Chapter 9 The Organizational Plan

True/False Questions
1. Investors usually insist that the management team not operate the business as a part-
time venture.
Answer: True Page: 265 Dii!ulty: "asy
2. Investors a!!ept that the management team #raws a large salary or their !ontributions
in early operations.
Answer: $alse Page: 265 Dii!ulty: %e#ium
&. The proprietor is personally liable or all aspe!ts o the business.
Answer: True Page: 265 Dii!ulty: %e#ium
'. The !orporation is !onsi#ere# a legal person that is ta(able an# absorbs liability.
Answer: True Page: 26) Dii!ulty: "asy
5. In a limite# partnership* the limite# partners are e+ually liable or the #ebts o the
partnership.
Answer: $alse Page: 26) Dii!ulty: %e#ium
6. In a partnership* the general partners usually share the amount o personal liability
e+ually* regar#less o their !apital !ontributions.
Answer: True Page: 26) Dii!ulty: ,ar#
). The most e(pensive type o business to start is the partnership.
Answer: $alse Page: 26- Dii!ulty: %e#ium
-. The !orporation !an be !reate# only by statute.
Answer: True Page: 26- Dii!ulty: "asy
.. In a partnership* the #eath o a general partner generally #oes not result in termination
o the partnership.
Answer: $alse Page: 26- Dii!ulty: %e#ium
70 Hisrich, Entrepreneurship, Seventh Edition
Chapter 9 The Organizational Plan
1/. The !orporation has the most !ontinuity o the orms o business.
Answer: True Page: 26- Dii!ulty: %e#ium
11. In a limite# liability partnership 011P2* the #eath or with#rawal o a partner has no
ee!t on the partnership.
Answer: True Page: 26. Dii!ulty: "asy
12. In an 3 4orporation* ownership !an be reely transerre# as long as the buyer is an
in#ivi#ual.
Answer: True Page: 26. Dii!ulty: ,ar#
1&. 3ole proprietors !an a!!ess two sour!es o !apital5personal !ontributions rom the
entrepreneur an# sale o sto!6.
Answer: $alse Page: 26. Dii!ulty: %e#ium
1'. The only sour!e o !apital or a !orporation is the sale o shares o sto!6.
Answer: $alse Page: 26.-2)/ Dii!ulty: %e#ium
15. The !orporate orm o ownership gives owners the most !ontrol o business
operations.
Answer: $alse Page: 2)/ Dii!ulty: %e#ium
16. The limite# partners in a venture share !ontrol o #ay-to-#ay operations with the
general partners.
Answer: $alse Page: 2)/ Dii!ulty: %e#ium
1). 3to!6hol#ers in a !orporation share #ay-to-#ay !ontrol o the entrepreneur.
Answer: $alse Page: 2)/ Dii!ulty: %e#ium
1-. 4orporations are not able to #istribute proits to sharehol#ers.
Answer: $alse Page: 2)1 Dii!ulty: %e#ium
71 Hisrich, Entrepreneurship, Seventh Edition
Chapter 9 The Organizational Plan
1.. The !orporation is the most attra!tive type o business ormation or raising !apital.
Answer: True Page: 2)1 Dii!ulty: "asy
2/. 7oth partnerships an# proprietorships serve as nonta(able !on#uits o in!ome or their
owners.
Answer: True Page: 2)1 Dii!ulty: %e#ium
21. In!ome rom the partnership is ta(e# twi!e: on!e at the business level an# on!e as
personal in!ome.
Answer: $alse Page: 2)1 Dii!ulty: %e#ium
22. 3in!e a !orporation is re!ogni8e# as a separate ta(* it has the a#vantage o being able
to ta6e many #e#u!tions an# e(penses that are not available to the proprietorship or
partnership.
Answer: True Page: 2)& Dii!ulty: %e#ium
2&. The limite# liability !ompany is automati!ally ta(e# as a partnership.
