is referred to as

A) a partnership.
B) stock.
C) a principle.
D) a directorship.
E) debt.
Answer: B
Skill: Knowledge
Objective: 4.6
107) Due to his hard work and notable contributions as an employee of KB Electronics, Nori has
just been elected to the board of directors of the company. He will now be expected to fulfill his
obligations as both an employee and director. Nori is a(n)
A) outside director.
B) special representative.
C) regular seat holder.
D) inside director.
E) corporate official.
Answer: D
Objective: 4.6
108) Suzy is considering incorporating her financial consulting business. Of the items listed
below, which one would not be a problem if she incorporates?
A) Heavy regulation
B) Double taxation
C) Complex legal requirements
D) Unlimited liability
E) High costs of incorporation
Answer: D
Objective: 4.6
29
109) In the double taxation endured by some businesses, ________ is the first taxation and
________ is the second taxation.
A) tax on corporate profits; value-added tax
B) tax on dividends; tax on corporate profits
C) tax on corporate profits; tax on dividends
D) property tax; income tax
E) social security tax; income tax
Answer: C
Objective: 4.6
110) Jonathan is upset, claiming that he is a victim of double taxation. What form of business is
he involved in?
A) Unlimited liability
B) Partnership
C) Corporation
D) Big business venture
E) Small corporate venture
Answer: C
Objective: 4.6
111) The person or people responsible for the firm's overall performance is/are
A) the directors.
B) the CEO.
C) the COO.
D) the CFO.
E) all employees.
Answer: B
Skill: Knowledge
Objective: 4.6
112) Most new corporations start out as ________ corporations and then move to ________
corporations as they grow.
A) unlimited; limited
B) limited; unlimited
C) general, active
D) public; private
E) private; public
Answer: E
Skill: Knowledge
Objective: 4.6
30
113) Gloria wants to turn her sole proprietorship into a business corporation. Among the things
that she must consider are
A) sole proprietorships must be made into partnerships before they can be made into
corporations.
B) there is a threat of a hostile takeover if she has a private corporation.
C) double taxation that occurs with corporations.
D) the cost of dissolving her sole proprietorship will be high.
E) she has to decide whether or not she will issue shares when the company becomes a
corporation.
Answer: C
Objective: 4.6
114) Who are the owners of a corporation?

A) The board of directors
B) The financial officers
C) The shareholders
D) The top managers
E) The creditors
Answer: C
Objective: 4.6
115) Which of the following is the main disadvantage of a co-operative?

A) High prices
B) Each member only gets one vote
C) High tax rates
D) Low surplus distribution rates
E) Difficult to attract equity investment
Answer: E
Objective: 4.6
31
116) A ________ is an incorporated form of business that is organized, owned, and
democratically controlled by the people who use its products and services.
A) partnership
B) proprietorship
C) co-operative
D) corporation
E) preferred share
Answer: C
Skill: Knowledge
Objective: 4.6
117) How is a co-operative different from a corporation?

A) A co-operative has no shareholders.
B) A co-operate is smaller than a corporation.
C) In a co-operative, each person has only one vote no matter how many shares they own.
D) Double taxation affects co-operatives more negatively than corporations.
E) A co-operative is not incorporated.
Answer: C
Objective: 4.6
118) Which of the following is correct with regard to co-operatives?

A) Co-operatives are not allowed to deduct patronage refunds to members out of before-tax
income.
B) Members have an incentive to invest in equity capital of the co-operative.
C) Voting and financial control of the co-operative is typically held by a few wealthy
individuals.
D) Double taxation affects co-operatives more negatively than corporations.
E) The democratic voting arrangements and dividends based purely on patronage discourage
some entrepreneurs from forming or joining a co-operative.
Answer: E
Objective: 4.6
119) The purpose of a co-operative is

A) as a benevolent association designed to help out its members in times of need.
B) as an association only for farmers.
C) to benefit its owners in the form of reduced prices and/or distribution of surplus at year end.
D) to remain small so that they can help all their members on an individual basis.
E) to buy fertilizer at reduced prices because of volume buying on the part of its members.
Answer: C
Objective: 4.6
32
120) Voting rights in a co-operative are
A) not restricted just to members.
B) required before one can buy anything from a co-operative.
C) the same as those found in a corporation, that is, the more one owns or contributes the more
votes one has.
D) nonexistent; there are no votes taken in the running of a co-operative.
E) one vote per member regardless of the amount owned or contributed.
Answer: E
Objective: 4.6
121) What is an independently owned and managed business that does not dominate its market
called?
A) Small business
B) Sole proprietorship
C) Corporation
D) Franchise
E) Micro enterprise
Answer: A
Skill: Knowledge
Objective: 4.1
ESL: Alternate/ESL
122) Which of the following is a recently formed commercial organization that provides goods
and/or services for sale?
B) New venture
C) Corporation
D) Small business
E) Cooperative
Answer: B
Skill: Knowledge
Objective: 4.1
ESL: Alternate/ESL
33
123) What is the process of identifying an opportunity in the marketplace and accessing the
resources needed to take advantage of it called?
A) Optimization
B) Capitalizing
C) Entrepreneurship
D) Leveraging
E) Appraising
Answer: C
Skill: Knowledge
Objective: 4.1
ESL: Alternate/ESL
124) Which of the following is a business person who accepts both the risks and the
opportunities involved in creating and operating a new business venture?
A) Venture capitalist
B) Capitalist
C) Innovator
D) Entrepreneur
E) Angel investor
Answer: D
Skill: Knowledge
Objective: 4.1
ESL: Alternate/ESL
125) A person who creates something new within an existing large firm or organization is which
of the following?
A) Internal innovator
B) Micropreneur
C) Entrepreneur
D) Merchandiser
E) Intrapreneur
Answer: E
Skill: Knowledge
Objective: 4.1
ESL: Alternate/ESL
34
126) The part of the economy made up of companies and organizations not owned or controlled
by the government is which of the following?
A) Public sector
B) Private sector
C) Business sector
D) Industrial sector
E) Corporate sector
Answer: B
Skill: Knowledge
Objective: 4.2
ESL: Alternate/ESL
127) An estimate of how much of a product or service will be purchased by prospective

