Business Structures REVIEW

What role does the Securities and Exchange Commission fulfill with regard to corporations?

• It sets the prices of stocks.

• It regulates and oversees the stock market

• It manages corporate taxes.

• It provides loans to corporations.

Answer explanation

The Securities and Exchange Commission (SEC) regulates and oversees the stock market to ensure fair practices, protect investors, and maintain orderly markets, making this the correct choice.

What happens to the stockholders when a corporation files for bankruptcy?

• They receive a guaranteed payout.

• They may lose the money in their investment.

• They automatically become creditors.

• They gain more shares in the company.

Answer explanation

When a corporation files for bankruptcy, stockholders may lose their investment as they are last in line to be paid after creditors. This means their shares could become worthless, leading to a total loss of their investment.

What does the board of directors in a corporation do?

• They manage the day-to-day operations.

• They make all major decisions for the corporation.

• They handle customer service.

• They audit the company's financial statements.

Answer explanation

The board of directors is responsible for making all major decisions for the corporation, including setting policies and overseeing the overall direction, rather than managing daily operations or handling customer service.

The owner of a factory that manufactures clothing buys several clothing stores to sell the clothing the factory produces. This is an example of?

• Horizontal integration.

• Vertical integration.

• Diversification.

• Franchising.

Answer explanation

This is an example of vertical integration because the factory owner is expanding their business by acquiring clothing stores to sell their own products, controlling both production and distribution.

Do multinationals have more or fewer regulations than corporations that are in just one country?

• More regulations.

• Fewer regulations.

• The same amount of regulations.

• No regulations.

Answer explanation

Multinationals operate across multiple countries, each with its own regulations, leading to more complex compliance requirements. Therefore, they face more regulations compared to single-country corporations.

Match the appropriate term with the definition.

• Sole Proprietorship

• Partnership

• Corporation

• Franchise

• Cooperative

Answer explanation

A Sole Proprietorship is owned by one person, a Partnership involves two or more individuals, a Corporation is a legal entity separate from its owners, a Franchise allows individuals to operate a business under a brand, and a Cooperative is owned and operated by a group for mutual benefit.

Which of the following is a key characteristic of a sole proprietorship?

• Limited liability.

• Easy to start and manage.

• Double taxation.

• Requires a board of directors.

Answer explanation

A sole proprietorship is characterized by its simplicity in formation and management, making it easy to start and run. Unlike corporations, it does not require a board of directors, and it does not face double taxation or limited liability.

What is one advantage of a partnership?

• Unlimited liability.

• Shared decision-making and resources.

• Double taxation.

• Requires a large amount of capital to start.

Answer explanation

One advantage of a partnership is shared decision-making and resources, allowing partners to collaborate and leverage each other's strengths, which can lead to better business outcomes.

Which of the following is a disadvantage of a corporation?

• Limited liability.

• Double taxation.

• Easy to transfer ownership.

• Perpetual existence.

Answer explanation

Double taxation is a disadvantage of a corporation because the company's profits are taxed at the corporate level and again as dividends to shareholders, unlike other business structures that avoid this issue.

Sarah runs a small bakery on her own. She enjoys the freedom to make decisions and keeps all the profits. However, she is personally responsible for any debts incurred by the business. This scenario describes a:

• Corporation

• Franchise

• Sole Proprietorship

• Partnership

Answer explanation

Sarah's bakery is a Sole Proprietorship because she runs it alone, makes all decisions, and retains profits, but is also personally liable for any debts, which is characteristic of this business structure.