Understanding Canadian Business William Nickels 10e - Test Bank

Understanding Canadian Business William Nickels 10e – Test Bank

Instant Download – Complete Test Bank With Answers

Sample Questions Are Posted Below

Chapter 06

Forms of Business Ownership

True / False Questions

The corporation is the most common form of business ownership.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-01 Starting a Small Business

The three major forms of business ownership in Canada are sole proprietorships, partnerships, and corporations.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-01 Starting a Small Business

Compared to two decades ago, so few people start their own business today.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-01 Starting a Small Business

Once a business is established, it’s almost impossible to change from one form of business ownership to another.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-01 Starting a Small Business

A comparison of the three major forms of business ownership shows that sole proprietorships are usually the most difficult type of business to establish.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

The first step in starting a sole proprietorship is to fill out a proprietorship charter application form and file it with the provincial government.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

It is usually easy to start and end a sole proprietorship.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

The profits of a sole proprietorship are taxed as the personal income of the owner.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

The sole proprietorship form of ownership tends to be attractive to people who want to invest in a company without taking an active role in management.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

A major advantage of sole proprietorships is that an owner has limited liability for the debts of his or her business.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

One of the strengths of the sole proprietorship is its ability to sustain rapid growth by raising large amounts of financial resources.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

The debts of a business operated as a sole proprietorship are considered to be the personal debts of the owner of the business.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

A drawback of sole proprietorships is that they usually have limited access to additional financial resources.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-04 Disadvantages of Sole Proprietorships

An advantage of forming a sole proprietorship is that it allows the owner to have more time for leisure activities.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-04 Disadvantages of Sole Proprietorships

Jim wants to start a business. He is attracted by the idea of being his own boss and wants to get started with minimal expense and hassle. He is very confident in his abilities, so he is not particularly worried about financial risks. All of these factors suggest that Jim would favour starting his business as a sole proprietorship.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-04 Disadvantages of Sole Proprietorships

If a sole proprietorship fails, the owner may lose whatever was invested in the business, but the owner’s personal assets are not at risk.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-04 Disadvantages of Sole Proprietorships

Sandy is a talented fashion designer who wants to start her own women’s sportswear company. However, she is concerned because she knows very little about actual production methods or the financial aspects of running a business and has little personal wealth to put into the company. In order to overcome these problems, Sandy should start her business as a sole proprietorship.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-04 Disadvantages of Sole Proprietorships

Danika is convinced that she has a great idea for a new business. Unfortunately, the type of business she wants to start would require a fairly high initial investment and Danika has a poor credit rating and very little personal wealth. Danika would be unlikely to find success if she organized his business as a sole proprietorship.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-04 Disadvantages of Sole Proprietorships

Partnerships have the largest share of business revenue in Canada.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-02 Describe the advantages and disadvantages of partnerships. Include the differences between general and limited partners.
Topic: 06-05 Partnerships

A general partner can take an active role in the management of the business.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-02 Describe the advantages and disadvantages of partnerships. Include the differences between general and limited partners.
Topic: 06-05 Partnerships

All of the partners in a general partnership have limited liability for the debts of their firm.
FALSE

In a general partnership, all owners share in both management of the business and in the assumption of liability for the firm’s debts.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-02 Describe the advantages and disadvantages of partnerships. Include the differences between general and limited partners.
Topic: 06-05 Partnerships

In a general partnership, all active partners are entitled to an equal share of the firm’s profits.
FALSE

Limited partnerships are just like general partnerships, except that they are organized to operate as a growing concern for only a limited time period.
FALSE

A limited partner is an owner who takes no management responsibility and has no liability for losses beyond the amount invested.
TRUE

A recent study showed that partnerships are more likely to fail than sole proprietorships.
FALSE

A general partner has unlimited liability for the debts of the partnership only if he or she personally approved the decisions that resulted in those debts.
FALSE

In order to protect all parties and minimize misunderstandings among partners, all terms of the partnership should be spelled out in writing.
TRUE

One advantage of a partnership is that there is a simple process for partners to terminate their business.
FALSE

Compared to sole proprietorships, an advantage of partnerships is their ability to obtain more financial resources.
TRUE

Setting up a partnership under the terms of a written agreement is a bad idea, because written agreements tend to be too inflexible and impersonal.
FALSE

Compared to sole proprietorships, partnerships offer the advantage of shared management and pooled knowledge.
TRUE

Ted and Mark have been partners in a dry cleaning business for the past three years. They would like their brother Todd to join them. Unfortunately, partnership law states that only two partners can participate in a partnership.
FALSE

One of the major disadvantages of a partnership is that profits must be divided according to very specific legal guidelines.
FALSE

Two of Rolanda’s friends have approached her to see if she would like to join them in starting a new business. Rolanda is willing to invest money in the business and share in its profits, but she has no desire to be involved in the day-to-day management of the company. She is also very nervous about the risk of losing her personal assets. Rolanda’s preferences suggest that she would like to see the business operated as a general partnership.
FALSE