customers over a specific period is which of the following?
A) Sales prognosis
B) Sales prediction
C) Sales forecast
D) Sales outlook
E) Pro forma sales
Answer: C
Skill: Knowledge
Objective: 4.3
ESL: Alternate/ESL
128) What is a document in which the entrepreneur summarizes his or her business strategy for
the proposed new venture and how that strategy will be implemented called?
A) Business plan
B) Annual report
C) Business blueprint
D) Tactical plan
E) Corporate forecast
Answer: A
Skill: Knowledge
Objective: 4.3
ESL: Alternate/ESL
35
129) What is doing more with less called?
A) Productivity
B) Economizing
C) Efficiency
D) Adaptability
E) Bootstrapping
Answer: E
Skill: Knowledge
Objective: 4.3
ESL: Alternate/ESL
130) Which of the following are assets that a borrower uses to secure a loan or other credit and
that are subject to seizure by the lender if the loan isn't repaid according to the specified
repayment terms?
A) Down payment
B) Security
C) Collateral
D) Repossessions
E) Fixtures
Answer: C
Skill: Knowledge
Objective: 4.3
ESL: Alternate/ESL
131) Facilities that support small businesses during their early growth phase by providing basic
services, office space and legal advice are which of the following?
A) Launch pads
B) Startup simulators
C) New business breeding hubs
D) Incubators
E) Hatcheries
Answer: D
Skill: Knowledge
Objective: 4.3
ESL: Alternate/ESL
36
132) A business owned and usually operated by one person who is responsible for all of its debts
is which of the following?
B) Small business
C) Franchise
D) Single operator operation
E) Solo enterprise
Answer: A
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
133) A person has who invests in a business and is liable for all debts incurred by the business
can have their personal possessions taken to pay the debts off has which of the following?
A) Limited liability
B) Unlimited liability
C) Accountability
D) Responsibility
E) Collateral liability
Answer: B
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
134) A type of business with two or more owners who share in the operation of the firm and in
the financial responsibility for the firm's debts is which of the following?
A) Cooperative
B) Association
C) Partnership
D) Corporation
E) Franchise
Answer: C
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
37
135) A partner who is actively involved in managing the firm and has unlimited liability is which
of the following?
A) Limited partner
B) Silent partner
C) Managing partner
D) General partner
E) Investing partner
Answer: D
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
136) What type of partner generally does not participate actively in the business and whose
liability is limited to the amount invested in the partnership?
A) Limited partner
B) General partner
C) Investing partner
D) Equity partner
E) Angel partner
Answer: A
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
137) Which of the following is a business considered by law to be a legal entity separate from its
owners with many of the legal rights and privileges of a person?
A) Franchise
B) Enterprise
C) Cooperative
D) Association
E) Corporation
Answer: E
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
38
138) Investors who buy shares of ownership in the form of stock are which of the following?
A) Stockholders
B) Venture capitalists
C) Shareholders
D) Speculators
E) Angel investors
Answer: C
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
139) Shares whose owners usually have last claim on the corporation's assets but who have
voting rights in the firm are called which of the following?
A) Preferred stock
B) Convertible stock
C) Voting stock
D) Common stock
E) Defensive stock
Answer: D
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
140) A group of individuals elected by a firm's shareholders and charged with overseeing and
taking legal responsibility for the firm's actions are referred to as which of the following?
A) Board of directors
B) Executives
C) Corporate officers
D) Board of governors
E) Enterprise officials
Answer: A
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
39
141) Who is the highest-ranking executive in a company or organization?
A) Chairperson of the board
B) Chief executive officer
C) Premier executive
D) Executive president
E) Enterprise leader
Answer: B
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
142) What is a business whose stock is widely held and available for sale to the general public
called?
A) Private corporation
B) Open corporation
C) Public corporation
D) Community corporation
E) Accessible corporation
Answer: C
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
143) A business whose stock is held by a small group of individuals and is not usually available
for sale to the general public is called which of the following?
A) Public corporation
B) Tightly held corporation
C) Closed corporation
D) Private corporation
E) Locked corporation
Answer: D
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
40
144) What is selling shares of stock in a company for the first time to a general investing public
called?
A) Initial public offering
B) 1st stock sale offering
C) Stock launch
D) Opening bell debut
E) Share offering premiere
Answer: A
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
145) What are companies that buy publicly traded companies and then make them private called?
A) Hedge funds
B) Cooperatives
C) Privatization firms
D) Reverse takeover companies
E) Private equity firms
Answer: E
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
4.2 Critical Thinking Questions
1) An entrepreneur, Christina Rossini, is planning to open a small chain of 4 to 6 pizza stores

under the brand name "Redenda Pizza." The name comes from combining the first names of the
entrepreneur's grandparents. Christina wants to have a competitive advantage by offering
innovative and distinct specialty pizzas and by offering the freshest ingredients. However, she is
concerned that without proper planning, her venture will not be successful.
Christina is trying to identify potential problems in order to avoid them or at least be better
positioned to react if they cannot be avoided. In doing so, Christina should account for all of the
following possibilities except
A) the possibility that years in the future scientists may give a new communicable disease a
name that sounds similar to "Redenda."
B) the possibility that a significant number of her potential customers could be allergic to one or
more of her ingredients.
C) the possibility that seasonal variations in the availability of ingredients could affect the price
of those ingredients.
D) the possibility that advertising "fresh" ingredients may prevent Redenda Pizza from using
less-expensive ingredients.
E) the possibility that many customers are reluctant to try new pizza recipes.
Answer: A
Diff: 3 Type: MC
Skill: Analysis
41
Answers to which of the following questions would be least relevant to determining whether
Christina has located a good opportunity in starting Redenda Pizza?
A) Are there other pizza restaurants near the planned location?
B) Is the business of other pizza restaurants in the city growing?
C) Does the planned location of the restaurant have competitive rent?
D) Will Redenda Pizza offer unique ingredients in its food offerings?
E) Would Christina bring unique talents and ideas to a restaurant business?
Answer: C
Diff: 3 Type: MC
Skill: Analysis

Which of the following, if true, would strengthen the case that Christina has a good opportunity
in opening a new pizza restaurant?
A) There are many existing pizza restaurants in Christina's city.
B) The pizza business in Christina's city has remained largely unchanged for many years.
C) Restaurant consumers in Christina's city mostly frequent Mexican restaurants.
D) Pizza restaurants require several experienced employees to be successful.
E) Pizza restaurants can be found in almost any town in Canada.
Answer: B
Diff: 3 Type: MC
Skill: Analysis

