Entrepreneurship Overview Guide 2

Question 1

What is the primary difference between a sole proprietorship and a limited liability company (LLC)?

Accepted Answer

Sole proprietors have unlimited personal liability while LLC owners are generally protected

Answer

In a sole proprietorship, the owner is personally responsible for all business debts, whereas an LLC protects members' personal assets from business liabilities.

Question 2

Which concept describes an entrepreneur's ability to identify a gap between what currently exists and what customers truly need?

Accepted Answer

Opportunity recognition

Answer

Opportunity recognition is the entrepreneurial process of spotting unmet needs or underserved markets that a new venture can profitably address.

Question 3

A startup that reinvests all profits back into growth rather than distributing them to owners is pursuing which strategy?

Accepted Answer

Plowback strategy

Answer

The plowback (or retention) strategy involves retaining earnings within the business to fund expansion instead of paying out dividends.

Question 4

What does 'product-market fit' mean for an early-stage startup?

Accepted Answer

The product satisfies a strong market demand and customers actively want it

Answer

Product-market fit occurs when a startup's offering resonates so well with its target customers that demand grows organically and retention is high.

Question 5

Which type of business structure offers pass-through taxation AND limited liability without the formality requirements of a corporation?

Accepted Answer

LLC

Answer

An LLC provides limited liability protection to its members while allowing profits and losses to pass through to personal tax returns, avoiding double taxation.

Entrepreneurship Practice Test

Entrepreneurship Practice Test

Entrepreneurship Overview Guide 2