Sharon, Lois, and Sam have just formed a business partnership. Under their arrangement, Sharon will actively manage the company and assume unlimited liability for the firm’s debts. Sam and Lois will invest several thousand dollars of their money and will share in the profits but will not actively manage the firm and will not have liability for losses beyond their initial investment. This describes a limited partnership.
TRUE

Alphonzo has agreed to become a partner in his brother’s new clothing store and has provided 30 percent of the start-up capital for Remora’s Clothiers. Since he provided 30 percent of the money to start the firm, he is entitled to 30 percent of any profits the firm earns during its first year of operations.
FALSE

Ronaldo and Junita want to go into business together. They do not want to bring in other partners, but they both want to avoid unlimited liability for any debts incurred by their new company. Ronaldo and Junita can achieve their aims by organizing the firm as a limited partnership.
FALSE

Connie is a general partner in a retail cookie store. Her personal assets are protected from the debts of the business.
FALSE

A corporation is a federally or provincially chartered legal entity, with authority to act and have liability separate from its owners.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-08 Corporations

In today’s economy, only large business enterprises should operate as corporations.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-08 Corporations

The owners of a corporation are known as general corporate partners.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-08 Corporations

A corporation can raise financial capital by selling shares of stock to interested investors.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-08 Corporations

When one of the owners of a corporation dies, the corporation legally ceases to exist.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

Corporations are easy to start and easy to terminate.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

Stockholders in a corporation normally exert a significant degree of control over the company’s daily operations.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

The stockholders in a corporation elect a board of directors to oversee the company’s major policy issues.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

Stockholders in a corporation have limited liability for the debts of the corporation.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

The process and policies that determine how an organization interacts with its shareholders is known as corporate governance.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

A private corporation can issue stock to a child.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

Owners/shareholders in a public corporation have no control over the daily operations.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

One advantage of corporations is that the initial cost of setting them up is usually lower than for other forms of ownership.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

A disadvantage of corporations is that their charters are only valid for 99 years, so corporations are less permanent than other types of businesses.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-10 Disadvantages of Corporations

A disadvantage of corporations is that they generally require extensive paperwork.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-10 Disadvantages of Corporations

A disadvantage of corporations is that an owner must get the approval of all other owners before selling his or her interest in the firm to another investor.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-10 Disadvantages of Corporations

Corporations are subject to double taxation.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-10 Disadvantages of Corporations

Most provinces have legal restrictions that prevent individuals from incorporating.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-10 Disadvantages of Corporations

Dr. Wright is interested in incorporating as an individual. While this is legally possible, there are really no advantages to doing so.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-10 Disadvantages of Corporations

The legal authorization for a company to use the corporate format is known as the articles of incorporation.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-11 Business Regulations

All public corporations must file annual reports.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-11 Business Regulations

A franchise agreement is an arrangement where a franchisor sells the rights to a business name and to sell a product or service within a given territory to a franchisee.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-04 Outline the advantages and disadvantages of franchising. Include the challenges of global franchising.
Topic: 06-12 Franchising

Franchised businesses in Canada account for 10 percent of all retail sales and employ about 200,000 people.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-04 Outline the advantages and disadvantages of franchising. Include the challenges of global franchising.
Topic: 06-12 Franchising

Franchisors give franchisees the right to use their name and product, but franchisees must obtain all financing advice and develop all marketing strategies on their own.
FALSE

Today, franchising accounts for nearly 40 percent of the national retail sales in Canada.
TRUE

In a franchise arrangement, ownership of all of the individual stores or outlets remains in the hands of the franchisor.
FALSE

In a typical franchise agreement, the franchisor pays the franchisee a fee to manage its company, and the two of them split the profits based on the percentages established in the agreement.
FALSE

Laurel has always worked for others but has become tired of following orders. She wants to find an inexpensive way to start her own business so that she can have the freedom to run her business exactly as she sees fit. Laurel could achieve her goals by becoming a franchisee.
FALSE

The franchisee often must pay the franchisor a share of profits or a percentage commission on sales known as a royalty.
TRUE

One of the major advantages of a franchise system is the franchisee often gets instant recognition from consumers.
TRUE

One drawback of franchises is that they have a much higher failure rate than other types of business ventures.
FALSE

Franchisees must follow more rules, regulations, and procedures than if they operated independently owned businesses.
TRUE

The “coattail effect” refers to the burden of corporate rules and regulations on franchisees.
FALSE

Ram has just paid several thousand dollars to obtain a Fontmaster Printers franchise in Northern Ontario. Now that he has paid his fee, he can look forward to having the freedom to use his own creative talents to make his print shop different and more attractive than other Fontmaster shops in Ontario.
FALSE

Les is a franchisee in the Far Horizons Travel Agency franchise. As a franchisee, Les is guaranteed the right to retain all of his franchise’s profits.
FALSE

Leanne is a franchisee in a restaurant chain. Thanks mainly to her hard work and people skills, her individual outlet is doing quite well. However, she has noticed that several other franchisees in the same chain have let their businesses deteriorate, especially in terms of the quality of the food they offer. Leanne should be very concerned about this trend, since it eventually could affect her own business.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-04 Outline the advantages and disadvantages of franchising. Include the challenges of global franchising.
Topic: 06-14 Disadvantages of Franchises