Which of the following, if true, would not strengthen the case that Christina has personal
characteristics necessary for her new business to succeed?
A) She is willing to take risks.
B) She is motivated.
C) She works well with others.
D) She is a "big picture" thinker.
E) She follows directions carefully.
Answer: E
Diff: 3 Type: MC
Skill: Analysis
42
Which of the following best explains why flexibility is an important quality that Christina needs
for success?
A) It takes a certain amount of money to start a business.
B) It often helps to have a business partner in a new business.
C) Starting a new business requires a great deal of planning.
D) Starting and running a new business involves many unpredictable factors.
E) An entrepreneur must be extremely competent in business skills.
Answer: D
Diff: 3 Type: MC
Skill: Analysis
6) Short and Shearer are two friends who want to begin an entrepreneurship venture as business
partners. They need to decide whether to start up a new business or to buy an existing business.
To do this, Short and Shearer need to weigh the pros and cons of each in order to see what the
best strategy for them would be.
Which of the following, if true, would strengthen the case for Short and Shearer buying an
existing business?
A) Short and Shearer have a lot of ideas as to the kind of business they would like to own.
B) An existing business would have an existing customer base that Short and Shearer would
inherit.
C) An existing business for sale might have difficulties that Short and Shearer would inherit.
D) Short and Shearer greatly value independence.
E) Existing small businesses are usually carrying debts.
Answer: B
Diff: 3 Type: MC
Skill: Analysis
Which of the following, if true, would weaken the case for Short and Shearer buying an existing
business?
A) Short and Shearer could more easily obtain financing for the purchase.
B) Buying an existing business involves fewer legal hurdles than starting a new one.
C) Franchises have more potential for success than single-facility businesses.
D) Short and Shearer have limited funds to start with.
E) Existing businesses cost less to purchase than new ones.
Answer: D
Diff: 3 Type: MC
Skill: Analysis
43
Which of the following, if true, would strengthen the case for Short and Shearer's starting a new
business of their own?
A) Starting a new business would put a lot of demands on their time.
B) Starting a new business involves more risk than purchasing an existing one.
C) Starting a new business would give them a lot of freedom and independence.
D) Starting a new business would mean hiring many new employees right away.
E) Starting a new business involves a lot of stress for the proprietors.
Answer: C
Diff: 3 Type: MC
Skill: Analysis
Which of the following, if true, would weaken the case for Short and Shearer's starting a new
business?
A) Starting a new business allows an entrepreneur to determine their own working hours.
B) Starting a new business allows an entrepreneur to establish their own clientele.
C) Starting a new business allows an entrepreneur to use their own ideas.
D) Starting a new business gives a potential for a feeling of great accomplishment.
E) Starting a new business involves using an untested business model.
Answer: E
Diff: 3 Type: MC
Skill: Analysis
In order to help ensure success for their new business, which of the following questions would be
least helpful for Short and Shearer to periodically ask themselves?
A) How well does our firm's operation align with the business plan?
B) How many employees do we have?
C) How are we handling our finances?
D) How are our employees performing?
E) How much debt can we afford to carry?
Answer: B
Diff: 3 Type: MC
Skill: Analysis
44
11) Sam and Nina want to start a dry-cleaning service and need to decide on the best form of
business ownership, based on their respective abilities and the kind of business they want to run.
They could either jointly own the business as a partnership, or one of them could own it as a sole
proprietorship.
Which of the following, if true, would strengthen the case for Nina running the business as a sole
proprietorship?
A) Sam is experienced in dry-cleaning.
B) Sam has a wide base of existing customer contacts.
C) Sam is not willing to take on legal liability in the company.
D) Nina is relatively new to the dry-cleaning business.
E) Nina is not much of a "people person."
Answer: C
Diff: 3 Type: MC
Skill: Analysis
proprietorship.
Which of the following, if true, would weaken the case for Nina running the business as a sole
proprietorship?
A) Nina has a degree in accounting.
B) Nina's parents also ran a dry-cleaning business.
C) Nina had the initial idea to start the new business.
D) Sam is anxious to take on a lead role in the business.
E) Sam does not have any previous dry-cleaning experience.
Answer: D
Diff: 3 Type: MC
Skill: Analysis
proprietorship.
Which of the following, if true, would strengthen the case for Sam and Nina owning the business
in a partnership?
A) Sam and Nina have very different personalities.
B) Sam and Nina have the same skill sets.
C) Sam and Nina are both motivated and energetic.
D) Nina has good leadership qualities.
E) Sam has a strong marketing background.
Answer: C
Diff: 3 Type: MC
Skill: Analysis
45
proprietorship.
Which of the following, if true, would weaken the case for Sam and Nina owning the business in
a partnership?
A) Sam and Nina have different personalities.
B) Sam and Nina have known each other for many years.
C) Sam and Nina have conflicting ideas about what would make a dry-cleaning business
succeed.
D) Nina is experienced in finance but not in equipment repair.
E) Sam is experienced in dry-cleaning but not skilled as an administrator.
Answer: C
Diff: 3 Type: MC
Skill: Analysis
4.3 True/False Questions
1) Self-employed Canadians account for about half of the total workforce.

Answer: FALSE
Diff: 1 Type: TF Page Ref: 63
Skill: Knowledge
Objective: 4.1
2) Entrepreneurship is an individual's willingness to take advantage of business opportunities and

to assume the risks of establishing and operating a business.
Answer: TRUE
Objective: 4.1
3) A small business is, by definition, entrepreneurial.

Answer: FALSE
Diff: 1 Type: TF Page Ref: 63-64
Objective: 4.1
4) A small business is an owner-managed business with less than 100 employees.

Answer: TRUE
Skill: Knowledge
Objective: 4.1
46
5) A new venture is a recently formed commercial organization that provides goods, but not
services, for sale.
Answer: FALSE
Skill: Knowledge
Objective: 4.1
6) The majority of businesses in Canada have no employees (i.e., the only person is the business
is the owner).
Answer: TRUE
Skill: Knowledge
Objective: 4.1
7) In the 2017 Heritage Foundation index of economic freedom, Hong Kong ranked highest and
North Korea ranked lowest.
Answer: TRUE
Skill: Knowledge
Objective: 4.1
8) A key difference between intrapreneurs and entrepreneurs is that intrapreneurs typically don't
have to concern themselves with getting the resources needed to bring a new product to market.
Answer: TRUE
Objective: 4.1
9) About 85 percent of all businesses in Canada are small.

