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The questions which follow provide a basic knowledge test of selected concepts covered in this learning pathway: Legal forms of business.

The questions published at the end of each learning pathway are re-used for the knowledge test for learners interested in earning a digital badge or certificate of participation for the Introduction to entrepreneurship (IENT102) micro-course. Please consult the Certify participation page for more information.


True - false questions

Indicate whether the following statements are true or false:

  • Legal obligations are the same regardless of which form of business entity you choose.
    • True
      • Wrong. The form of business entity will influence legal obligations.
    • False
      • Correct. Well done.
  • Changing from one legal form of business to another is a simple process.
    • True
      • No, changing the legal form after starting your business can be a complex process.
    • False
      • Correct. Well done.
  • There are advantages and disadvantages to all of the legal forms of business ownership.
    • True
      • Correct.
    • False
      • Wrong, the forms of business ownership differ when comparing advantages and disadvantages.
  • There are multiple factors to consider when deciding on which legal form of business is best for you.
    • True
      • Correct. Well done.
    • False
      • Incorrect. The entrepreneur must compare multiple factors when selecting the legal form of a business.


Multiple choice questions

  • In the context of this micro-course, the term ‘sole proprietorship’ refers to:
    • One business owned and run by multiple people
      • No, try again.
    • One business owned and run by one person
      • Yes, that’s correct.
    • One parent company overseeing several subsidiaries
      • No, try again.
    • One business owned by many shareholders
      • No, try again.
  • In the context of this micro-course, which ONE of the following statements about a business partnership is FALSE:
    • A partnership is a business that is directly owned by two or more people
      • This is true, based on the definition we have used in this micro-course.
    • Business partners are jointly liable for the debt of any partnership they own
      • This is true, and is one of the disadvantages of choosing the Partnership model.
    • There is no limit to the number of people that can be involved in a partnership
      • This is false. In this course, we learn that a partnership typically should not include more than 20 people, depending on your country’s jurisdiction.
    • A partnership agreement should include various details, including the partners’ salaries and the division of profits
      • This is true. A partnership agreement is a legal document, and should ideally be drawn up by an attorney.
  • In the context of this micro-course, a ‘Corporation’ or ‘Company’ is:
    • An independent legal entity, owned by shareholders
      • Yes, well done!
    • A business entity which must close or terminate business if any of the owners die or decide to leave
      • No, a corporation or company can continue to exist even if there is a change in shareholding.
    • The simplest kind of business model to establish
      • No, setting up a corporation or company involves more paperwork and more costs than setting up other legal forms of business.
    • A form of business with no specific structure
      • This is not correct. There are several requirements around the structure and management of a corporation or company.
  • Indicate which one of the following is the LEAST important factor to consider when deciding on a business ownership model:
    • Ability of the business to exist independently of its owners
      • This is one of the factors you need to consider when choosing a business ownership model.
    • The start-up capital requirements
      • This is one of the factors you do need to consider. The form of business ownership influences the sources of capital for a start-up.
    • The name of the business
      • That’s right – this is not necessarily something you need to think through when choosing a business ownership model, with the exception of cases where your business name is the same or similar to a registered trademark or registered business.
    • The management succession plan
      • This is one of the factors you need to consider when choosing a business ownership model.