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Exam 5: How to Form a Business

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Question 171

True/False

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In recent years, foreign firms were reluctant to merge with or acquire American corporations.

A) True
B) False

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Question 172

Multiple Choice

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Sung owns a dog-walking business that she started in high school. Her first goal was to earn money after school and supplement her allowance. Now that she has finished college and maintains a long client list, she's planning on running the business full time. She keeps all the profits and has kept things simple by posting fliers on the bulletin boards at local stores. Sung's business is a(n)

A) sole proprietorship.
B) franchise.
C) S corporation.
D) partnership.

E) None of the above
F) All of the above

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Question 173

Multiple Choice

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When two companies in the same industry agree to become one firm, the result is called a

Two of your friends are horse fanatics. They inherited several acres of land that they turned into a retirement sanctuary for racehorses. Serenity Stables was originally incorporated as a limited liability company. The members are reevaluating this form of ownership. Unlike an S corporation, they now pay self-employment taxes on all company profits-not just on the salaries they pay themselves.

A merger is a mutual agreement where companies join together, whereas an acquisition is when one firm purchases the assets and obligations of another firm.

A horizontal merger refers to a merger between two companies in the same industry, and serving the same markets.

Autumn wants to start a business. She has two goals. First, she doesn't have much money but she's ready to get business up and running with the least possible hassle and expense. Second, she wants to minimize her personal risk in the event that her company experiences difficulties. If Autumn chooses a sole proprietorship, she would

A multinational corporation is a firm that operates in several countries.

Kiersten and her four siblings are starting their own home design business. One of their primary goals is keeping the loving relationship they currently enjoy, so they are following the Model Business Corporation Act recommendations as they write their partnership agreement. Which of the following is an accurate recommendation of the Act?

An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing is called a(n)

One of the strengths of the sole proprietorship is its ability to sustain rapid growth by raising large amounts of financial resources.

In today's economy, only large business enterprises should operate as corporations.

One reason that a firm would choose to merge or acquire another company would be to gain market share.

A disadvantage of corporations is that their charters are only valid for 99 years, so corporations are less permanent than other types of businesses.

Franchising is popular in the United States, but legal barriers have limited its popularity in foreign countries.

Therese is a talented designer who wants to start her own women's swimwear and beach towel line. But first, she is trying to decide which form of business ownership is right for her. As a young mom who hopes to send her children to college some day, she does not want to jeopardize her savings in any way. In order to overcome these risks, Therese should start her business as a sole proprietorship.

A legal entity with authority to act and have liability separate from its owners is called a sole proprietorship.

Penny Pebble and Stuart Stone formed a partnership in a landscape business. Under their arrangement, Penny actively manages the company and assumes unlimited liability for its debts. Stuart has invested several thousand dollars of his money with plans to share in the profits, but does not actively make management decisions, nor will he assume liability beyond his initial investment. Penny and Stuart are in a limited partnership.

A recent study showed that partnerships are more likely to fail than sole proprietorships.

What entity elects the board of directors for a corporation?