Answer: FALSE
Objective: 4.2
10) Manufacturing businesses are the largest and fastest growing segment of small business
enterprise.
Answer: FALSE
Skill: Knowledge
Objective: 4.2
11) During the period from 2005 to 2015, small businesses created more than three-quarters of
all the jobs in Canada.
Answer: TRUE
Skill: Knowledge
Objective: 4.2
47
12) Women lead only a small percentage of small- and medium-sized firms that export goods
and services.
Answer: TRUE
Skill: Knowledge
Objective: 4.2
13) The most important reason that women give for starting their own business is to gain control
of their schedules.
Answer: TRUE
Skill: Knowledge
Objective: 4.2
14) Most new ventures are the result of a search for a viable business idea.
Answer: FALSE
Skill: Knowledge
Objective: 4.3
15) Most new venture ideas come from people's hobbies.

Answer: FALSE
Skill: Knowledge
Objective: 4.3
16) An idea with high business exit costs is good, because it will motivate the entrepreneur to
work hard to achieve success.
Answer: FALSE
Objective: 4.3
17) If market conditions are stable, the benefits gained from research diminish quickly.
Answer: FALSE
Objective: 4.3
18) A sales forecast is the foundation for determining the financial viability of a venture and the
resources needed to start it.
Answer: TRUE
Objective: 4.3
48
19) Planning does not have to be complete before action is taken.
Answer: TRUE
Objective: 4.3
20) Equity refers to the money, or capital, invested in the enterprise by individuals in return for
an ownership interest.
Answer: TRUE
Skill: Knowledge
Objective: 4.3
21) A business is at its riskiest point during the start-up phase.

Answer: TRUE
Skill: Knowledge
Objective: 4.3
22) Private investors, also known as angels, provide most of the debt financing for new
businesses.
Answer: FALSE
Objective: 4.3
23) Suppliers who provide goods such as inventory are providing equity financing.
Answer: FALSE
Objective: 4.3
24) Survival rates for new ventures are greatly improved by getting involved with an incubator.
Answer: TRUE
Objective: 4.3
25) Small founding teams tend to work better than big ones when starting a company, and it is
quite common for the initial team to consist of just two people: a craftsperson and a salesperson.
Answer: TRUE
Skill: Knowledge
Objective: 4.3
49
26) Crowdfunding is an important new vehicle for financing allowing companies to raise money
to fund new projects. It gives regular people the chance to pledge funds to a company.
Answer: TRUE
Skill: Knowledge
Objective: 4.3
27) It is important to assess the "fit" between the various elements in the entrepreneurial process
at the outset and then stick with that setup as the business grows.
Answer: FALSE
Objective: 4.3
28) The risks of buying an existing firm are greater than the risks of starting a business from
scratch because the existing firm may have a bad reputation among consumers.
Answer: FALSE
Objective: 4.4
29) Two of the major problems in family businesses are choosing and training successors and
determining the direction of the firm.
Answer: TRUE
Objective: 4.4
30) A significant advantage of a franchise as a way of running a small business is that the
chances of success are increased.
Answer: TRUE
Objective: 4.4
31) A disadvantage of a franchise is the initial franchise fee.

Answer: TRUE
Objective: 4.4
32) Luck is a significant factor in the success of some small businesses.

Answer: TRUE
Skill: Knowledge
Objective: 4.5
50
33) A study conducted by CIBC found that small businesses with above-average growth rates
were run by owners with more formal education.
Answer: TRUE
Skill: Knowledge
Objective: 4.5
34) Of every 100 small businesses that begin operation, only 85 will still be operating after just
one year.
Answer: TRUE
Skill: Knowledge
Objective: 4.5
35) Sole proprietors can generally treat business revenues and operating expenses as part of their
personal finances.
Answer: TRUE
Objective: 4.6
36) Shares of stock in a private corporation are available for sale to the general public.
Answer: FALSE
Skill: Knowledge
Objective: 4.6
37) An income trust structure allows a corporation to avoid paying tax if it distributes all or most
of its earnings to investors.
Answer: TRUE
Skill: Knowledge
Objective: 4.6
38) Company employees are not allowed to be members of the board of directors.
Answer: FALSE
Skill: Knowledge
Objective: 4.6
39) IPOs are particularly attractive to companies during stock market declines because investors
can buy the shares of stock for a low price, and this makes it more likely that the company will
be able to sell a lot of shares.
Answer: FALSE
Objective: 4.6
51
40) In a corporation, a shareholder with 10 shares receives 10 times the dividend paid to a
shareholder with 1 share.
Answer: TRUE
Objective: 4.6
41) Shareholders pay income taxes on the dividends they receive from the corporation, but the
dividends are tax deductible for corporations.
Answer: FALSE
Objective: 4.6
42) Unlike corporations, co-operatives do not have directors and appointed officers.
Answer: FALSE
Objective: 4.6
43) Co-operatives are allowed to deduct patronage refunds to members out of before-tax income.
Answer: TRUE
Objective: 4.6
44) A co-operative is an incorporated form of business.

Answer: TRUE
Skill: Knowledge
Objective: 4.6
45) A businessperson who accepts both the risks and the opportunities involved in creating and
operating a new business venture is known as an entrepreneur.
Answer: TRUE
Skill: Knowledge
Objective: 4.1
ESL: Alternate/ESL
52
46) Intrapreneurs are people who create something new within an existing large firm or
organization.
Answer: TRUE
Skill: Knowledge
Objective: 4.1
ESL: Alternate/ESL
47) The public sector is the part of the economy made up of companies and organizations not
owned or controlled by the government.
Answer: FALSE
Skill: Knowledge
Objective: 4.2
ESL: Alternate/ESL
48) A franchise is an arrangement in which a buyer purchases the right to sell the product or
service of the seller.
Answer: TRUE
Skill: Knowledge
Objective: 4.3
ESL: Alternate/ESL
49) An initial public offering is a document in which the entrepreneur summarizes her or his
business strategy for the proposed new venture and how that strategy will be implemented.
Answer: FALSE
Skill: Knowledge
Objective: 4.3
ESL: Alternate/ESL
50) Assets that a borrower uses to secure a loan or other credit and that are subject to seizure by
the lender if the loan isn't repaid according to the specified repayment terms are called fixtures.
Answer: FALSE
Skill: Knowledge
Objective: 4.3
ESL: Alternate/ESL
51) A partner who generally does not participate actively in the business and whose liability is
limited to the amount invested in the partnership is called a general partner.
Answer: FALSE
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
53
52) The highest-ranking executive in a company or organization is the Chief Executive Officer
(CEO).
Answer: TRUE
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
53) The amount of money, normally a portion of the profits, that is distributed to the
shareholders is called disbursements.
Answer: FALSE
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
54) A co-operative is an organization that is formed to benefit its owners in the form of reduced
prices and/or the distribution of surpluses at year-end.
Answer: TRUE
Skill: Knowledge
Objective: 4.6
ESL: Alternate/ESL
4.4 Short Answer Questions
1) How is a small business defined?

