1. What is a sole proprietorship?
A company whose shares are traded on the Nairobi Securities Exchange
A business owned and run by one person who is personally responsible for its debts
A government-owned enterprise managed by a ministry
A business owned by two or more people who share profits and losses
Explanation:
A sole proprietorship is owned and managed by a single individual who has unlimited liability for business debts, common among small Kenyan kiosks and informal traders.
2. What is the main disadvantage of running a sole proprietorship?
It must be registered by the Registrar of Companies as a public company
Shares must be sold on the stock exchange
Profits are taxed twice at corporate and personal levels
The owner has unlimited personal liability for business debts
Explanation:
In a sole proprietorship the owner's personal assets can be used to meet business liabilities, which is a key risk for small business owners in Kenya.
3. Which of the following best defines a partnership?
A non-profit organisation that relies only on donations
A business owned by the government to provide public services
A business owned by two or more people who agree to share profits and responsibilities
A company that issues shares to the public on the stock exchange
Explanation:
A partnership involves two or more partners who share capital, management and profits; this form is common for small professional firms in Kenya.
4. Which feature is typical of a general partnership?
Owners have limited liability for business debts
Each partner can legally bind the business to agreements (mutual agency)
Shares are freely traded on the Nairobi Securities Exchange
It has a separate legal personality from its owners like a company
Explanation:
In a general partnership partners act as agents for one another and can bind the firm in business deals; partners usually have unlimited liability.
5. What is the main characteristic of a limited liability company (Ltd)?
It cannot employ workers or open bank accounts
It must be registered as an NGO to operate in Kenya
All owners are personally liable for all business debts without limit
Owners' liability is limited to the amount unpaid on their shares
Explanation:
A limited company provides limited liability protection so shareholders risk only the capital they invested, encouraging investment and entrepreneurship.
6. Which statement describes a private limited company?
It must list its shares on the Nairobi Securities Exchange immediately after registration
It has only one owner who cannot take on partners
Shares are restricted from being offered to the general public and transfer often requires approval
It is always owned and run by the government
Explanation:
Private companies in Kenya restrict share transfers to protect owners' control and do not offer shares to the public, unlike public companies.
7. What makes a public limited company (PLC) different from a private company?
It can offer shares to the public and list on the stock exchange
It is not required to comply with company law
It must operate as a non-profit organisation
It is always run by a single family and cannot have outside investors
Explanation:
A PLC can sell shares to the public (for example on the NSE), making it easier to raise large amounts of capital from many investors.
8. Which office in Kenya is responsible for registering companies?
Sacco Societies Regulatory Authority
Kenya Revenue Authority
Central Bank of Kenya
Registrar of Companies (Business Registration Service)
Explanation:
The Business Registration Service (Registrar of Companies) registers businesses and companies in Kenya under the Companies Act.
9. What does 'unlimited liability' mean for a business owner?
The owner pays no taxes on business earnings
The owner cannot be sued by creditors
The owner is protected by law from any business loss
The owner may have to use personal assets to pay business debts
Explanation:
Unlimited liability means there is no legal separation between owner's personal assets and business debts, common in sole proprietorships and general partnerships.
10. Why might entrepreneurs choose to register a company rather than operate as a sole trader?
To ensure the owner will always personally pay all business debts
So that the business will not have to follow any laws or pay taxes
To gain limited liability protection and make it easier to raise capital through shares
Because companies cannot enter into contracts or borrow money
Explanation:
Forming a company limits owners' personal risk and allows the business to issue shares to attract investment — useful for growing Kenyan enterprises.
11. What is a co-operative society?
A private company that sells shares to the public
An organisation owned and run by members for their mutual economic benefit
A branch of government set up to manage public funds
A sole proprietorship run by one person only
Explanation:
Co-operatives in Kenya pool members' resources to provide services like marketing, credit or supplies, sharing benefits among members.
12. What is the primary purpose of a SACCO (Savings and Credit Cooperative) in Kenya?
To issue currency and control national monetary policy
To operate as a for-profit company selling shares on the NSE
To mobilise savings and give affordable loans to members
To register companies and issue business permits
Explanation:
SACCOs collect member savings and provide loans at favourable rates, playing a key role in financial inclusion in Kenya.
13. Which of the following describes a parastatal (state corporation)?
A business owned and operated by the government to provide public goods or services
A sole trader who works alone and is not registered
A private limited company that sells shares to the public
An informal community group with no legal registration
Explanation:
Parastatals are government-owned enterprises (e.g., Kenya Power) set up to provide essential services or carry out public functions.
