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MGTA05H3 Study Guide - Quiz Guide: Production Planning, Main Source, Toronto Stock Exchange

Management (MGT)
Course Code
H Laurence
Study Guide

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Your friend Paul is considering starting a carpentry shop to build custom furniture. He just wants
to start the business as a sole proprietorship. In discussing the advantages and disadvantages of
conducting business as sole proprietorship, you should tell Paul about all of the following
a) Paul may have difficulty obtaining a bank loan to purchase tools
b) Paul should be concerned about unlimited liability
c) Paul may have difficulty transferring his business to his son
d) Paul can start the business easily and for low cost
All of the answers are indeed relevant considerations. But when you are starting a
business, you are least worried about passing the business along. Getting it started
and going is more than enough worry. So “C” is the best answer.
In order to create a new business:
a) you may begin only as a sole proprietorship
b) you may begin only as either a sole proprietorship or a partnership
c) you may begin only as a sole proprietorship, a general partnership or a limited
d) you may begin as a sole proprietorship, a partnership, or a corporation
You may begin a business in any legal form you desire. There is no limit.
A sole proprietorship must register its name, because:
a) Government authorities need to collect GST from the business
b) Statistics Canada wishes to track the number of business start-ups
c) Statistics Canada needs to track levels of unemployment
d) The statement is not true; sole proprietorships do not need to register a name
There is no requirement for a sole proprietorship to register its name. You may
choose to register a business name if you wish, but you do not need to do so.
In a partnership, if a liability cannot be satisfied by partnership assets, how would the partners be
liable for the liability?
a) each partner is responsible only for the portion of the liability that he or she
b) partners are liable only for those liabilities set out in the partnership agreement
c) each partner is responsible for the entire liability
d) each partner pays only his or her share of the liability
e) partners are not responsible for liabilities that arise from a violation of the
partnership agreement

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In a partnership, each partner is “jointly and severally” liable for all liabilities not
satisfied from partnership assets. This means that each partner can be required to
pay all of the liability personally but that all of the partners are liable. If one
partner pays everything, that partner has a right of contribution from the other
partners, but as far as the person suing is concerned, that person can get the full
value of a claim from one partner.
Why would a business choose incorporation as its legal form:
a) A corporation can sell shares in order to raise capital
b) A corporation can invite both general and limited partners
c) Incorporation means only the general partners are personally liable
d) Incorporation means the general partners pay no taxes on personal income
Corporations do not have partners; partnerships do. None of the statements about
partnership apply to a corporation.
The Government of Spain has been running budget deficits for the past decade. In an attempt to
reduce its overall level of accumulated debt, the Spanish government has recently begun to
reducing its spending, while increasing taxes. Spain’s GDP is falling and international lenders are
increasingly reluctant to lend more money to the country. As a result, what is the likely effect on
Spanish bonds?
a) Spanish bonds will have to be registered
b) Spanish bonds cannot be sold, so they will not be issued
c) Spanish bonds will have to be issued in Euros rather than pesos
d) Spanish bonds will carry higher interest rates than English bonds
When there is a significant risk of default, purchasers will buy bonds only if the
interest rate is high enough to offset that risk. Since the English economy is in much
better shape than the Spanish economy, Spain will have to pay higher interest to
encourage people to lend money to Spain by purchasing bonds.
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