Answer: A small business is an independently owned and managed business with less than 100
employees.
Diff: 2 Type: SA Page Ref: 63
Skill: Knowledge
Objective: 4.1
2) What is an entrepreneur?
Answer: An entrepreneur is a business person who accepts both the risks and the opportunities
involved in creating and operating a new business venture.
Skill: Knowledge
Objective: 4.1
3) What is an intrapreneur?
Answer: An intrapreneur is a person who creates something new within an existing large firm or
organization.
Skill: Knowledge
Objective: 4.1
54
4) Define a new venture.
Answer: A new venture is a recently formed new commercial organization that provides goods
and/or services for sale.
Skill: Knowledge
Objective: 4.1
5) What is the impact of new ventures on job creation?

Answer: New firms are the main source of job creation, and they are responsible for the vast
majority of new products and services that are developed. From 2002 to 2012, small businesses
created 77 percent of all the jobs in Canada.
Objective: 4.2
6) What are the main reasons that female entrepreneurs give for starting a business?
Answer: Gaining control over their schedule, seeing a market opportunity, and being frustrated
by the "glass ceiling" at big companies
Skill: Knowledge
Objective: 4.2
7) List the major parts of a good business plan.

Answer:
- Company description
- Product or service description
- Marketing analysis and plan
- Operating plan
- Management plan
- Financial plan
- Supporting details
Skill: Knowledge
Objective: 4.3
8) What are the three key elements in the entrepreneurial process?

Answer: The three key elements are the entrepreneur, the opportunity, and the resources.
Skill: Knowledge
Objective: 4.3
55
9) What factors in the broader environment influence the entrepreneurial process?
Answer:
- Social factors
- Economic factors
- Political factors
- Technological factors
Skill: Knowledge
Objective: 4.3
10) Where do the majority of entrepreneurial ideas come from?

Answer: They come from everyday events relating to work or life, with work experience begin
the most common source.
Skill: Knowledge
Objective: 4.3
11) What are the two most important questions to ask when evaluating an idea for market and
financial viability?
Answer:
- Are there enough customers willing to buy the product or service?
- Will sales lead to profits?
Objective: 4.3
12) What is a sales forecast?

Answer: A sales forecast is an estimate of how much of a service/product will be purchased
during a specific period of time.
Objective: 4.3
13) What is the mandate of the Business Development Bank of Canada?

Answer: The mandate of the Business Development Bank of Canada (BDC) is to help develop
Canadian businesses, particularly small- and medium-sized companies. It provides financing,
venture capital, and consulting strategies.
Objective: 4.3
56
14) What is a business incubator?
Answer: A business incubator provides new businesses with support to help nurture them into a
successful future. The type of support varies but some key forms of assistance include consulting
services, legal advice, accounting services, business contacts, clerical services, and office space.
Objective: 4.3
15) How has the Internet affected small business start-ups in recent years?
Answer: Entrepreneurs can create and expand new businesses faster and more easily than ever
before because the Internet provides fundamentally new ways of doing business. The Internet
also helps entrepreneurs to gather information, to write a business plan and to access government
grants.
Objective: 4.3
16) What are the three basic strategies for becoming a business owner?
Answer: The three basic strategies are starting a new business from scratch, buying an existing
business, or buying a franchise.
Diff: 2 Type: SA Page Ref: 74-75
Objective: 4.4
17) What is the most important factor contributing to small business failure?
Answer: The most important factor is managerial incompetence.
Objective: 4.5
18) What is a general partnership?

Answer: A general partnership is one in which all partners are jointly liable for the debts of the
business. There is no legal limit to the number of parties who may form a general partnership.
Partners may invest equal or unequal sums of money and may earn profits that bear no relation to
their investments.
Objective: 4.6
19) What are the two most widely used methods to form a corporation?
Answer: The two most widely used methods are federal incorporation under the Canada
Business Corporations Act, and provincial incorporation under any of the provincial corporations
acts.
Skill: Knowledge
Objective: 4.6
57
20) Describe the role and responsibilities of the board of directors.
Answer:
- Oversee the corporation's operation
- Select the president and other officers to run the day to day operations
- Set dividend policy
- Set policies on major spending and executive salaries and benefits
Objective: 4.6
21) What does it mean to say that shareholders in a corporation have limited liability?
Answer: The amount of money that shareholders can lose is limited to the amount of their initial
investment.
Objective: 4.6
22) What is a private corporation?

Answer: A private corporation is one in which the shares of stock are held by only a few people
and are not available for sale to the public.
Objective: 4.6
23) What is a co-operative?

Answer: A co-operative is an incorporated form of business that is organized, owned, and
democratically controlled by the people who use its products and services. Co-operatives are
formed to benefit owners in the form of reduced prices or the distribution of surpluses at year-
end.
Objective: 4.6
4.5 Essay Questions
1) What are some of the difficulties involved in defining what a small business is?
Answer: Various measures might be used, including the number of people the business employs,
the company's sales revenue, the size of the investment required, or the type of ownership
structure the business has. The government relies on two different sources for information about
small business, and the relationship between these two sources is often not clear. For example,
Industry Canada reports that there are 2.2 million business establishments in Canada and about
2.8 million people who are self-employed, but there is no way of knowing how much overlap
there is between these two categories. In order to simplify things, a small business is defined as
one which is owner-managed, and which has less than 100 employees.
Diff: 2 Type: ES Page Ref: 64
Objective: 4.1
58
2) The Miller brothers (Jack, Bill, and Evan) are about to fulfill a lifelong dream. They are
buying a thousand-acre farm and plan to grow corn. They are not interested in bringing in any
outside owners. The brothers are realistic and expect to work very long hours. However, they
have a few critical decisions left to make. Should the Miller brothers' farm be considered a small
business?
Answer: The Miller brothers' farm should be considered a small business. A small business is
independently owned and managed. It cannot be a part of another business and must have little
influence in its market. A family farm would meet these standards. As there are many farms
growing corn in Canada, the Miller brothers' farm will have little to no influence in the market
for corn.
Objective: 4.1
3) Why might an entrepreneur wish to purchase an existing business rather than starting one
from scratch?
Answer: An entrepreneur may wish to purchase an existing business because of an increased
chance for success. An existing business will have established working relationships with
lenders, suppliers, and the community. The track record of an existing business gives potential
buyers a much clearer picture of what to expect than any estimate of a new business' prospects.
Objective: 4.1
4) What characteristics do entrepreneurs typically exhibit? How important are these