Few brick-and-mortar franchisees are expanding online.
FALSE

Many franchisors have rules that prohibit franchisees from sponsoring their own websites.
TRUE

One disadvantage to home-based franchises is the feeling of isolation.
TRUE

Global franchising is unlikely to experience major growth due to convenience and predictable levels of service.
FALSE

The most popular global market for U.S. franchisors has been Canada.
TRUE

Franchising in global markets has demonstrated that convenience and predictable levels of service are important worldwide.
TRUE

Franchising is popular in Canada, but legal barriers have limited its popularity in foreign countries.
FALSE

Maria is already a successful franchisee with Nite Lite, a chain of “no frills” motels that provide clean rooms and good service at affordable rates. The motel she currently operates is located in the Maritime provinces, but she is considering an opportunity to open another Nite Lite motel in the United States. Although her costs of operating in a new country may be higher, she will offer the benefits of convenience and a predictable level of service.
TRUE

A co-operative is simply another name for a corporation.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

A co-operative consists of people with similar needs who pool their resources for mutual gain.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

It is not unusual for members of co-operatives to work for and help manage their co-operative.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

Co-operatives can be found in many sectors of the economy.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

A disadvantage of co-operatives is that they are subject to higher tax rates than corporations.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

Ana has always disliked the notion that the customers, managers, and workers of a business are separate individuals with competing goals. She has joined with many other people in her community who share this view to become a member, and part owner, of a child care centre. Ana and the other members operate the centre for their own benefit, and each is expected to work at the centre at least 12 hours each month. The type of organization Ana belongs to is known as a joint venture.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

Jocelyn belongs to food a co-operative in her community. As a member, she can expect to have a vote in the election of the co-operative’s board of directors.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

The largest co-operative sector is the agricultural (farm) co-op.
FALSE

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

Co-ops distribute their profits to members as a reduction in members’ costs. These profits are non-taxable.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

There are advantages and disadvantages to all forms of business ownership.
TRUE

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-19 Co-Operatives

Multiple Choice Questions

The ___________ is the most common form of business ownership.
A.partnership
B. corporation
C. joint venture
D. sole proprietorship

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-01 Starting a Small Business

A ___________ is a business organization that is owned, and usually managed, by one person.
A.closed corporation
B. general partnership
C. sole proprietorship
D. limited partnership

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-01 Starting a Small Business

A legal entity with authority to act separately from its owners is known as a _____.
A.corporation
B. partnership
C. sole proprietorships
D. limited liability partnership

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-01 Starting a Small Business

To many business people, one of the major attractions of a sole proprietorship is:
A.the ability to obtain additional financial resources.
B. the protection of limited liability.
C. an unlimited lifespan.
D. the chance to be their own boss.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

The __________________ is usually the easiest form of business to start and end.
A.sole proprietorship
B. limited partnership
C. corporation
D. co-operative

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

An entrepreneur who wishes to start a business with little delay or hassle, and who wants to be his or her own boss, should organize the business as a:
A.sole proprietorship.
B. co-operative.
C. limited partnership.
D. general partnership.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

Starting a new business as a sole proprietorship:
A.requires retaining the services of an attorney.
B. is simple, but the proprietorship fee is very expensive in some provinces.
C. is usually simpler and less expensive than starting other forms of ownership.
D. is very similar to starting a business as a corporation.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

Elroy is the sole proprietor of a gift shop in a small shopping centre. Because he is a sole proprietor, any profit Elroy’s business earns is:
A.totally tax-free.
B. taxed only as Elroy’s personal income.
C. taxed twice, once as business income, then again as Elroy’s personal income.
D. taxed only if and when it is distributed to investors.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

Juan wants to start his own business. He would be most likely to favour organizing his new company as a sole proprietorship if he:
A.expects rapid growth and wants to be able to raise a large sum of money.
B. wants to make it easy to attract qualified employees.
C. has a strong desire to be his own boss.
D. wants to minimize the financial risk he must accept as the owner of a business.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

In a sole proprietorship, the equipment and profits of the business are:
A.taxed as income for the business but are exempt from the personal income tax paid by the owner.
B. taxed at the lowest corporate rate.
C. the property of the owner, except for taxes owed to the government.
D. tax-free if the appropriate exemption is filed with the local government.

