Business Loans and Legal Forms Quiz

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Questions and Answers

Which business type is eligible for interest-free loans under the CARES program?

Medium enterprises with assets up to PHP3 million

Micro-businesses with assets exceeding PHP3 million

Large corporations with assets exceeding PHP15 million

Small businesses with assets not exceeding PHP15 million (correct)

What is the primary focus of the GSIS Family Bank Microfinance Lending Program?

To grant interest-free loans to all business sizes

To fund technology upgrades for SMEs

To provide loans to large corporations

To support urban and rural poor in accessing credit (correct)

What is the main objective of the Small Enterprises Technology – Upgrading Program (Set-Up)?

To improve the viability of small and medium enterprises through technology adoption (correct)

To offer interest-free loans to micro-businesses

To provide personal loans to individuals

To enhance the productivity and competitiveness of medium enterprises

Which program is designed to support micro, small, and medium enterprises as the backbone of the economy?

Credit Line for Micro, Small and Medium Enterprises (CLMSME) Signup and view all the answers

What is the collaboration behind the SME United Lending Opportunities for National Growth (SULONG)?

Philippine Export-Import Credit Agency and other government financial institutions Signup and view all the answers

What is one of the most important factors in choosing a legal form for a business?

The level and type of taxes Signup and view all the answers

Which factor is NOT typically considered when choosing a legal form of business?

Personal preference of the owner Signup and view all the answers

How does the number of employees affect the choice of legal form?

It influences the costs and types of benefits offered Signup and view all the answers

What is a significant concern regarding legal liability for businesses in certain countries?

Insurance often cannot provide adequate coverage Signup and view all the answers

Which of the following industries typically requires adherence to a specific legal form?

Legal and financial institutions Signup and view all the answers

Why might an entrepreneur choose a different legal form despite high tax rates?

Other factors may be more significant Signup and view all the answers

The choice of legal form can impact which of the following areas for a company?

Compliance with industry regulations Signup and view all the answers

What is the main legal distinction between the Board of Directors and the Board of Advisors?

The Board of Directors has fiduciary responsibility. Signup and view all the answers

What role do fringe benefits play in choosing a legal form of business?

They vary significantly depending on the legal form Signup and view all the answers

How many members should a venture ideally start with on its Board of Advisors?

2–3 members Signup and view all the answers

What role does the Board of Directors typically NOT engage in?

Conducting daily operational tasks. Signup and view all the answers

What is the purpose of offering board members a part of equity for a specified period?

To ensure their financial commitment over time. Signup and view all the answers

What type of organizations can individual advisors come from?

Banks, accountants, and lawyers Signup and view all the answers

What is one common reason why companies initially choose to start with a Board of Advisors?

It is typically easier and less costly to recruit. Signup and view all the answers

How are Board of Advisors members evaluated during the selection process?

As if they are being hired for a position. Signup and view all the answers

What could hinder the advice of friends and relatives serving as advisors?

Their tendency to offer desired advice rather than objective advice. Signup and view all the answers

What is the primary way a proprietorship can acquire new capital?

Loans from any source or additional capital from the proprietor Signup and view all the answers

In a partnership, what is often required to bring in additional capital?

A change in the partnership agreement Signup and view all the answers

Who is primarily responsible for the repayment of loans in a corporation?

The corporation itself Signup and view all the answers

What is a key advantage of a limited liability company?

It provides legal protection by being a separate entity. Signup and view all the answers

Which organizational form provides the greatest control to the owner?

Sole proprietorship Signup and view all the answers

What limitation does an S-corporation impose on its ownership?

It can have a maximum of 100 owners. Signup and view all the answers

How are profits typically distributed in a corporation?

Dividends to stockholders Signup and view all the answers

Which type of corporation has double taxation?

C-corporation Signup and view all the answers

What is a requirement for a non-profit organization to maintain its status?

It must donate at least 80% of its earned income. Signup and view all the answers

What is a significant advantage of a corporation in terms of raising capital?

Ability to issue stock and bonds Signup and view all the answers

In a partnership, how are minor decisions typically handled?

By the managing partner alone Signup and view all the answers

Which organizational form is specifically for professional organizations?

Professional corporation Signup and view all the answers

What can limited partners be protected from in a limited partnership or LLP?

Personal liability for business debts Signup and view all the answers

What typically influences the cost of starting a business across various organizational forms?

The complexity of the organizational form. Signup and view all the answers

Which of the following best describes a hybrid corporation?

A portion of income is specified to be donated to a non-profit. Signup and view all the answers

What is the least expensive organizational form to start?

Proprietorship Signup and view all the answers

What is a significant liability difference between owners of a corporation and owners of a sole proprietorship?

Owners of a corporation have no liability for business losses. Signup and view all the answers

Which tax advantage is typically associated with proprietorships compared to corporations?

Proprietorships do not incur a capital stock tax. Signup and view all the answers

What insurance type can protect general partners' liabilities in a partnership?

DTO Insurance Signup and view all the answers

What is one disadvantage of corporations related to taxation?

Dividends are taxed as income to both the corporation and the individual. Signup and view all the answers

In the initial stages of a startup, what is a common structure for organizational functions?

Functionality handled solely by the owner or outsourced. Signup and view all the answers

Which role is essential for the successful growth of a business at its inception?

A Board of Advisors or Board of Directors. Signup and view all the answers

What is a common misconception about liability in sole proprietorships?

Owners are shielded by limited liability laws. Signup and view all the answers

What primarily determines the choice of organizational form for a business?