characteristics?
Answer: Research shows that entrepreneurial characteristics are wide-ranging. Some are
behavioural (e.g., taking initiative), others are personality traits (e.g., independence), and still
others are skills (e.g., problem-solving). Some people think that entrepreneurs are rare; however,
entrepreneurial characteristics have been found to be widely distributed in the population. We
also know that personal characteristics often have less impact on a person's action than the
situation a person is in. What is really important is not who the person is but what the person
does.
Objective: 4.1
5) Describe some key characteristics of small business in Canada.

Answer: Small businesses constitute about 98 percent of all businesses in Canada. About half of
all employed Canadians work in a small business, and small businesses are the main source of
job creation. Small businesses are also responsible for the vast majority of new product ideas.
Objective: 4.2
59
6) How is the Canadian economy affected by small businesses?
Answer: Small businesses affect the Canadian economy through job creation and innovation,
and by making products for and selling products made by big businesses. Small businesses are an
important source of new jobs in Canada. Innovations are as likely to come from small businesses
as big businesses. Finally, most of the products made by big businesses are sold to consumers by
small businesses. Big businesses often depend on small businesses as suppliers as well. By
creating jobs, fostering innovation, and providing goods and services, small businesses have a
positive effect on the economy.
Objective: 4.2
7) Describe the criteria used to screen an entrepreneur's idea.

Answer: There are five criteria: (1) Does this idea for a product or services create or add value
for the customers? (2) Does this idea provide a sustainable competitive advantage? (3) Is this
idea marketable? (4) Is the idea financially viable? and (5) Does the idea have low exit costs?
Objective: 4.3
8) Why is it important to have a business plan?

Answer:
- To help organize and act as a road map through the various stages of development
- Requires the entrepreneur to document and explain why this is an opportunity
- To indicate as many variables as possible for possible weaknesses or strengths in each of the
functional areas: marketing, finance, and operations
- To show conceptually the owner/operator how the business should come together and whether
he/she will need help
Objective: 4.3
outside owners. The brothers are realistic and expect to work very long hours. However, they
have a few critical decisions left to make. Should the Miller brothers develop a business plan?
Why or why not?
Answer: A business plan would help the brothers develop and describe their business strategy
and demonstrate how it will be implemented. It would also describe the abilities and experiences
each of the brothers can contribute to running the farm. Three different people probably have
three different areas of expertise. The business plan would also define legal elements, describe
how the business will be organized, and address accounting and finance issues. It would
specifically address what the three men's goals and objectives are, what strategies they will use
to attain these, and how the strategies will be implemented.
Objective: 4.3
60
10) What issues should be considered when building a venture team to share ownership?
Answer: The two issues are (1) the size and scope of the venture (the number of people the
venture requires, and the feasibility of hiring people to fill the key roles), and (2) personal
competencies (the talents, skills, track record, contacts, and resources that are needed for the
venture to succeed). The nature of the team depends upon the match between the lead
entrepreneur and the opportunity and how quickly and aggressively he or she plans to proceed.
Objective: 4.3
11) Should government be involved in giving assistance to small businesses?

Answer: Answers will vary. An example of a "Yes" answer is:
- Due to the tremendous impact of small business on the Canadian economy
- Significant contributor to development of new products
- Small businesses are net creators of new jobs
- Ensures competition
- Assistance is needed to help overcome the difficulties of starting
Skill: Analysis
Objective: 4.3
12) What are the two key activities that entrepreneurs must complete when starting a new
business? Explain what is involved in each of these activities.
Answer: The two key activities are (1) identifying an opportunity and (2) accessing resources.
With regard to (1), identifying opportunities involves first generating ideas for new or improved
products, processes, or services. Most new ventures originate from events relating to work or
everyday life. Next, the ideas must be screened. When screening ideas, the entrepreneur should
ask several questions, including: Does the idea create or add value for the customer? Does the
idea provide a competitive advantage that can be sustained? Is the idea marketable and
financially viable? and Does the idea have low exit costs? Finally, the best idea(s) need to be
developed. New ventures use one or more of three main entry strategies: they introduce a totally
new product or service; they introduce a product or service that will compete directly with
existing competitive offerings but adds a new twist (customization of the standard product); or
they franchise. With regard to (2), an important activity is the acquisition of the finances that will
be necessary for the success of the business. This involves consideration of the two main types of
financing—debt and equity. Since a business is at its riskiest point during the start-up phase,
equity is usually more appropriate and accessible than debt. However, most new venture
founders prefer debt because they are reluctant to give up any control to outsiders.
Diff: 2 Type: ES Page Ref: 73-74
Objective: 4.3
61
13) Describe the business plan and the start-up decisions made by small businesses.
Answer: The starting point for virtually every new business is a business plan, in which the
entrepreneur summarizes business strategy for the new venture and shows how it will be
implemented. Entrepreneurs must also decide whether to buy an existing business, operate a
franchise, or start from scratch. Further, common funding sources include personal funds, family
and friends, savings, lenders, investors, and government agencies. Venture capital companies are
groups of small investors seeking to make a profit on companies with rapid growth potential.
Angels are private investors who make money available to new ventures in return for a share of
the business. Most of these firms and individuals do not lend money but rather invest it,
supplying capital in return for partial ownership. Lending institutions are more likely to finance
an existing business than a new business because the risks are better understood.
Objective: 4.3
14) What is the difference between debt and equity financing?

