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Exam 5: How to Form a Business

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Question 51

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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. -Jenna approached Al Ternator about joining the business as an owner.She proposed that she continue to provide the technical expertise and deal directly with customers,while Al,who has a college degree in finance,handles many of the financial aspects of running AutoMotion.In addition,Jenna wants Al to contribute some much-needed money for expansion.Under Jenna's proposal,she and Al would operate the business together as:

A) Limited partners.
B) General partners.
C) Majority shareholders.
D) Business consultants.

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

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Question 52

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

A) Avoid putting their agreement in writing since this would limit the flexibility of the partnership.
B) Put the partnership agreement in writing.
C) Plan to incorporate as soon as possible.
D) Agree to put the first year's profits back into the partnership.

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

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Question 53

Multiple Choice

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A ___________ is an organization that is owned and controlled by the people who use it-producers,consumers and workers with similar needs pool their resources for mutual gain.

In a franchise arrangement,ownership remains in the hands of the franchisor.

One reason that companies participate in mergers and acquisitions is:

One result of taking a firm private is:

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

Corporations are easy to start and easy to terminate.

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.

Public utilities are examples of quasi-public corporations.

Originally,food cooperatives were formed to provide better prices for farmers.These groups now cooperatively buy farm equipment and other products,and realize economies of scales by banding together for these things.

A ____________ is the share of profits or percentage of sales a franchisee pays to a franchisor.

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

The profits of a sole proprietorship are taxed as the personal income of the owner.

Finley is a limited partner in Gettout & Associates.Heywood U.Gettout,one of the general partners in the company,must temporarily leave the company to attend to some personal matters.Heywood has asked Finley to perform his managerial duties while he is gone.As a limited partner,Finley:

Once a business is established,it's almost impossible to change from one form of business ownership to another.

A drawback of sole proprietorships is that they usually have limited access to additional financial resources.

Although sole proprietors do not pay any special taxes,as the owner of the business you are also an employee of the business which requires you to:

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