Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

Two competitors, Stanley's Food Mart and Bluejay Groceries, recently issued a joint announcement stating their decision to merge. The announcement claimed that the new firm would have more financial resources, which would enable it to expand services and broaden offerings to consumers. This proposed merger is an example of a horizontal merger.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A)   Joe is intrigued by the idea of combining his time and resources with many other people to operate a business providing a good or service that they all will use.
B)   Joan wants to be an owner of a business and share in its profits, but has no desire to take an active role in managing the company or participating in its daily operations.
C)   Jeff wants to work for a government-owned business because he believes government ownership ensures a more equitable distribution of income and wealth.
D)   Jennifer prefers to work for a charitable organization that emphasizes helping people who are less fortunate than she is.E) B) and C)
F) A) and B)

Question 5

Franchisors give franchisees the right to use their name and product, with the understanding that franchisees obtain all financing and develop all marketing strategies on their own.

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Jim is one of several general partners who own Beef 'N Beer, a small chain of restaurants located in Missouri and Illinois. Jim is interested in converting the partnership into a master limited partnership. If he convinces other partners to go along with his idea, Beef 'N Beer will:

Accepted Answer

A)   offer shares of ownership that are traded on a stock exchange much like a corporation.
B)   pay its taxes like a corporation.
C)   begin to operate much like a sole proprietorship.
D)   have to change its name to include the term Ltd. in its title to indicate its owners have limited liability.E) All of the above
F) A) and B)

Question 8

Kali owns Dog Trotters, a dog-walking business that she started to earn money after school and supplement her allowance. She planned to keep all the profits, and has kept things simple by putting a flier on the bulletin board at the local grocery store announcing that she was available to provide this service. Kali's business is a:

Accepted Answer

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

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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 be 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?

Accepted Answer

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 B)
F) None of the above

Question 11

Global franchising is unlikely to experience major growth due to the high costs of operations in global markets.

Accepted Answer

A) True 
 B)False

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

Selma owns a roofing business. She enjoys being her own boss, but her satisfaction comes at a price. Her days are filled with organizing the activities of her employees and soliciting new customers. She often misses activities with friends and family because of the obligations of running her own business. She also knows that she has unlimited personal liability for any of her firm's debts. Selma's business is organized as a(n) :

Accepted Answer

A)   joint venture.
B)   C corporation.
C)   S corporation.
D)   sole proprietorship.E) C) and D)
F) A) and B)

Question 14

The limited liability company requires a minimum of 10 members.

Accepted Answer

A) True 
 B)False

Question 15

One reason that companies participate in mergers and acquisitions is:

Accepted Answer

A)   to do the same thing as the competition because it makes for a highly leveraged company.
B)   to convert a sole proprietorship into a partnership.
C)   to expand within their own field or enter new markets.
D)   to take the first step toward a join venture.E) B) and C)
F) C) and D)

Question 16

One result of taking a firm private is:

Accepted Answer

A)   the firm's stock is no longer available for purchase on the open market.
B)   managers lose some control as the number of stockholders increases.
C)   the public image of the firm will suffer.
D)   the firm will have access to more capital.E) None of the above
F) B) and C)

Question 17

Adam is a major stockholder in Precision Transmission Services (PTS) , a nationwide network of transmission repair shops founded by his father. Currently, PTS stock is sold on the open market, but Adam has talked to several relatives about his desire to get all of the PTS stock back in his family's hands. Adam is interested in _______________________________.

Accepted Answer

A)   taking the firm private
B)   a hostile takeover of the firm
C)   converting the firm to a general partnership
D)   forming a master limited partnershipE) A) and B)
F) A) and C)

Question 18

Although shares of master limited partnerships can be purchased on one of the national stock exchanges, these companies are taxed like partnerships.

Accepted Answer

A) True 
 B)False

Question 19

A type of partnership called a ___________ acts much like a corporation and is traded on stock exchanges, but it is taxed like a partnership with profits passing through to the owners and taxed as the owner's personal income.

Accepted Answer

A)   limited partnership
B)   combined general partnership
C)   cooperative partnership
D)   master limited partnershipE) All of the above
F) A) and D)

Question 20

Naomi is planning to invest in a new online franchise, the Novel Artist, Inc. The franchisor provides proprietary software and training for designing invitations and cards for special occasions such as weddings, graduations, and birth announcements. The franchisee is obligated to pay a monthly fee to the franchisor. Naomi will use the software to create her own special designs that she will ultimately feature on her website. Order turn-around time must be fast. She can only take on as many clients as she can make good on delivery. An advantage of Naomi's online franchise is:

Accepted Answer

A)   She has a limited territory.
B)   She has a narrow product offering.
C)   She does not need name recognition or marketing assistance.
D)   She has an unlimited territory.E) C) and D)
F) All of the above

Exam 5: How to Form a Business

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

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

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.

Correct Answer
verified

A type of partnership called a ___________ acts much like a corporation and is traded on stock exchanges, but it is taxed like a partnership with profits passing through to the owners and taxed as the owner's personal income.

Correct Answer
verified

Correct Answer
verified

Franchisors give franchisees the right to use their name and product, with the understanding that franchisees obtain all financing and develop all marketing strategies on their own.

Correct Answer
verified

Although shares of master limited partnerships can be purchased on one of the national stock exchanges, these companies are taxed like partnerships.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Global franchising is unlikely to experience major growth due to the high costs of operations in global markets.

Correct Answer
verified

Correct Answer
verified

The limited liability company requires a minimum of 10 members.

Correct Answer
verified

One reason that companies participate in mergers and acquisitions is:

Correct Answer
verified

One result of taking a firm private is:

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Jim is one of several general partners who own Beef 'N Beer, a small chain of restaurants located in Missouri and Illinois. Jim is interested in converting the partnership into a master limited partnership. If he convinces other partners to go along with his idea, Beef 'N Beer will:

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified

Exam 5: How to Form a Business

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

A type of partnership called a ___________ acts much like a corporation and is traded on stock exchanges, but it is taxed like a partnership with profits passing through to the owners and taxed as the owner's personal income.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Franchisors give franchisees the right to use their name and product, with the understanding that franchisees obtain all financing and develop all marketing strategies on their own.

Correct AnswerverifiedShow Answer

Although shares of master limited partnerships can be purchased on one of the national stock exchanges, these companies are taxed like partnerships.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Global franchising is unlikely to experience major growth due to the high costs of operations in global markets.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The limited liability company requires a minimum of 10 members.

Correct AnswerverifiedShow Answer

One reason that companies participate in mergers and acquisitions is:

Correct AnswerverifiedShow Answer

One result of taking a firm private is:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Jim is one of several general partners who own Beef 'N Beer, a small chain of restaurants located in Missouri and Illinois. Jim is interested in converting the partnership into a master limited partnership. If he convinces other partners to go along with his idea, Beef 'N Beer will:

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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