Answer: Debt financing involves borrowing funds. With debt financing, the borrower is
required to repay the amount of the loan plus interest charges. In contrast, equity financing refers
to money invested in a business in exchange for an ownership interest. Equity investors are
interested in profits and how they will be distributed. With equity financing, there is not a
locked-in financing charge as there is with debt financing.
Objective: 4.3
15) What are the most common sources of equity financing?

Answer: The most common sources of equity financing are personal savings, love money
(investments from friends, relatives, and business associates), private investors (informal capital
from private investors called angels, who are financially well off, successful entrepreneurs), and
venture capitalists (professionally managed pools of investor money called venture capital).
Objective: 4.3
16) Describe private investors (angels) and venture capitalists.

Answer: Angels are typically financially well off and often successful entrepreneurs in their own
right. They want to recycle their wealth through new business investment. A venture capitalist is
an organization of professionally managed pools of investors' money. They often get involved in
higher risk ventures with high growth opportunities.
Objective: 4.3
62
17) Describe the two most common sources of debt financing.
Answer: The two most common sources are financial institutions (commercial banks, trust
companies, co-operatives, finance companies, equipment companies, credit unions, and
government agencies) and suppliers (who provide goods or services to the entrepreneur with an
agreement to bill them later).
Objective: 4.3
18) Explain what the idea of "entrepreneurial fit" means. Give an example.
Answer: Entrepreneurial fit refers to the match between the three elements in the entrepreneurial
process (the entrepreneur, the opportunity, and the resources needed). For example, the
entrepreneur–opportunity fit refers to the extent to which the opportunity that is being considered
is something the entrepreneur can do and wants to do. A realistic self-assessment is important.
Prospective ventures that are of limited personal interest and require skills and abilities that the
entrepreneur does not possess should be quickly eliminated. No matter how good the product or
service concept is, if the opportunity demands skills that the entrepreneur lacks, it is unlikely that
success will be evident.
Objective: 4.3
19) Discuss the advantages and disadvantages of buying a franchise to start a new business.
Answer:
Advantages:
- Not building step by step
- Increased chances of success
- Help from experienced management
- Training for employees
- Advertising
Disadvantages
- Start-up costs are high
- Ongoing payments are required (franchise fees)
- Lack of independence
Objective: 4.4
63
20) How does franchising work?
Answer: A franchising agreement outlines the duties and responsibilities of each party. It
stipulates the amount and type of payment that franchisees must make to the franchiser. These
franchise agreements may be quite complicated and detailed. Franchisees usually make an initial
payment for the right to operate an outlet. They also make royalty payments to the franchiser
ranging from 2 to 30 percent of the franchisee's annual revenues or profits. The franchisee may
also pay an advertising fee to the franchiser. Franchise fees vary widely from for a Bento
Sushi franchise to hundreds of millions for a professional sports franchise.
Objective: 4.4
21) Why is there such a difference between the failure rates of small businesses in general and
franchising operations in particular?
Answer: Franchises fail less because the owner/operator is supplied with:
- A proven product/service
- Proven marketing
- Financing strategy
- Established name
- Proven operations guide
Objective: 4.4
22) Identify the four major factors that contribute to small business success.
Answer: The four factors are hard work, drive, and dedication (small business owners must be
committed to succeeding and be willing to put in the time and effort to make it happen), market
demand for the product or service (careful analysis of market conditions can help small business
people assess the probable reception of their products), managerial competence (successful small
business people have a solid understanding of how to manage a business), and luck.
Skill: Knowledge
Objective: 4.5
23) Identify the four major factors that contribute to small business failure.
Answer: The four major factors are managerial incompetence (entrepreneurs overestimate their
own managerial skills, or believe that hard work alone ensures success), neglect (some
entrepreneurs try to launch ventures in their spare time, and others devote only limited time to
new businesses), weak control systems (control systems don't signal potential problems, so the
business may be in serious trouble before obvious difficulties are spotted), and insufficient
capital (some entrepreneurs are overly optimistic about how soon they'll start earning profits).
Skill: Knowledge
Objective: 4.5
64
24) Identify the four major forms of legal organization for business firms. List two advantages
and two disadvantages of each.
Answer:
- Sole proprietorship - freedom, low start-up costs, unlimited liability, difficulty raising money
- Partnership - greater talent pool, ease of formation, unlimited liability, lack of continuity
- Corporation - limited liability, continuity, high start-up costs, double taxation
- Co-operative - reduced prices, share of surpluses, one vote per member, wealthy members have
no voting control
Objective: 4.6
25) Describe the advantages and disadvantages of operating a business as a sole proprietorship.
Answer: The advantages of sole proprietorships include freedom, ease of formation, and tax
benefits. A sole proprietor is free to operate his or her business as he or she desires. There are
few legal requirements for start-up and low start-up costs. Losses from a sole proprietorship can
offset income from personal sources, providing tax benefits. The disadvantages of sole
proprietorships include unlimited liability, lack of continuity, and limited financing options. A
sole proprietor is totally responsible for all of the debts of the business and may have to give up
personal assets to repay those debts. A sole proprietorship lacks continuity because the business
dissolves with the death of the owner. Finally, sole proprietors have a limited ability to secure
financing, relying mostly on their personal resources.
Objective: 4.6
26) Describe the advantages and disadvantages of operating a business as a partnership.

Answer: Advantages of the partnership include the ability to grow by adding talent and money,
an easier time borrowing funds than sole proprietorships, and new partners can be invited to join
by investing money. Disadvantages include unlimited liability, if one partner incurs a debt all
other partners are liable, lack of continuity (when one partner dies or pulls out, a partnership
dissolves legally, even if the other partners agree to continue the business), difficulty of
transferring ownership (no partner may sell out without the other partners' consent), and conflicts
that may develop between the partners.
Objective: 4.6
65
27) Why is unlimited liability a significant disadvantage to both the sole proprietorship and
general partnership forms of organization?
Answer:
- Sole proprietors are in a high-risk situation as they are solely responsible for all debts of the
firm
- Those involved in a general partnership are also responsible for all debts of the firm, even if
they did not cause those debts or had no knowledge of them being incurred
- Personal possessions, with some limitations, may have to be sold to satisfy the debts of the
business in both sole proprietorships and partnerships
Objective: 4.6
28) What is a corporation?