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

Which of the following is an advantage of a sole proprietorship?
A.Longer survival
B. No special taxes
C. Unlimited liability
D. Limited growth

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-03 Advantages of Sole Proprietorships

A significant disadvantage of owning a sole proprietorship is the:
A.possibility of limited liability.
B. heavy tax liability that must be assumed.
C. overwhelming time commitment often required of the owner.
D. lack of incentives to motivate the owner.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-04 Disadvantages of Sole Proprietorships

Any debts or damages incurred by a firm organized as a sole proprietorship are:
A.the sole responsibility of the owner.
B. limited to the amount the owner has invested in the firm.
C. paid for out of a reserve contingency fund that sole proprietors are required by law to set up.
D. normally covered by liability insurance.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-04 Disadvantages of Sole Proprietorships

One of the major disadvantages of a sole proprietorship is the:
A.possibility of disagreements between owners.
B. unlimited liability the owner has for the debts of the firm.
C. fact that any income earned by this type of business is taxed twice.
D. high cost of starting or ending the company.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-04 Disadvantages of Sole Proprietorships

Mehdi operates a sole proprietorship, but he is in poor health and may be unable to continue running the business. If Mehdi becomes incapacitated, his business:
A.automatically continues under new management as a sole proprietorship.
B. automatically converts into a public corporation with stock sold to interested investors.
C. ceases to exist unless sold or taken over by Mehdi’s heirs.
D. becomes the property of the most senior employee who wishes to continue operating the firm.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-04 Disadvantages of Sole Proprietorships

Yolanda owns a roofing business. She enjoys being her own boss, but her satisfaction comes at a price. Her days are filled with organizing the activities of her employees and soliciting new customers. She often misses activities with friends and family because of the obligations of running her own business. She also knows that she has unlimited personal liability for any of her firm’s debts. It appears that Yolanda’s business is organized as a:
A.joint venture.
B. corporation.
C. limited partnership.
D. sole proprietorship.

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-04 Disadvantages of Sole Proprietorships

Ellen wants to start a business. She is leaning toward setting up her company as a sole proprietorship, but she is also looking at other possibilities. Ellen has two major goals. First, given her limited personal wealth and eagerness to get started, she wants to get her business up and running with the least possible hassle and expense. Second, she wants to minimize her personal risk in the event that her company experiences difficulties. If Ellen chooses a sole proprietorship, she would:
A.be able to achieve both goals since this form of ownership is both the easiest to form and the least risky.
B. meet her first goal since sole proprietorships are easy and inexpensive to form. However, she would expose herself to a high level of personal risk because owners of sole proprietorships have unlimited liability.
C. not achieve either goal since proprietorships are both costly to set up and subject to unlimited liability.
D. achieve her second goal, since the owners of sole proprietorships are legally protected from losing more than the amount they invest in their company. However, she would find that the start-up costs would be higher than if she had incorporated her business.

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-04 Disadvantages of Sole Proprietorships

In a partnership, a(n) __________ partner is an owner who is active in managing the company and has unlimited liability for claims against the firm.
A.unlimited
B. limited
C. general
D. associate

A partner who invests money in a business, but does not take an active role in management or assume unlimited liability for the firm’s losses is known as a(n):
A.implied partner.
B. limited partner.
C. partial partner.
D. corporate partner.

The limited liability provided to limited partners means that they are not responsible for the debts of the business beyond:
A.the firm’s total assets.
B. the amount they have invested in the company.
C. the percentage of profits they are entitled to earn.
D. their total personal assets.

Dev is an owner (partner) who has unlimited liability and is active in managing a law firm. Dev is an example of a:
A.limited partner.
B. general partner.
C. silent partner.
D. auxiliary partner.

In a limited liability partnership, each partner’s risk of losing personal assets is:
A.limited to the amount that partner invested in the company.
B. limited to losses that result from their own acts and omissions and the acts and omissions of those who work under their supervision.
C. determined entirely by the maximum loss provision established by the articles of co-partnership.
D. nonexistent.

When entering into a new partnership, the partners should:
A.avoid putting their agreement in writing since this would limit the flexibility of the partnership.
B. put the partnership agreement in writing.
C. plan to incorporate as soon as possible.
D. agree to put the first year’s profits back into the partnership.

A difference between partnerships and sole proprietorships is that partnerships:
A.are easier to form.
B. are managed by an elected board of directors.
C. have the advantage of limited liability.
D. have a greater chance of long term survival.

Which of the following statements about partnerships is the most accurate?
A.A partnership is simply a corporation with fewer than 100 owners.
B. A major advantage of a partnership is that it offers owners limited liability.
C. A major drawback of a partnership is that it is difficult to terminate.
D. Partnerships are taxed at the lowest corporate tax rate.

Compared to a sole proprietorship, which of the following is considered an advantage of a general partnership?
A.More financial resources.
B. Limited liability for all owners.
C. Equal division of profits among the owners.
D. Ease and flexibility in transferring shares of ownership to others.

When comparing partnerships to sole proprietorships, an advantage of partnerships is that they:
A.limited liability for the general partner.
B. are easier to terminate.
C. cost less to organize.
D. give the firm a stronger financial foundation.

Martyn is a limited partner in Gettout & Associates. Mary Gettout, one of the senior general partners in the company, must temporarily leave the company to attend to some personal matters. Mary has asked Martyn to temporarily perform her managerial duties while she is gone. As a limited partner, Martyn:
A.can fill in as a manager whenever necessary, as long as it is for only a limited time.
B. can make managerial decisions as long as they do not involve the payment of money.
C. cannot participate in the management of the partnership.
D. can manage the firm as long as he gets approval from the company’s other general partners.

