CHAPTER 6 PRACTICE

What is one of the most important decisions an entrepreneur makes when starting a new business?

• Choosing the location of the business

• Selecting the form of business ownership

• Hiring the first employee

• Designing the company logo

What is a sole proprietorship?

• A business owned by multiple individuals

• A business owned by a corporation

• A business owned and managed by a single individual

• A business owned by the government

What is the main characteristic of unlimited liability?

• Owners are not personally responsible for business debts.

• Owners can lose only their initial investment.

• Owners' personal assets can be seized to pay business debts.

• Owners have limited flexibility in tax treatment.

Which type of business entity is created by filing articles of incorporation?

• Partnership

• Sole proprietorship

• Corporation

• Limited liability company

What is a key advantage of a limited liability company (LLC) over a corporation?

• LLCs have unlimited liability.

• LLCs offer more flexibility in tax treatment.

• LLCs require more complex legal procedures.

• LLCs are taxed as part of the owner's personal tax return.

What is one of the main advantages of forming a sole proprietorship?

• Ease of formation

• Double taxation

• Limited liability

• Complex paperwork

What is a potential tax advantage of a sole proprietorship?

• Earnings are taxed as income of the proprietor

• Earnings are taxed twice

• Earnings are not taxed

• Earnings are taxed at a corporate rate

What is a key advantage of general partnerships over sole proprietorships?

• Limited ability to pool resources

• Ability to share responsibilities and capitalize on complementary skills

• Lack of permanence

• Heavy workload

What is a potential risk of starting a partnership on the basis of a verbal agreement?

• It ensures clear communication

• It often leads to misunderstandings and potential lawsuits

• It guarantees financial success

• It simplifies the legal process

What is a characteristic of a limited partnership?

• All partners have unlimited liability

• Limited partners actively manage the business

• Limited partners have limited liability

• General partners have no liability