Liability implications and tax considerations. Signup and view all the answers

Study Notes

Organizing an Entrepreneurial Venture

Various legal forms of business exist, differing by country.
Factors influencing legal form choice include: taxation policy, employee projections (for next 10 years), legal liability level, and industry/product type.
Taxation varies with legal form and country. Taxation often plays a significant role in business choice.
Number of employees greatly impacts the need for benefit packages for employees and top management.
Legal liability can vary greatly and may play a significant role.
The industry can also determine the most suitable legal form.
The cost of establishing a business increases with the complexity of the chosen legal structure.
Sole proprietorship, the least expensive, is often seen as the first step by individuals.
Ownership can vary based on the chosen structure and may include spouses, children, or others integral to formation.
Transferability of ownership greatly differs depending on the legal structure.
Raising capital varies with legal structure.
Capital raising is easier and has more options in corporations because of limited liability.
Profit and loss distribution mechanisms depend on the business structure.
Proprietorship/partnership ownership may also have liability/responsibility.
Taxation, liability concerns, and capital requirements are key aspects to a successful business.
Legal form choice impacts management control over decisions and operations.
Proprietorship has simplest management structure.
The choice of structure impacts the availability of capital.
Corporations are most attractive as they use limited liability, raising investment capital.
Different ways to distribute profits and losses based on the structure of the entity.
Owners' liability differs across organizational structures, and is an important factor in decision making.
Tax structure of the country/region plays a key role in business formation considerations.

Types of Legal Forms Available in U.S.

Limited liability company (LLC): Provides individual protection, avoids double taxation.
S-corporation: Limited to 100 owners, similar benefits to LLC
C-corporation: Double taxation. Publicly traded companies often use this structure.
Non-profit organization: Gifts at least 80% of income to a specified non-profit to retain status.
Hybrid corporation: Percentage of specified income to a non-profit.
Professional corporation (PC): Specific to certified professional professions (lawyers, accountants, etc.)

General Organizational Structures

Proprietorship, Partnership, and Corporation are three broad categories of legal forms.
Evaluating each structure's characteristics is essential for selecting the most suitable organizational structure.

Costs of Starting a Business

Complexity of business structure generally increases start-up costs.
Proprietorship often has the lowest start-up costs.
Partnerships involve formal documents defining responsibilities and rights.
Corporations require registering name and articles, meeting legal requirements.

Ownership

Proprietorship: Owner is typically the individual who starts the business.
Partnership: Can include individual & general partners.
Corporation: Ownership is split into shares of stocks.
Maximum owners varies depending on the specific form, structure and/ or legal form.

Transferability of Ownership

Proprietorship allows easy transfer of ownership.
Partnership ownership transfers are often restricted due to need for unanimous consent among partners.
Corporate ownership (through stock exchange) is more easily transferable.

Capital Requirements

Proprietorship: Raising capital often relies on personal funds or loans from individual owners.
Partnership: Capital generally needs changes in partnership agreements to make changes.
Corporations offers multiple investment options.

Management Control

Proprietorship: Owner/manager has most direct control.
Partnership: Management decisions determined by agreement, and major decisions often require a majority vote.
Corporation: Stockholders elect a board of directors, and they often oversee management decisions, particularly major decisions.

Attractiveness for Raising Capital

Corporation is generally more attractive for raising capital due to the limited liability of investors.

Distribution of Profits and Losses

Proprietorship: Profits go directly to the owner. Losses are borne by the owner.
Partnership: Profit/loss distribution depends on the partnership agreement.
Corporations: Profits are distributed as dividends. Losses are absorbed by the corporations.

Liability of Owners

Proprietorship: Owners have personal liability for business debts.
Partnership: Owners (partners) have personal liability for business debts.
Corporation: Owners' liability is limited to the amount of their investment.

Taxes

Proprietorship: Taxes handled similar as the individuals.
Partnership: Taxed similar to the individuals.
Corporation: Taxes on profits and dividends generally paid out to owners/investors.

Board of Directors /Board of Advisors

The board of directors' legal liability for decisions. The Board of Directors will resolve conflicts and operations issues and approves budget/ strategy plans as well as monitoring asset use.
Boards of Advisors offer advice but do not have direct management responsibilities/liability.
These boards take on specific skills that are needed at the time, and often offer mentorship along with other advisory services.
Both offer various support options.

Board Meeting

Meetings of both the board of directors and board of advisors can take place as needed; advisors can be separate individuals who meet and advise.
Advisors can include members of the community, friends, family, etc.

Government Agency Grants (DTI, Department of Trade and Industry)

This agency offers programs aiding in the starting and growing of small and medium businesses.
Interest-free loans, financial assistance and programs geared towards business success are available through their various business support methods.

Landbank of the Philippines

The specific mission stated is to alleviate poverty through economic growth.
The agency encourages marginalized sectors and focuses on economic growth in general.

GSIS Family Bank Microfinance Lending Program

Alternative system enabling easy and accessible credit for urban and rural poor in the Philippines.

DOST (Department of Science and Technology)

Programs aid in the viability and technical advancement of SMEs.
Cash assistance and programs to upgrade technology and skills for businesses.

DBP (Development Bank of the Philippines)

Provides loans for micro, small, and medium ventures to help support economy and sector growth.

SULONG

Strategy to unify access to finances for smaller businesses by coordinating with multiple lending sources.

Assignment

Addresses the identification of eligible borrowers for different government programs at the start-up phase.

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Description

Test your knowledge on business loans, legal forms, and various programs designed to support small and medium enterprises. This quiz covers important details regarding the eligibility for interest-free loans, the GSIS Family Bank Microfinance Lending Program, and factors influencing the legal structure of businesses.