Answer: A corporation is a business that is legally considered a separate entity from its owners.
It may sue and be sued; buy, hold, and sell property; make and sell products; and be tried and
punished for crimes. An advantage of incorporation is limited liability: Investor liability is
limited to personal investments in the firm. Another advantage is continuity. Corporations also
have advantages in raising money. By selling stock, they expand the number of investors and
available funds. One disadvantage is that a public corporation can be taken over against the
managers' will. Also, start-up costs are high. Corporations are regulated and must meet legal
requirements in the states in which they are chartered. A drawback to incorporation is double
taxation. Different kinds of corporations help businesses take advantage of incorporation without
assuming all the disadvantages.
Objective: 4.6
29) What are the advantages and disadvantages of the corporate form of organization?
Answer: A corporation is a business that is legally considered a separate entity from its owners.
They may sue and be sued; buy, hold, and sell property; make and sell products; and be tried and
punished for crimes. An advantage of incorporation is limited liability, which means that
investor liability is limited to personal investments in the firm. Another advantage is continuity.
Corporations also have advantages in raising money. By selling stock, they expand the number
of investors and available funds. One disadvantage is that a corporation can be taken over against
the managers' will. Also, start-up costs are high. Corporations are regulated and must meet legal
requirements in the states in which they are chartered. A drawback to incorporation is double
taxation. Different kinds of corporations help businesses take advantage of incorporation without
assuming all the disadvantages.
Objective: 4.6
66
outside owners. The brothers are realistic and expect to work very long hours. Assuming the
farm is organized as a general partnership, what are the advantages and disadvantages?
Answer: The advantages of a general partnership include the ability to grow by adding new
talent and money, easy formation with few legal requirements, and tax benefits since a
partnership is taxed at the individual level. The disadvantages of a general partnership include
unlimited liability in that the partners are personally liable for all debts incurred by the business,
and a lack of continuity in that the business legally dissolves when a partner leaves or dies.
Objective: 4.6
outside owners. The brothers are realistic and expect to work very long hours. Assuming the
farm is organized as a private corporation, what are the advantages?
Answer: The advantages of a private corporation include limited liability in that owner liability
is limited to personal investments in the business, and continuity that allows that the legal life of
the business is independent of owners. The disadvantages of a private corporation include
significant start-up costs and double taxation, in which profits are taxed at corporate and
individual levels.
Objective: 4.6
32) How are corporations managed?

Answer: The governing body of a corporation is its board of directors. Most board members do
not participate in day-to-day management but rather hire a team of managers to oversee the
various areas of the company. This team, called officers, is usually headed by a chief executive
officer, or CEO, who is responsible for overall performance of the company.
Objective: 4.6
33) Explain the role of a corporation's board of directors.

Answer: The board of directors is responsible for communicating with shareholders and other
stakeholders and for setting financial policy on issues such as dividends, major spending, and
executive compensation. The board is legally responsible and accountable for corporate actions.
Objective: 4.6
67
34) Explain why double taxation is considered a disadvantage of a corporate form of
organization. Explain how double taxation occurs.
Answer: A corporation must pay income taxes on its profits, and then shareholders must pay
income taxes on the dividends they receive. From the shareholder's point of view, this procedure
amounts to double taxation of the corporation's profits. The profits of sole proprietorships and
partnerships are only taxed once, since profits are treated as the owner's personal income.
Objective: 4.6
68

Chapter 04

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Chapter 04

Uploaded by

Copyright:

Available Formats

Business Essentials, Canadian Edition, 9e (Ebert)

Chapter 4 Entrepreneurship, Small Business, and New Venture Creation

4.1 Multiple Choice Questions

1) Self-employed Canadians account for about ________ percent of the workforce.

3) Individuals who both recognize and seize opportunities are referred to as

6) How are intrapreneurs different from entrepreneurs?

9) Which of the following is correct with regard to small business?

13) The Heritage Foundation's "index of economic freedom" measures

26) A ________ typically includes a company description, product description, marketing

27) Bootstrapping means

30) Which one of the following statements is correct?

31) Bootstrapping involves all of the following actions except

32) Venture capitalists

37) Trade credit is

41) Which of the following is correct with regard to collateral?

53) What is the most significant disadvantage of owning a franchise?

60) Which of the following is an advantage for the franchisee?

67) Which of the following is not typical for a sole proprietorship?

72) A major disadvantage of the sole proprietorship is the

76) Which of the following statements about partnerships is false?

80) The size of a partnership is

87) What is the most important advantage of general partnerships?

88) What do both sole proprietorships and partnerships lack?

93) Which of the following is a private corporation?

95) ________ is the governing body of a corporation.

99) An outside director is

100) What is the difference between a public and private corporation?

106) A share of ownership in a corporation is referred to as

114) Who are the owners of a corporation?

115) Which of the following is the main disadvantage of a co-operative?

117) How is a co-operative different from a corporation?

118) Which of the following is correct with regard to co-operatives?

119) The purpose of a co-operative is

127) An estimate of how much of a product or service will be purchased by prospective

4.2 Critical Thinking Questions

1) An entrepreneur, Christina Rossini, is planning to open a small chain of 4 to 6 pizza stores

3) An entrepreneur, Christina Rossini, is planning to open a small chain of 4 to 6 pizza stores

4) An entrepreneur, Christina Rossini, is planning to open a small chain of 4 to 6 pizza stores

4.3 True/False Questions

1) Self-employed Canadians account for about half of the total workforce.

2) Entrepreneurship is an individual's willingness to take advantage of business opportunities and

3) A small business is, by definition, entrepreneurial.

4) A small business is an owner-managed business with less than 100 employees.

9) About 85 percent of all businesses in Canada are small.

15) Most new venture ideas come from people's hobbies.

21) A business is at its riskiest point during the start-up phase.

31) A disadvantage of a franchise is the initial franchise fee.

32) Luck is a significant factor in the success of some small businesses.

44) A co-operative is an incorporated form of business.

4.4 Short Answer Questions

1) How is a small business defined?

5) What is the impact of new ventures on job creation?

7) List the major parts of a good business plan.

8) What are the three key elements in the entrepreneurial process?

10) Where do the majority of entrepreneurial ideas come from?

12) What is a sales forecast?

13) What is the mandate of the Business Development Bank of Canada?

18) What is a general partnership?

22) What is a private corporation?

23) What is a co-operative?

4.5 Essay Questions

4) What characteristics do entrepreneurs typically exhibit? How important are these

5) Describe some key characteristics of small business in Canada.

7) Describe the criteria used to screen an entrepreneur's idea.