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Exam 5: How to Form a Business

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Question 161

Multiple Choice

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Oliver wants to start his own business. He should consider a sole proprietorship if he

A) expects rapid growth and wants to be able to raise a large sum of money.
B) wants to make it easy to attract qualified employees.
C) wants to be his own boss and can accept unlimited liability.
D) wants to minimize the financial risk he must accept as the owner of a business.

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

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Question 162

Multiple Choice

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Opening and operating a franchise in a different country

A) is illegal according to the Clayton Antitrust Act.
B) is no different than setting up a franchise in the domestic market.
C) may require the owner to adapt to social and cultural differences.
D) is much less risky than owning a domestically based franchise.

E) A) and B)
F) All of the above

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Question 163

True/False

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The S corporation form of business would be particularly attractive to fast-growing companies that want to attract thousands of new stockholders.

Limited liability companies have both flexibility in tax treatment of earnings and limited liability protection for owners.

When entering into a new partnership, a good strategy is to

Many franchisors have rules that prohibit franchisees from sponsoring their own websites.

The most popular type of business for franchising is

Rhonda is convinced she has the best idea for a new business. Unfortunately, her business would require a fairly high initial investment and Rhonda has poor credit and very little personal wealth. She would be unlikely to find success if she organized her business as a sole proprietorship.

Taking a company private means turning a profit-seeking corporation into a nonprofit corporation in order to avoid a hostile takeover.

Indira paid a substantial franchise fee to obtain a Precision Printers franchise in Columbus, Ohio. With the franchise fee behind her, Indira can use her creative talents to make her print shop different and more attractive than other Precision Printers stores in the Columbus area.

Which of the following statements about farm cooperatives is most accurate?

A merger involving a commercial bakery and a grocery retailer would be an example of a ________ merger.

When two companies in completely unrelated industries agree to become one firm, the result is called a

Earnings of C corporations can be

One advantage of an S Corporation is that the profits are distributed to the owners and taxed as each owner's personal income, thus avoiding the problem of double taxation.

Genna approached Al Ternator about joining the business as an owner. She offered to provide the technical expertise and deal directly with customers, while Al, who has a degree in finance, takes care of the financial side of running Car Keepers. In addition, Genna wants Al to contribute some much-needed money for expansion. Under Genna's proposal, she and Al would operate the business together as

After spending a summer "down under," two Oregon friends, Rick and Mick, created a general partnership to import emu from Australia to the U.S. After a year, Rick found himself at the mercy of Mick, who seemed to keep the books and seldom share the financial results, even though Rick was out selling the emu idea to farmers and ecologically conscious consumers and shipments were increasing. As their consultant, one of the first things that you inquire about is whether they are familiar with the UPA (Uniform Partnership Act), specifically the right to participate in managing the operations of the business.

A disadvantage of corporations is that an owner must get the approval of all other owners before selling his or her interest in the firm to another investor.

A horizontal merger refers to a merger between two companies that serve entirely different markets.

Corporations represent 20 percent of all the businesses in the U.S. and earn over 80 percent of the total U.S. business receipts.