MGMT EXAM 1

Who is personally liable in a Sole Proprietorship?

The owner is fully responsible for all debts and obligations. Personal assets like savings or property can be taken if the business fails.

How are Sole Proprietorships taxed?

Income passes directly to the owner’s personal tax return (pass-through taxation). The business itself does not pay a separate tax.

What is governance like in a Sole Proprietorship?

The owner makes all decisions alone, which allows speed and control but no input from others.

Who is liable in a Partnership?

All partners share personal liability for debts, either equally or as agreed in the partnership agreement. Each partner’s personal assets may be at risk.

How are Partnerships taxed?

Profits are reported on each partner’s personal tax return (pass-through taxation). The partnership itself does not pay income tax.

What is governance like in a Partnership?

Partners share decision-making, which can bring diverse skills but also cause conflict.

Who is liable in an LLC?

Members are protected by limited liability. Their personal assets are generally shielded from business debts.

How are LLCs taxed?

By default, income is passed through to members’ personal tax returns. However, an LLC can elect to be taxed as a corporation if desired.

What is governance like in an LLC?

It can be member-managed or manager-managed, offering flexibility. Rules are less formal than a corporation but more structured than a partnership.

Who is liable in a Corporation?

Shareholders have limited liability. They can only lose the money they invest in the company.

How are Corporations taxed?

They face double taxation: the corporation pays tax on profits, and shareholders pay tax again on dividends.

What is governance like in a Corporation?

A Board of Directors oversees major decisions, while officers handle daily operations. Shareholders elect the board.

Who is liable in a Nonprofit?

Directors and officers usually have limited liability similar to a corporation.

How are Nonprofits taxed?

They can be tax-exempt under IRS 501(c)(3) rules, provided profits are reinvested in the mission and not distributed.

What is governance like in a Nonprofit?

A Board of Directors governs, ensuring the organization follows its mission and regulations.

Why might two friends starting a business choose an LLC over a Partnership?

An LLC protects personal assets from business debts, while still offering pass-through taxation and shared management flexibility.

What makes Corporations attractive to investors?

They can issue stock, which makes raising large amounts of capital easier. They also have limited liability and perpetual existence, reducing investor risk.

What’s the key difference in how Nonprofits use surplus compared to For-Profits?

Nonprofits reinvest any surplus into programs or services supporting their mission. For-profits distribute surplus as profit to owners or shareholders.

What are the five stages of the business transaction cycle?

Product Development, Selling, Partnering with Customers, Product Delivery, and Evaluation. These stages repeat continuously to improve products and processes.

Why is the business transaction cycle described as continuous rather than linear?

Because customer feedback in the Evaluation stage feeds directly into Product Development, creating an ongoing loop of improvement.

What happens in the Product Development stage?

Businesses design, test, and refine products or services. This stage focuses on creativity and innovation.

What happens in the Selling stage?

Marketing and promotions take place to persuade customers to purchase. Examples include ads, social media, or sales reps.

What happens in the Partnering with Customers stage?

Companies build relationships and trust through customer service, loyalty programs, and engagement.

What happens in the Product Delivery stage?

Businesses fulfill orders, ensure quality control, and deliver products or services reliably.

What happens in the Evaluation stage?

Businesses gather feedback, reviews, and data to assess performance. This information guides improvements for the next cycle.

If a company gathers reviews and changes a product before the next launch, which stage is it in?

The Evaluation stage, because customer feedback is being used to improve the product.

Where does quality control best fit in the business transaction cycle?

Product Delivery, since it ensures the product meets standards before reaching the customer.

Which Big Five trait is most useful in Product Development, and why?

Openness, because it promotes creativity, new ideas, and innovative problem-solving.

Which Big Five trait is most useful in Selling, and why?

Extraversion, because it involves energy, persuasion, and the ability to motivate others.

Which Big Five trait is most useful in Partnering with Customers, and why?

Agreeableness, because it builds trust, strengthens relationships, and improves collaboration.

Which Big Five trait is most useful in Product Delivery, and why?

Conscientiousness, because it ensures reliability, attention to detail, and high-quality work.

Which Big Five trait is most useful in Evaluation, and why?

Emotional Stability, because it helps leaders stay calm, objective, and resilient when analyzing results.

Which Big Five trait might cause a leader to give too many discounts, and why?

Agreeableness, because a desire to maintain harmony and please customers can lead to excessive concessions.

How does Conscientiousness improve Product Delivery?

By ensuring tasks are completed accurately, deadlines are met, and quality standards are maintained.

Which Big Five trait helps most with stress management and crisis handling?

Emotional Stability, since leaders can remain calm and rational under pressure.

What is a potential downside of high Openness?

Too many ideas without focus, leading to distraction or unrealistic projects.

What is a potential downside of high Conscientiousness?

Rigidity or micromanaging, which can slow flexibility.

What is a potential downside of high Extraversion?

Being too dominant or ignoring details.

What is a potential downside of high Agreeableness?

Avoiding conflict or giving away too much value.

What is a potential downside of very high Emotional Stability?

Appearing detached or unemotional.