Mara plans to open a shop specializing in foods and cultural items from the Middle East. She wants to be the firm’s only general partner, but she is trying to get several friends to participate as limited partners. Apparently, Mara wants to:
A.limit her personal liability to the amount she personally invests in the company.
B. be the only person allowed to share in the firm’s profits.
C. obtain a strong financial base for the firm while maintaining personal control over the firm’s management.
D. meet the legal requirements of the Uniform Partnership Act.

Homer and Marge have decided to open a floral design shop, which they intend to run as co-owners. Both intend to take an active role in the management of their new business, and each will accept unlimited liability. Homer and Marge are planning to operate a:
A.joint venture.
B. general partnership.
C. limited partnership.
D. co-operative.

Jamie and Maria invested all their savings in a small pizzeria they opened outside of Western University in London, Ontario. They operated the business as a general partnership. After 11 months the business went broke and Jamie and Maria were left with outstanding bills of $37,500, which is more than their investment in the company. Jamie and Maria can:
A.lose their personal assets as the result of their company’s financial problems.
B. lose only the funds they originally invested in their company.
C. lose only the total value of the assets actually used to operate the business.
D. avoid any liability for these debts since a partnership is considered to be a business entity that is separate and distinct from the partners who own it.

Rhonda has agreed to invest $16,000 in a partnership with her sister and brother-in-law. Rhonda does not plan to work in the partnership, nor does she wish to risk any of her own wealth other than the $16,000 she invests, but she does intend to share in any profits earned by the partnership. Evidently, Rhonda will be a:
A.restricted partner.
B. preferred stockholder.
C. secondary partner.
D. limited partner.

A ___________________ is a federally or provincially chartered legal entity with authority to act and to have liability separate from its owners.
A.limited partnership
B. corporation
C. general partnership
D. non-profit organization

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-08 Corporations

An owner of a corporation is known as a:
A.general partner.
B. limited partner.
C. director.
D. shareholder.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-08 Corporations

Which of the following statements about the operation of a corporation is correct?
A.A corporation receives its charter from the federal or a provincial government.
B. A corporate charter automatically expires in 99 years and must be renewed if the corporation wants to remain in business.
C. Owners of a corporation have unlimited liability for any claims against their company.
D. A corporation tends to be much easier to set up than a sole proprietorship or partnership.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-08 Corporations

The form of business ownership that is best suited to raising large amounts of money for expansion is the:
A.sole proprietorship.
B. partnership.
C. corporation.
D. co-operative.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-08 Corporations

Which of the following is an advantage of the corporate form of business when compared to sole proprietorships and partnerships?
A.Ease of formation
B. Lower taxes
C. Simplified paperwork
D. Limited liability of owners

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

Compared to partnerships and sole proprietorships, a major advantage of a public corporation as a form of business ownership is that it:
A.has the ability to raise more money.
B. is easier and less expensive to form.
C. qualifies for simplified tax treatment.
D. creates unlimited liability of owners.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

Dr. Driller is a dentist who is interested in incorporating as an individual. If he attempts to do so, Dr. Driller is likely to find that:
A.most provinces do not allow individuals to incorporate.
B. the procedures for an individual to incorporate are extremely complex.
C. he may actually save on taxes.
D. his business will be owned by a large number of stockholders with whom he must share his income.

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

Todd and Jorge have considered starting their own business but are concerned about the possibility of losing their personal assets if the business fails. One way for both Todd and Jorge to avoid this risk would be to organize their firm as a:
A.general partnership.
B. limited partnership.
C. corporation.
D. sole proprietorship.

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

Marie recently purchased 100 shares of stock in the McBun Development Corporation. Marie has become a(n) _____________ of McBun Development.
A.owner
B. manager
C. creditor
D. partner

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

The board of directors for a corporation is elected by its:
A.creditors.
B. Shareholders.
C. managers.
D. employees.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

A separation between ownership and management is most likely to occur in a:
A.sole proprietorship.
B. general partnership.
C. corporation.
D. limited liability partnership.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations

Which of the following is normally considered a major disadvantage of the corporate form of business?
A.Unlimited liability of owners.
B. Difficult transfer of ownership.
C. Limited life.
D. Double taxation of earnings.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-10 Disadvantages of Corporations

One disadvantage of _________ is the initial cost of starting this form of business organization.
A.corporations
B. general partnerships
C. sole proprietorships
D. limited partnerships

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-10 Disadvantages of Corporations

The form of business ownership that usually requires the most detailed record keeping is the:
A.corporation
B. partnership
C. sole proprietorship
D. limited partnership

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-10 Disadvantages of Corporations

The group farthest removed from the daily operations of a corporation are:
A.owners
B. managers
C. officers
D. directors

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-10 Disadvantages of Corporations

The earnings of corporations are taxed:
A.as income to the corporation, then again as income to the stockholders on earnings that are distributed as dividends.
B. at twice the going rate of a partnership or proprietorship.
C. by the federal government, but they are exempt from provincial taxes if the corporation owns any facilities within that province.
D. as if the business were a partnership.

