II. Comprehension exercises

1. Choose the correct alternative to complete each sentence:

1. An economic entity is a general name of / any one-person business / any

organization or unit in society operating business / any corporation

2. A sole proprietorship is / always a one-person business / a business owned and operated by one person / a legal entity separate from its owners

3. All you have to do to launch a sole proprietorship is / to conclude a partnership agreement / to obtain a legal document named a corporate charter / to obtain any necessary licenses and start a checking account

4. The major disadvantage of a sole proprietorship is / the proprietor’s unlimited liability / a limited life span / the limited potential for profit

5. A legal association of two or more people as co-owners of a business for profit is called / a sole proprietorship / a partnership / a corporation

6. Partnerships are / the most used form of business organization / the least used form of business organization / as usual as other forms of business organization

7. In a general partnership each partner has / limited liability / unlimited liability

8. Limited partnerships require / at least one unlimited partner / two or more unlimited partners / no unlimited partners at all

9. A partnership in which all partners may have limited liability is called / a general partnership / a limited partnership / a limited liability partnership

10. Profits and losses of partnerships are taxed at / personal income-tax rates / corporate rates / progressive tax rates

11. Corporations account for / 30 percent of the profits earned by U.S businesses / 50 percent of the profits earned by U.S. businesses / 70 percent of the profits earned by U.S. businesses

12. The owners of a corporation are always its / stockholders / officers / top managers

13. The center of power in a corporation often lies with / the chief operating officer / the chief financial officer / the chief executive officer

14. Owners of common stock / do not have a vote, but they are first to receive dividends / have a vote and are first to receive dividends / have a vote, but they are last to receive dividends

15. One disadvantage for a corporation is the double taxation of corporate profits. It means, that any profits of a corporation are taxed / once / twice / thrice

16. Because a corporation has the status of a separate legal entity, its stockholders have / limited liability / unlimited liability

17. A company that owns most, if not all, of another company’s stock but that does not actively participate in the management of that other company is called / a parent company / a holding company / a subsidiary

18. A company that is partially or wholly owned by another corporation is called / a parent company / a holding company / a subsidiary

2. Advantages and disadvantages of each of the three basic forms of business ownership are enumerated in the boxes below. Read and determine the form of business ownership described in each box.

A

ADVANTAGES	DISADVANTAGES
1. Easy to form 2. Low start-up costs 3. Expanded financial capabilities 4. Tax advantages 5. Broader management base 6. Limited regulation	1. Unlimited liability 2. Divided authority 3. Interpersonal conflicts 4. Difficult to dissolve

B

ADVANTAGES	DISADVANTAGES
1. Limited liability 2. Specialized management skills 3. Expanded financial capabilities 4. Ownership is transferable 5. Unlimited life span	1. Difficult and costly to form and dissolve 2. Tax disadvantages 3. Closely regulated

C

ADVANTAGES	DISADVANTAGES
1. Easy to form and dissolve 2. Low start-up costs 3. Freedom from regulations 4. Tax advantages 5. Owner has flexibility 6. All profits to owner	1. Unlimited liability 2. Limited financial resources 3. Lack of qualified employees 4. Limited life span