Answer: True Page: 2)' Dii!ulty: %e#ium
2'. An 3 4orporation !ombines the ta( a#vantages o the partnership an# the !orporation.
Answer: True Page: 2)' Dii!ulty: %e#ium
25. The 3 !orporation !an #e#u!t most ringe beneits or sharehol#ers.
Answer: $alse Page: 2)5 Dii!ulty: %e#ium
26. In a limite# liability !ompany* every member has limite# liability.
Answer: True Page: 2)5 Dii!ulty: %e#ium
2). The limite# liability !ompany is the only orm o organi8ation that allows members to
share liability.
Answer: $alse Page: 2)6 Dii!ulty: %e#ium
Hisrich, Entrepreneurship, Seventh Edition 72
Chapter 9 The Organizational Plan
2-. 9hen a business grows beyon# stage one* submanagers are hire# to !oor#inate aspe!ts
o the business.
Answer: True Page: 2)- Dii!ulty: "asy
2.. 9hen hiring employees or the venture* the entrepreneur shoul# !onsi#er the
!an#i#ate:s s6ills an# abilities an# avoi# !onsi#ering the in#ivi#ual:s personality.
Answer: $alse Page: 2). Dii!ulty: %e#ium
&/. The hiring pro!ess is one area o business operation that the entrepreneur !an !ut ba!6
on an# save time.
Answer: $alse Page: 2). Dii!ulty: %e#ium
&1. The 3arbanes-;(ley A!t re#u!e# the responsibilities o the boar# o #ire!tors.
Answer: $alse Page: 2-/ Dii!ulty: %e#ium
&2. The boar# o #ire!tors shoul# be limite# to )-12 members with limite# terms.
Answer: True Page: 2-/ Dii!ulty: %e#ium
&&. A boar# o a#visors has more #e!ision ma6ing authority than a boar# o #ire!tors
#oes.
Answer: $alse Page: 2-2 Dii!ulty: %e#ium
&'. ;n!e the boar# o a#visors have been hire#* the entrepreneur shoul# not +uestion their
a#vi!e.
Answer: $alse Page: 2-2 Dii!ulty: ,ar#
Multiple Choice Questions
&5. The management team o a new venture:
A2 is en!ourage# to operate the business as a si#eline.
72 must operate the business ull-time.
42 !an e(pe!t to #raw a large salary.
D2 shoul# be employe# elsewhere to assure a#e+uate in!ome.
Answer: 7 Page: 265 Dii!ulty: %e#ium
73 Hisrich, Entrepreneurship, Seventh Edition
Chapter 9 The Organizational Plan
&6. 3ome !ustomers preer to #o business with a <<<<<<<<<<<<<<< be!ause this orm o
business is sometimes viewe# as a more stable orm than the others.
A2 proprietorship
72 limite# partnership
42 ull partnership
D2 !orporation
Answer: D Page: 265 Dii!ulty: %e#ium
&). <<<<<<<<<<<<< have unlimite# liability or the a!tions o the business.
A2 =eneral partners
72 4orporate sharehol#ers
42 1imite# liability !ompany members
D2 1imite# partners
Answer: A Page: 26) Dii!ulty: %e#ium
&-. In a limite# partnership* the limite# partners:
A2 are liable only or the amount o their !apital !ontributions.
72 share the amount o personal liabilities e+ually.
42 have only insuran!e as prote!tion against liability suits.
D2 are allowe# to #e!i#e on the amount o in#ivi#ual liabilities.
Answer: A Page: 26) Dii!ulty: %e#ium
&.. 1iability is one o the most !riti!al reasons or establishing a:
A2 !orporation.
72 limite# liability !ompany.
42 partnership.
D2 sole proprietorship.
Answer: A Page: 26) Dii!ulty: "asy
'/. In a limite# liability partnership 011P2 #eath or with#rawal o a partner:
A2 results in automati! transer o ownership to surviving partner0s2.
72 may result in problems trying to in# a mar6et or the shares.