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-10 Disadvantages of Corporations

Ram is a stockholder in Endrun Investments, which is organized as a corporation. Endrun recently lost a major court decision and will probably be forced into bankruptcy. In fact, the damages awarded are so great that, even if all of its assets are sold and the proceeds are used to pay its debts, Endrun is likely to still owe money to its creditors. If Endrun does go bankrupt, Ram and the other stockholders will:
A.be personally responsible for all remaining debts.
B. lose their investment but nothing else.
C. be entitled to full reimbursement of any investment losses.
D. automatically qualify for federal reimbursement for any losses suffered by the firm.

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-10 Disadvantages of Corporations

The authorization from the federal or provincial/territorial government for a company to use the corporate format is known as what?
A.Management agreement
B. Resolution of the board of directors
C. Articles of incorporation
D. Shareholders agreement

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-11 Business Regulations

A(n) ___________ is an arrangement whereby someone with a good idea for a business sells the rights to use the business name and sell a product or service to others in a given territory.
A.conditional grant
B. franchise agreement
C. trade contract
D. extended ownership agreement

A(n) _____________ is someone who has a good idea for a business and who sells the right to use the business name and sell a product or service within a given territory.
A.intrapreneur
B. Franchisee
C. limited partner
D. franchisor

A person who buys the right to use a business name and sell a product within a given territory is called a:
A.stockholder
B. franchisee
C. limited franchisor
D. venture capitalist

Daggie’s Sandwiches, Inc., sells the rights to use its name and sell its sandwiches in a given market area to aspiring business people who are willing to pay agreed upon fees and meet certain contractual terms. Daggie’s:
A.is offering investors the opportunity to form limited partnerships.
B. is a franchisor.
C. creates private subsidiary companies.
D. offers a tax-free investment potential.

Midas Muffler sells its business name and the rights to its products to prospective business persons who want to use the Midas name and offer Midas products. In this arrangement, Midas would be the _____________, and the buyer of these rights is the ____________.
A.owner; limited partner
B. co-signer; co-signee
C. franchisor; franchisee
D. wholesaler; retailer

Ellen has just been granted a franchise from Tim Horton’s. The new business will be set up as a:
A.sole proprietorship
B. partnership
C. corporation
D. any form of business she chooses

All of the following are examples of a franchise, except?
A.Quiznos Sub
B. Home Hardware
C. Swiss Chalet
D. Loblaws

One reason franchises have become so popular is that this arrangement provides the franchisee with:
A.a nationally recognized name and product.
B. a low-cost way to start a business.
C. limited liability.
D. the right to retain all profits earned by their franchise.

Global franchising offers:
A.few opportunities for Canadian investors.
B. opportunities for the largest franchise systems, but not small ones.
C. opportunities for both large and small franchises.
D. American firms the opportunity to market goods overseas without any need to adjust for cultural differences.

An evaluation of franchising would conclude that this type of arrangement:
A.has become the dominant form of business organization in Canada because it has many advantages and almost no disadvantages.
B. appeals to people who want to own a business but are not comfortable starting a company from scratch.
C. has a much higher risk of failure than independent companies.
D. has little chance of success outside the United States because many foreign countries do not allow such arrangements.

Mary is interested in becoming a franchisee in Katie’s Grill, a very successful fast food chain from the Canadian West. Which of the following problems is Mary most likely to encounter if she agrees to become a franchisee?
A.High initial costs and fees.
B. Poor name recognition and visibility.
C. Lack of financing.
D. Lack of managerial assistance.

A ____________ is the share of profits or percentage of sales a franchisee pays to a franchisor.
A.royalty
B. dividend
C. premium
D. co-pay

Marco is a franchisee with Daggies, a chain of sandwich shops. His business was doing well until several Daggies franchisees got in trouble and were forced to close their shops. Soon afterward, Marco’s business deteriorated, and he too was forced to close.
A.an economic shakeout at work.
B. the coattail effect.
C. the law of diminishing returns.
D. management by exception.

Which of the following statements about buying a franchise is most accurate?
A.One of the advantages of buying a franchise is that franchisors are so closely regulated that there is virtually no chance for scams to succeed.
B. Before purchasing a franchise, the buyer should carefully evaluate the franchise, the franchisor, his or her own situation, and the nature of the market.
C. Franchise agreements are simple to evaluate, since federal law requires that all such agreements must be written in plain English with all fees and terms clearly explained.
D. Buying a franchise is the simplest and least expensive way to set up a business, since the franchisor has already worked out all of the details for setting up and running the business.

Which of the following statements is true about franchisors and franchisee-sponsored websites?
A.few brick-and-mortar franchises have expanded their business online.
B. many franchisors prohibit them.
C. franchisee web sales can hurt the franchisor financially.
D. franchisees can do as they please on their own web sites.

Franchisors will sometimes send reverse royalties to franchisees who:
A.have not yet created their own web site.
B. feel their sales have been hurt by the franchisor’s Internet sales.
C. are using e-commerce to expand their sales territory.
D. desire to streamline their communication with employees, customers, and vendors.

