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Exam 5: How to Form a Business

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Question 61

True/False

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The stockholders of large,publicly traded corporations have a daily pulse on the operation of the business.

A) True
B) False

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Question 62

Multiple Choice

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A(n) ___________________ is a state-chartered legal entity with authority to act and to have liability separate from its owners.

A) limited partnership
B) conventional corporation
C) unlimited partnership
D) nonprofit organization

E) All of the above
F) C) and D)

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Question 63

Multiple Choice

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A separation between ownership and management is most likely to occur in a:

In order to protect all parties and minimize misunderstandings among partners,all terms of the partnership should be spelled out in writing.

Which of the following people would be most interested in participating in a business organized as a cooperative?

The major differences between an S-Corporation and a Limited Liability Company are limits on the number of owners,and,the citizenship status of individuals who are owners.

One reason that a firm may choose to merge or acquire another company would be diversity of products or services.

Which of the following is an advantage of franchises?

It is correct to say that if a franchisor expects a 6% royalty fee on revenue,the franchisor earns 6 cents on each dollar of revenue the franchisee generates.

Mini-Case For as long as she could remember,Jenna Raiter's passion was cars.As a teenager,she spent hours with her dad tinkering with the family car,learning to change the oil and making minor repairs.She got a job at a local garage while still in high school.A few years after graduating from high school and completing the auto mechanics degree at a local community college,Jenna decided she wanted to be her own boss.She quit her job,borrowed some money from her dad,and began her own repair shop,the AutoMotion Garage.Jenna's hard work gradually attracted a loyal clientele of satisfied customers.Her success has her thinking about opening garages in two other locations,but she lacks the financial resources needed for expansion.Furthermore,the success of her business is forcing Jenna to spend more time managing the business and less time doing the actual technical work she still enjoys.She wants to find business partners who can help her with management and provide additional financial resources.She has approached a couple of friends she met in high school: Al Ternator and Lew Banfilter,to see if they would like to join the business. -Although Lew Banfilter,now a young attorney is impressed with AutoMotion and believes it could be a place to invest money,he informed Jenna that his professional position at a law firm prevents him from taking an active role in the business.He is also concerned about accepting more risk since he has a young family.He mentioned a preference for unlimited liability.If Lew joined Jenna and Al,the three might consider forming a(n) :

One reason many companies do not organize themselves as an S corporation is that this form of business:

Franchisees must follow more rules,regulations,and procedures than if they operated independently-owned businesses.

A merger between two businesses in different stages of related businesses is known as a vertical merger.

When evaluating a franchised opportunity,which of the following would you not find it necessary to do?

Kristen and her brothers and sisters set up a design firm called Houses by Design LLP.Although key business functions are centralized,each sibling is a licensed architect that designs,builds,and installs residential and commercial buildings for his/her own clients.Unfortunately,a design created and installed for one of their clients resulted in water damage to the basement of the client's new home.The limited liability partnership:

Alex's uncle recently passed away and left him an American Dream Real Estate franchise business.Alex is not a licensed agent or broker,nor does he know anything about the real estate business.He plans to sell his American Dream franchise to his friend,Derek who recently got his real estate license.One of the advantages of owning a franchise is that you can decide to sell-out to anyone you believe is suitable for the business.

A difficulty that sole proprietors try to overcome is the fact that they have trouble competing with large firms for expert talent.Large firms can usually pay better and offer fringe benefits that are unaffordable to the sole proprietor.

The owners of Idle Time Gaming Company would like to switch to an S corporation.Unfortunately,their lawyer advised them that they do not meet some of the requirements necessary to qualify as an S corporation.An alternative form of business that would give them similar advantages is a limited liability company.

If a sole proprietorship fails,the owner may lose whatever was invested in the business,however,the owner's personal assets are not at risk.

Your friend,Brett called to tell you he just left a sales pitch for a new web site development franchise where "he can get in for a few thousand dollars." He wants to know if you are ready to invest too.Although you lack expertise in graphic design or html programming,this should be a safe investment since it is already advertised as a franchise system.It's probably too good to pass up.