42 always results in termination o the partnership.
D2 has no ee!t on the partnership.
Answer: D Page: 26- Dii!ulty: ,ar#
Hisrich, Entrepreneurship, Seventh Edition 74
Chapter 9 The Organizational Plan
'1. 9hi!h o the ollowing types o ownership has the most !ontinuity>
A2 4orporation
72 =eneral partnership
42 1imite# partner
D2 3ole proprietorship
Answer: A Page: 26- Dii!ulty: %e#ium
'2. 3ole proprietorships:
A2 have no time limit on how long they may e(ist.
72 are perpetual.
42 !ontinue even upon the #eath o the owner.
D2 allow a member o the #e!ease# partner?s amily ta6e over as a partner.
Answer: D Page: 26- Dii!ulty: %e#ium
'&. In whi!h o the legal orms o ownership is transerability o interest the easiest>
A2 3ole proprietorship
72 1imite# partnership
42 =eneral partnership
D2 4orporation
Answer: D Page: 26. Dii!ulty: %e#ium
''. In an 3 !orporation* the transer o interest !an o!!ur:
A2 only with the !onsent o the other sharehol#ers.
72 only i there is a !harter provision or #oing so.
42 only as long as the buyer is an in#ivi#ual.
D2 #epen#ing on the agreement.
Answer: 4 Page: 26. Dii!ulty: ,ar#
'5. The legal orm o business with the most alternatives or raising !apital is the:
A2 proprietorship.
72 !orporation.
42 limite# partnership.
D2 ull partnership.
Answer: 7 Page: 26. Dii!ulty: "asy
75 Hisrich, Entrepreneurship, Seventh Edition
Chapter 9 The Organizational Plan
'6. 7on#s !an be use# to raise !apital in whi!h orm o ownership>
A2 3ole proprietorship
72 1imite# partnership
42 =eneral partnership
D2 4orporation
Answer: D Page: 26.-2)/ Dii!ulty: %e#ium
'). In whi!h orm o organi8ation #oes the owner have greatest !ontrol>
A2 3ole proprietorship
72 1imite# partnership
42 =eneral partnership
D2 4orporation
Answer: A Page: 2)/ Dii!ulty: %e#ium
'-. 9hen it !omes to #e!ision ma6ing* in a limite# partnership:
A2 there is no separation o ownership an# !ontrol.
72 limite# partners have no !ontrol over business #e!isions.
42 limite# partners have an e+ual say* but no liability.
D2 the partners have !ontrol base# on investe# !apital.
Answer: 7 Page: 2)/ Dii!ulty: %e#ium
'.. 4orporations #istribute proits to owners through:
A2 bon#s.
72 ta(es.
42 #ivi#en#s.
D2 interest.
Answer: 4 Page: 2)1 Dii!ulty: ,ar#
5/. ;rgani8ation !osts in a proprietorship are:
A2 amorti8able over a perio# o 6/ months.
72 amorti8able over a perio# o '5 months.
42 not amorti8able.
D2 amorti8able or a perio# o a year.
Answer: 4 Page: 2)2 Dii!ulty: %e#ium
Hisrich, Entrepreneurship, Seventh Edition 76
Chapter 9 The Organizational Plan
51. 9hi!h o the ollowing statements is 0are2 true>
A2 4orporates are not able to ta6e #e#u!tions an# e(penses available to the
proprietorship or partnership.
72 Distribution o #ivi#en#s is ta(e# on!e* as in!ome o the !orporation.
42 7onuses* in!entives*an# proit sharing are allowable ways to #istribute in!ome o
the !orporation.
D2 4orporate ta( may be higher than the in#ivi#ual rate.
Answer: 4 Page: 2)& Dii!ulty: ,ar#
52. 9hi!h o the ollowing ways o #istributing the in!ome o !orporations is ta(e# twi!e>
A2 7onus
72 3alary
42 Divi#en#s
D2 Proit sharing
Answer: 4 Page: 2)& Dii!ulty: %e#ium
5&. A limite# liability !orporation:
A2 has unlimite# liability.