Home-based franchisees feel less isolated than who?
A.Owners
B. Managers
C. Home-based entrepreneurs
D. Customers

The most popular international target for Canadian-based franchises is:
A.The United States
B. The European Common Market
C. China
D. India

A ___________ is an organization that is owned and controlled by the people who use it—producers, consumers and workers with similar needs who pool their resources for mutual gain.
A.corporation
B. limited partnership
C. mutual fund
D. co-operative

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

In a co-operative, members/customers:
A.democratically control their businesses using the one member/one vote system.
B. are known as limited partners.
C. each have unlimited liability for the debts of the firm.
D. take turns serving on the board that manages the company.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

People who form co-operatives:
A.believe the government should play a larger role in the economy.
B. dislike the notion of having owners, managers, and customers as separate individuals with separate goals.
C. see competitive behaviour as the key to ensuring rapid economic growth.
D. want to find a way to supply basic necessities free of charge to everyone.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

A distinguishing feature of a co-operative is that it:
A.maintains a distinct separation between ownership and management.
B. is only intended to operate for a limited period of time.
C. is owned and operated by the people who use it.
D. can have no more than 75 owners, all of whom must be citizens of Canada.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

Which of the following statements about co-operatives is most accurate?
A.There are about 500 co-operatives in Canada.
B. Has become a major force in Canadian agriculture and housing.
C. Are found in few sectors of the economy.
D. Provide products and services to about 1 million Canadians.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

Which of the following people would be most interested in participating in a business organized as a co-operative?
A.Joe is intrigued by the idea of combining his time and resources with many other people to operate a business providing a good or service that they all will use.
B. Joan wants to be an owner of a business and share in its profits but has no desire to take an active role in managing the company or participating in its daily operations.
C. Jeff wants to work for a government owned business because he believes government ownership ensures a more equitable distribution of income and wealth.
D. Jennifer prefers to work for a charitable organization that emphasizes helping people who are less fortunate than her.

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

Twenty-six years ago, several small vineyard owners in the Niagara region joined voluntarily to market their grapes and wine in an attempt to get better prices. Over the years, they expanded the organization to include other services such as buying and selling farm supplies and equipment and providing financial and technical services. The arrangement established by these vineyard owners is an example of a:
A.closed corporation.
B. joint venture.
C. limited partnership.
D. co-operative.

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

Co-operatives differ from other businesses in several ways, except:
A.allocation of profits
B. purpose
C. having a long history and proven track record
D. control structure

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

Which form of business ownership has no risks?
A.Sole proprietorships
B. Corporations
C. All forms have risks
D. Co-operatives

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-19 Co-Operatives

Short Answer Questions

Although most new firms start out as sole proprietorships, few large firms are organized this way. Why is the sole proprietorship such a popular form of ownership for new firms? What features of the sole proprietorship make it unattractive to growing firms?

Sole proprietorships have many features which are attractive to people starting a new business, including the following:

· They are relatively easy and inexpensive to set up.
· The owner can be his or her own boss, which appeals to many entrepreneurs who want to do things their own way, without the need to consult others.
· The owner can keep all of the profits (except the share the government takes in taxes).
· Proprietors can take a great deal of pride in owning their own independent business and running it as they see fit.
· The owner’s work establishes a legacy on which future generations may build.
· There are no special taxes on proprietorships.

However, proprietorships also have some disadvantages that limit their growth potential:

· With only one owner, sole proprietorships have limited access to the financial capital needed by rapidly growing firms.
· As the firm grows and becomes more complex, the owner may become overwhelmed with the tasks of running the firm and need to attract qualified help. Unfortunately, qualified professional workers are often reluctant to work in a sole proprietorship.
· One of the biggest drawbacks for sole proprietorships is the unlimited liability of the owner. This means that the owner can lose much more than the amount he or she initially invested in the company (including personal property and savings) if the company gets into severe financial trouble. In this respect, a sole proprietorship is a risky form of ownership.
Many growing companies decide to change their form of ownership to a corporation to overcome these drawbacks.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-02 Sole Proprietorships
Topic: 06-03 Advantages of Sole Proprietorships
Topic: 06-04 Disadvantages of Sole Proprietorships

Is it easy to start or end your own business as a sole proprietorship?

All you have to do to start your own business is buy or lease the needed equipment (e.g. a saw, a word processor, a tractor, a lawn mower) and put up some announcements saying you are in business. It is just as easy to get out of business; you simply stop.

Accessibility: Keyboard Navigation
Difficulty: Easy
Learning Objective: 06-01 List the advantages and disadvantages of sole proprietorships.
Topic: 06-02 Sole Proprietorships

What is the difference between a general partner and a limited partner? Give an example of a situation in which a person would want to be a limited partner.

A general partner is an owner (partner) who has unlimited liability and is active in managing the firm. A limited partner invests money in the business and shares in the profits but has limited liability and cannot legally assume any management responsibility.

