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Exam 5: How to Form a Business

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Question 101

Multiple Choice

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Which of the following is an advantage of a partnership?

A) Ease of starting and ending the business
B) Unlimited liability
C) Shared management and pooled skills
D) Little time commitment

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

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Question 102

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In the Spotlight on Small Business box,titled,"The Ties That Bind",the writer suggests that potential partners discuss the types of skills that each brings to the business.Partners with complimentary skills may enhance the business.

A) True
B) False

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Question 103

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Setting up a partnership under the terms of a written agreement is a bad idea,because written agreements tend to be too inflexible and impersonal.

The debts of a business operated as a sole proprietorship are considered to be the personal debts of the owner of the business.

A limited liability company is similar to an S corporation,but without the special eligibility requirements.

A franchise can be formed:

Limited partnerships are just like general partnerships,except that they are partners for a limited time period.

Last night as you scrolled through the TV channels to find an action flick,you came across an old movie with tough guy,James Cagney,called "Yankee Doodle Dandy".Although not particularly your kind of movie,you stayed on that channel for a few minutes because Cagney and another guy were in partnership together.They were arguing over who was the senior partner and who was the junior partner,even though,clearly,they started the business at the same time.If you were brought on board as their present-day business advisor,you would explain to them that all partnerships have at least one general partner known as the senior partner)and one limited partner known as the junior partner).

Rocky Rhodes is convinced that he has a great idea for a new business.Unfortunately,the type of business he wants to start would require a fairly high initial investment and Rocky has a poor credit rating and very little personal wealth.Rocky would be unlikely to find success if he organized his business as a sole proprietorship.

Due to several years of poor performance,Scrappy's Metal Fabrication,Inc. ,is closing.Through the use of debt financing,workers plan to purchase the company's stock from current shareholders,in order to buy the firm,improve company performance,and save jobs.

A comparison of the three major forms of business ownership shows that sole proprietorships are usually the most difficult type of business to establish.

An advantage of forming a sole proprietorship is that it allows the owner to have more time for leisure activities.

Describe and differentiate between the three types of corporate mergers.Give an example of each type.

One way to eliminate some of the risk of your partners making costly mistakes that could jeopardize your personal assets is to set-up a:

The Uniform Partnership Act is law in every state except Louisian A.

An acquisition is when one company buys the property and obligations of another company.

When two firms join together to form one company,it is called a merger.

Franchisees are not always pleased with management regulations handed down from the franchisor.In some cases,franchisees have been known to band together to express concern over marketing and management direction.

The purpose of a farm cooperative is to:

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.