Medium
Business & Enterprise
Companies, Capital & Customers
Ownership, funding and the terms used loosely everywhere.
Sample question
Start quiz
Shares in a company represent what?
The Shape of a Company
Before a business sells anything it has to be something. These are the legal shapes it can take, and what each one means.
About this topic
The single most consequential idea in business organisation is also the dullest sounding. Limited liability caps an investor's loss at what they put in, which means you can buy a stake in a company run by strangers on the other side of the world without risking your house. Without it, raising money from people who are not involved in running the business is close to impossible, and the modern corporation does not exist. Everything else follows from decisions about ownership and control. A sole trader is the business, debts and all. A cooperative gives each member one vote whatever they invested. A holding company owns other companies and trades in nothing itself, which keeps their risks apart. And once ownership is separated from management, a permanent problem appears: the people running the business are not the people who own it. Boards, audits and share options are all attempts to close that gap.
Questions & answers
The Shape of a Company: all 10 questions and answers
Every question in this quiz is listed below with its correct answer and the reasoning behind it. Play first if you would rather not see the answers — or read through as a study sheet.
Play it insteadShow all answers and explanationsHide answers
-
1What does limited liability mean for a company's shareholders?
- A They cannot sell their shares for a fixed period
- B They are guaranteed a dividend each year
- C They are restricted to one vote each
- D Their possible loss is capped at what they invested Correct
Answer: D. Their possible loss is capped at what they invested
Why: Debts beyond that point fall on the company itself rather than on the owners personally. The principle is what made it practical to raise money from investors who take no part in running the business.
-
2A sole trader differs from a limited company in that the owner does what?
- A Pays no tax on the profits
- B Cannot register a trading name
- C Bears personal responsibility for the business's debts Correct
- D Must employ at least one other person
Answer: C. Bears personal responsibility for the business's debts
Why: It is the simplest structure to set up and the most exposed if things go wrong. Many small businesses incorporate once the sums involved grow large enough to matter.
-
3What is the usual distinction between a merger and an acquisition?
- A A merger is temporary and an acquisition permanent
- B A merger combines two firms into one, while an acquisition is one firm buying another Correct
- C A merger is paid in cash and an acquisition in shares
- D A merger needs regulatory approval and an acquisition does not
Answer: B. A merger combines two firms into one, while an acquisition is one firm buying another
Why: The difference is often more presentational than legal, since most so-called mergers have a dominant partner. Either way, large deals normally need competition clearance before they can complete.
-
4What is due diligence?
- A A detailed investigation of a business before a deal completes Correct
- B A legal duty to pay suppliers on time
- C The annual report sent to shareholders
- D The minimum capital a company must hold
Answer: A. A detailed investigation of a business before a deal completes
Why: Buyers go through contracts, accounts, staff and outstanding liabilities. Finding a problem is more often used to renegotiate the price than to abandon the deal.
-
5A holding company is one that mainly does what?
- A Stores goods in warehouses for retailers
- B Keeps cash reserves on behalf of a bank
- C Holds customer deposits
- D Owns shares in other companies rather than trading itself Correct
Answer: D. Owns shares in other companies rather than trading itself
Why: Grouping subsidiaries under a single owner keeps their risks separate from one another. It also makes selling off one part of the group considerably simpler.
-
6A cooperative is owned by whom?
- A The local authority
- B Its largest supplier
- C Its members, usually its workers or its customers Correct
- D A single founding family
Answer: C. Its members, usually its workers or its customers
Why: Each member typically has one vote regardless of how much money they put in. The Rochdale weavers set out the modern principles in 1844 and they are still the basis of the movement.
-
7What distinguishes a non-profit organisation from an ordinary business?
- A Its wages are capped by law
- B Any surplus goes back into its purpose rather than to owners Correct
- C It is not permitted to earn income
- D It cannot employ paid staff
Answer: B. Any surplus goes back into its purpose rather than to owners
Why: Many run substantial commercial operations and compete directly with businesses. What they cannot do is distribute the surplus to shareholders.
-
8What are a company's articles of association?
- A The internal rules governing how it is run Correct
- B The contract with its first customer
- C Its registration with the tax authority
- D The inventory of its physical assets
Answer: A. The internal rules governing how it is run
Why: They cover share rights, the powers of directors and how meetings are called. Most companies adopt a standard set and amend only the parts they need to.
-
9In corporate governance, what is the agency problem?
- A Two agencies compete for the same client
- B A firm becomes dependent on temporary staff
- C Advertising agencies overcharge their clients
- D Managers may act in their own interests rather than those of the owners Correct
Answer: D. Managers may act in their own interests rather than those of the owners
Why: It arises whenever ownership and day-to-day control are separated. Boards, external audit and share-based pay are all attempts to narrow the gap.
-
10What is a subsidiary?
- A A discount offered to regular customers
- B A branch office with no separate legal identity
- C A company controlled by another company Correct
- D A payment made by a government to support an industry
Answer: C. A company controlled by another company
Why: Control normally means holding more than half of the voting shares. A subsidiary keeps its own legal identity, which is exactly what separates it from a branch.
Frequently asked questions about The Shape of a Company
How many questions are in The Shape of a Company?
The Shape of a Company has 10 questions and takes about 7 minutes to finish. It is rated Medium and sits in our Business & Enterprise category.
How is The Shape of a Company scored?
Each of the 10 correct answers adds 10 XP, up to 100 XP for a clean run. Wrong answers cost you nothing, and your full question-by-question review is shown at the end.
Are the answers to The Shape of a Company explained?
Yes. All 10 questions carry a written explanation of why the correct answer is right, so the quiz works as a study sheet as well as a test.
Can I replay The Shape of a Company?
Yes, as often as you like. The questions and the answer options are reshuffled on each run, and you can use Practice Mistakes afterwards to retry only the ones you missed. No account is needed to play.
QuizKite Quality Guarantee
Every quiz on QuizKite is researched, written and fact-checked by hand against reliable references, with an explanation for each answer. Read our full Editorial Policy to learn more about our content standards.
Keep going
More Business & Enterprise
Hard
Business & Enterprise
Reading the Accounts
Balance sheets, depreciation, break-even and goodwill: what a set of company accounts is actually saying.
Sample question
Start quiz
The balance sheet equation states that assets are equal to what?
Medium
Education & Learning
School Systems Around the World
Selection, apprenticeships, entrance exams and how differently countries organise schooling.
Sample question
Start quiz
The word kindergarten was coined in which country?
Easy
General Knowledge
Everyday Origins
Where ordinary words and objects actually came from.
Sample question
Start quiz
The English word "salary" comes from the Latin word for which substance?
Easy
Food & Drink
From the Kitchen
What familiar dishes are made of, and where they came from.
Sample question
Start quiz
Which spice is harvested from the stigmas of a crocus flower?
Medium
Economics & Money
Money, Markets & Meaning
What the words in every economic headline actually mean.
Sample question
Start quiz
What is the currency of Japan?