72 is automati!ally ta(e# as a partnership.
42 is #e!reasing in popularity among venture !apitalists.
D2 ha# been the most popular !hoi!e o organi8ation stru!ture by new ventures an#
small businesses.
Answer: 7 Page: 2)& Dii!ulty: %e#ium
5'. 3 !orporation status means:
A2 sharehol#ers #o not have limite# liability.
72 the !orporation is sub@e!t to a minimum ta( o &' per!ent.
42 !onsent by a ma@ority o sharehol#ers is re+uire# or the ele!tion o this orm o
business.
D2 the !orporation pays no ta(.
Answer: D Page: 2)' Dii!ulty: ,ar#
77 Hisrich, Entrepreneurship, Seventh Edition
Chapter 9 The Organizational Plan
55. In an 3 !orporation:
A2 gains or losses o the business are separate rom the personal in!ome o the
sharehol#er.
72 sharehol#ers retain unlimite# liability.
42 only one !lass o sto!6 is permitte#.
D2 most ringe beneits or sharehol#ers !an be #e#u!te#.
Answer: 4 Page: 2)' Dii!ulty: %e#ium
56. In a limite# liability !ompany:
A2 owners are !alle# sharehol#ers.
72 members may transer their interests at any time.
42 members are not allowe# to share in!ome* proit* e(pense* #e#u!tion* loss an#
!re#it among themselves.
D2 laws governing its ormation #ier rom state to state.
Answer: D Page: 2)5-2)6 Dii!ulty: %e#ium
5). As an organi8ation grows* submanagers are hire# to !oor#inate the various aspe!ts o
the business. The te(t #es!ribes this as:
A2 3tage 1.
72 %anagement Phase.
42 3tage 2.
D2 ;rgani8ing Phase.
Answer: 4 Page: 2)- Dii!ulty: %e#ium
5-. ;ur te(t tells us that mu!h o an entrepreneur:s time #uring start-up is spent:
A2 #elegating.
72 negotiating.
42 putting out ires.
D2 allo!ating resour!es.
Answer: 4 Page: 2)- Dii!ulty: %e#ium
5.. To buil# a su!!essul organi8ation !ulture the entrepreneur:
A2 shoul# o!us an# not try out #ierent things.
72 nee#s to remember that it is easier to !hange a person?s attitu#e than it is to
!hange the person?s behavior.
42 shoul# spen# e(tra time in the hiring pro!ess.
D2 must !reate a wor6pla!e where !ommuni!ation rom the top #own is en!ourage#.
Answer: 4 Page: 2). Dii!ulty: %e#ium
Hisrich, Entrepreneurship, Seventh Edition 78
Chapter 9 The Organizational Plan
6/. The boar# o #ire!tors:
A2 la!6s voting authority.
72 has responsibilities to represent all sharehol#ers.
42 is less ob@e!tive than the entrepreneur.
D2 are always volunteers an# nee# not be !ompensate#.
Answer: 7 Page: 2-/ Dii!ulty: %e#ium
61. The <<<<<<<<< imposes oversight responsibilities on members o the boar# o
#ire!tors.
A2 3o!ial 3e!urity A!t
72 $air 1abor Pra!ti!es A!t
42 3arbanes-;(ley
D2 Tat-,artley A!t
Answer: 4 Page: 2-/ Dii!ulty: %e#ium
62. The #ieren!e between a boar# o #ire!tors an# a boar# o a#visors is that:
A2 the boar# o a#visors meets less re+uently.
72 the boar# o #ire!tors la!6s voting authority.
42 the boar# o #ire!tors is sub@e!t to less pressure o litigation.
D2 the boar# o a#visors are !ompensate#.
Answer: A Page: 2-2 Dii!ulty: %e#ium
79 Hisrich, Entrepreneurship, Seventh Edition