Students could offer any number of examples. Among them might be:

· Wealthy persons who want to invest in what they think could be a successful firm, but don’t want to risk their personal assets.
· Persons who do not want the responsibility of managing a partnership.
· Persons who are interested in a particular type of business but know nothing about the field.

Explain how double taxation effect corporations.

Corporate income is taxed twice. First the corporation pays tax on income before it can distribute any, as dividends, to shareholders. Then the shareholders pay tax on the dividends they receive from the corporation. While this is double taxation, it is not excessive taxation, as the tax system is designed to provide some offsetting credits such as the dividend tax credit for investors.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-10 Disadvantages of Corporations

How is size both an advantage and a disadvantage of corporations?

Advantage – corporations have the ability to raise large amounts of money to work with.
Disadvantage – large corporations sometimes become too inflexible and too tied down in red tape to respond quickly to market changes.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-09 Advantages of Corporations
Topic: 06-10 Disadvantages of Corporations

Describe two challenges unique to operating a family business.

The biggest problem facing family business today is not the business, it is the family. In his book, Every Family’s Business, Thomas William Deans blames the parents for not talking business at the dinner table, not including adult children in the decision-making process, just assuming that their kids want the business, and worst of all, “gifting” the business to unappreciative kids.
Biggest problems include:
Management problems are somewhat different from similar problems in non-family businesses. Conflicts sometimes abound because relatives look upon the business from different viewpoints. Those relatives who are silent partners, shareholders, and directors may only see dollar signs when judging capital expenditures, growth, and other major matters. Relatives who are engaged in daily operations judge major matters from the viewpoint of the production, sales, and personnel necessary to make the company successful. Obviously, these two viewpoints may conflict in some instances. only about 30 percent of family businesses survive into the second generation, and 12 percent are still viable into the third generation.
Family business failures are primarily due to the lack of family business succession planning. A Canadian Business Insights study found that just 17 percent of family-run businesses have a firm succession plan in place.

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-08 Corporations

What is a benefit (B) corporation? Provide an example.

A benefit (B) corporation is certified to meet rigorous standards of social and environmental performance, accountability, and transparency. Review the Seeking Sustainability box for an example (Sea to Table).

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-03 Discuss the advantages and disadvantages of corporations.
Topic: 06-08 Corporations

Describe coattail effects, in the context of franchising.

The actions or failures of other franchisees have an impact on your future growth and profitability. Due to this coattail effect, you could be forced out of business even if your particular franchise has been profitable. For example, the customer passion for high-flying franchisor Krispy Kreme sank as the southern Ontario market became flooded with new stores and the availability of the product at retail locations caused overexposure. McDonald’s and Subway franchisees complain that due to the company’s relentless growth, some new stores have taken business away from existing locations, squeezing franchisees’ profits per outlet.

Franchising has certainly become a key component of the Canadian economy. What do you see as the major advantages and disadvantages of franchising?

Students should be able to identify and discuss several of the following advantages:

· Management assistance: most franchisors offer franchisees advice and managerial assistance.
· Personal ownership: the business is still owned by the franchisee.
· Use of a nationally recognized name: Many franchises have established a national reputation.
· Financial advice and assistance: Franchisors often provide franchisees with expert financial advice and may even be willing to provide financing to franchisees.

Again, students can select from several disadvantages cited in the text. Among them are: Large start-up costs to obtain the franchise.
Sharing profits with the franchisor, or paying commission based on sales to the franchisor.
Management regulations: franchisees have to follow rules and regulations set by the franchisor that can limit their freedom. Thus, even though the franchisees own their business, they do not have as much control as owners of independent small businesses do.
Negative coattail effects: the owners of a successful outlet can be adversely affected by the problems and poor performance of less successful franchisees in the same franchise.

What are the advantages and disadvantages of home-based franchises?

Home-based businesses offer many obvious advantages, including relief from the stress of commuting, extra time for family activities, and low overhead expenses. One disadvantage is the feeling of isolation; however, compared to home-based entrepreneurs, home-based franchisees feel less isolated. Experienced franchisors often share their knowledge of building a profitable enterprise with other franchisees.

List the philosophical benefits of the co-operative form of business organization.

See Figure 6.8.
· People favoured over money in terms of priorities
· Greater community autonomy
· Product and service development by the people for the people
· Opportunities to strengthen community bonds by helping one another
· You can define your own needs instead of letting a conglomerate do it for you
· Modest savings for all instead of the excessive accumulation of profits by a few

Accessibility: Keyboard Navigation
Difficulty: Hard
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

List some of the economic sectors where you find co-operatives in Canada.

Some of the largest sectors are:

· Financial co-operatives include caisses populaires, credit unions, insurance co-operatives, and mutual companies and offer financial loan and other investment and insurance services.
· Housing co-operatives
· Agriculture (farming)
· Retail
· Child care
· Development

Accessibility: Keyboard Navigation
Difficulty: Medium
Learning Objective: 06-05 Describe the role of co-operatives in Canada.
Topic: 06-18 Franchising in International Markets

Understanding Canadian Business William Nickels 10e - Test Bank

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Understanding Canadian Business William Nickels 10e - Test Bank

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