14. Which statement best describes an NGO (non-governmental organisation)?
A type of partnership run to make large profits for private owners
A business that must list its shares on the Nairobi Securities Exchange
A government department responsible for collecting taxes
A non-profit organisation that provides social services and often relies on donations and grants
Explanation:
NGOs focus on social, environmental or humanitarian goals and do not distribute profits to owners, common in Kenya's civil society sector.
15. What is a franchise arrangement?
A cooperative that distributes profits to non-members only
An agreement allowing a person (franchisee) to use a company's brand and business model
A partnership where partners have no written agreement
A situation where the government takes over a private company without payment
Explanation:
Franchising lets entrepreneurs run a business using an established brand (e.g., fast-food outlets), following the franchisor's systems and paying fees.
16. Which of the following describes a joint venture?
A public company that must be registered as an NGO
Two or more businesses join resources for a specific project and share profits and risks
A permanent merger where one company buys all shares of another and removes its identity
A business owned by a single person who never shares information
Explanation:
Joint ventures are temporary partnerships for a defined project, allowing firms to combine strengths without forming a single permanent company.
17. Which method is commonly used by companies to raise long-term finance?
Receiving all funding only through donations
Issuing shares to investors
Borrowing small amounts from customers without interest
Registering as a sole proprietorship to avoid capital requirements
Explanation:
Companies sell shares to raise long-term capital from investors; in Kenya public companies can sell shares to the public through the NSE.
18. In which type of company are shares most easily transferred between investors?
Unregistered partnership because there are no formal rules
Sole proprietorship because the owner simply hands over cash
Government parastatal because citizens freely exchange ownership
Public limited company because its shares are openly traded
Explanation:
Public companies list on stock exchanges which allows shareholders to buy and sell shares easily, unlike private companies with transfer restrictions.
19. Which statement about taxation is correct for companies and their shareholders?
Companies pay corporate tax on profits and shareholders may pay tax on dividends they receive
Partnerships always pay higher corporate tax than companies
Companies never pay tax and owners are tax-exempt
Sole proprietors are taxed as companies and do not pay personal tax
Explanation:
Companies are taxed on profits; when profits are distributed as dividends, shareholders may also pay tax on that income, leading to taxation at two levels.
20. What is a Limited Liability Partnership (LLP)?
A government-owned enterprise with unlimited budget
A sole proprietorship run by one person with full personal liability
A charity that cannot enter into commercial contracts
A partnership where some or all partners have limited liability while retaining partnership taxation and structure
Explanation:
An LLP combines partnership flexibility with limited liability protection for partners, useful for professional firms wanting legal protection.
21. How is a company voluntarily wound up (dissolved)?
It converts to an NGO with no member approval
Members pass a resolution to wind up and follow legal procedures for liquidation
The government automatically takes over all assets with no process
It stops operating immediately without informing any authority
Explanation:
Voluntary winding up requires members to pass a special resolution and to carry out the legal steps for selling assets and settling debts.
22. What is a main difference between a cooperative and a typical profit-seeking company?
Cooperatives cannot make any profits and must operate at a loss
Companies are always managed by the government, cooperatives are not
Cooperatives do not keep any financial records or accounts
Cooperatives primarily aim to benefit members rather than to maximise profits for external shareholders
Explanation:
Cooperatives distribute benefits to their members and focus on service to members, while companies typically aim to maximise returns for shareholders.
23. Which is a key benefit of forming a partnership for small business owners?
Partners are guaranteed to be tax-exempt and never audited
Partnerships must list on the Nairobi Securities Exchange immediately
Partners can pool resources and share decision-making and responsibilities
Partners have no legal obligations and cannot be sued
Explanation:
Partnerships allow people to combine capital, skills and labour which helps small Kenyan businesses grow more quickly than lone proprietors.
24. What is a trust in terms of business ownership?
A government agency that issues business licences
An arrangement where trustees hold and manage assets for the benefit of beneficiaries
A public company listed on the stock exchange
A small shop owned by a single person without registration
Explanation:
In a trust, legal ownership is with trustees who manage assets for beneficiaries; trusts are used for estate planning, charities and investment vehicles.
25. Which form of ownership is most suitable for a small kiosk run by a single 15-year-old in Kenya?
Cooperative society because it must have at least 1,000 members
Parastatal because the government manages all kiosks
Public limited company because it needs to be listed on the NSE
Sole proprietorship because it is simple and owned by one person
Explanation:
A sole proprietorship is simplest and quickest to start for a small, single-owner business like a kiosk; registration requirements are minimal compared to companies.