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Exam 5: How to Form a Business

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Question 111

True/False

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The financial advantage to the parent company (the franchisor) in a franchise arrangement is the upfront franchise fee and the collection of royalties if franchisees are successful.

A) True
B) False

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Question 112

Multiple Choice

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Being your own boss means:

A) Reducing your working hours.
B) Having the freedom to set your own ours and taking lots of vacations, particularly when just beginning the business.
C) Accepting accountability for the mistakes of the business.
D) Having limited financial resources to throw into the business.

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

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Question 113

True/False

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A major advantage of sole proprietorships is that an owner has limited liability for the debts of his or her business.

Which of the following statements about the operation of a corporation is correct?

Randy and Mandy plan to pool their money and musical talents to form a general partnership and begin booking weekend gigs. One of the first things Randy and Mandy should do is:

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 organizational structure of a corporation permits:

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) :

If a partner in a limited partnership dies, the partnership ceases to exist.

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

Maya plans to open a shop specializing in foods and cultural items from the Middle East. She wants to be the firm's only general partner, but she is trying to get several friends to participate as limited partners. Apparently Maya wants to:

A major advantage of S corporations is that they:

The purpose of a conglomerate merger is to diversify operations and investments.

The corporation is the most common form of business ownership.

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. -When Jenna confided in Lew and Al that she, too was concerned about adding additional risk, Lew suggested that they explore the possibility of one of the newest forms of business ownership, a(n) , which has very flexible ownership rules and would give them more choices in how the company's earnings are taxed while still protecting all owners from high levels of risk.

A cooperative is simply another name for a corporation.

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

Daggie's Sandwiches, Inc., sells the rights to use its name and sell its sandwiches in a given market area to aspiring business people who are willing to pay agreed upon fees and meet certain contractual terms. Daggie's:

In order to protect all parties and minimize misunderstandings among partners, all terms of the partnership should be spelled out in writing.