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Exam 5: How to Form a Business

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Question 31

Multiple Choice

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_____________ is by far the most popular target for American franchisors seeking to establish franchises in other countries.

A) Canada
B) Mexico
C) Great Britain
D) Japan

E) A) and B)
F) A) and C)

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Question 32

Multiple Choice

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Although it is a small company,Zorn Enterprises owns a large number of inexpensive rental housing units in Texas and Louisiana.Currently,the company is a chartered C-corporation,but the owners are interested in switching to an S corporation.After consulting a lawyer,they learned that Zorn Enterprises does not qualify to be designated as an S corporation.Which of the following characteristics of Zorn Enterprises would prevent it from becoming an S corporation?

A) The firm has fewer than 75 stockholders.
B) The firm is chartered in one state,but owns property in another.
C) The firm has only one class of stock,all owned by U.S.citizens.
D) The firm receives more than 70 percent of its income from rents and other passive sources.

E) A) and D)
F) A) and C)

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Question 33

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The fairest way to handle profits in any partnership arrangement is to divide things evenly.If there are two owners in the business,each gets 50%.If there are three owners (even if one is a limited partner),each gets 33.333% of any accumulated profits.

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

Sergio has agreed to become a partner in his brother's horse breeding business.Since he provided 30 percent of the money to start the firm and build an air-conditioned barn,he is entitled to 30 percent of any profits the firm earns during its first year of operation.

In a general partnership,all partners share in management of the business and in the liability for the firm's debts.

If a franchisee decides he wants out of the business,he is free to close-up shop or sell the business,just as if he were a sole proprietor or partnership outside of a franchise arrangement.

Although franchise arrangements are a good source of income for the franchisee,these businesses do not contribute significantly toward job creation.

A master limited partnership (MLP) is:

In the late 1990s,firms found it easier to grow market share by:

In rural areas electrical power is often sold by ____________ that take advantage of the government's policy to sell them electricity at wholesale rates.

Cory Raider is leading a group of stockholders who wants to take the Bigbux Corporation private.If Cory's group succeeds,Bigbux's stock will no longer be available to investors on the open market.

A quasi-public corporation is a corporation chartered by the government as an approved monopoly to perform services to the general public.

Joe Jackson operates a sole proprietorship,but he is in poor health and may be unable to continue running the business.If Joe becomes incapacitated,his business:

Stockholders in a corporation accept unlimited liability for the corporation's debts.

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. -Currently,AutoMotion Garage is operated as a(n) :

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

_____________ are companies that are similar to S Corporations but are not restricted with similar eligibility requirements.

Stockholders in a corporation entrust control over the company's daily operations to managers selected by the board of directors to run the company.

According to the Connecting Through Social Media box,companies are using social media to reach out to potential investors and franchisees.Some companies have created business-operation games to test out potential franchisees' skills.