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Exam 6: Forms of Business Ownership

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Question 61

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Midas Muffler sells its business name and the rights to its products to prospective businesspersons who want to use the Midas name and offer Midas products.In this arrangement,Midas would be the _____________,and the buyer of these rights is the ____________.

A) owner; limited partner
B) co-signer; co-signee
C) franchisor; franchisee
D) wholesaler; retailer

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Question 62

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Ellen wants to start a business.She is leaning toward setting up her company as a sole proprietorship,but she is also looking at other possibilities.Ellen has two major goals.First,given her limited personal wealth and eagerness to get started,she wants to get her 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 Ellen chooses a sole proprietorship,she would:

A) be able to achieve both goals since this form of ownership is both the easiest to form and the least risky.
B) meet her first goal since sole proprietorships are easy and inexpensive to form.However,she would expose herself to a high level of personal risk because owners of sole proprietorships have unlimited liability.
C) not achieve either goal since proprietorships are both costly to set up and subject to unlimited liability.
D) achieve her second goal,since the owners of sole proprietorships are legally protected from losing more than the amount they invest in their company.However,she would find that the start-up costs would be higher than if she had incorporated her business.

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Question 63

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A separation between ownership and management is most likely to occur in a:

Owners/shareholders in a public corporation have no control over the daily operations.

The "coattail effect" refers to the burden of corporate rules and regulations on franchisees.

When one of the owners of a corporation dies,the corporation legally ceases to exist.

One drawback of franchises is that they have a much higher failure rate than other types of business ventures.

Homer and Marge have decided to open a floral design shop,which they intend to run as co-owners.Both intend to take an active role in the management of their new business,and each will accept unlimited liability.Homer and Marge are planning to operate a:

It is not unusual for members of co-operatives to work for and help manage their co-operative.

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

Marco is a franchisee with Daggies,a chain of sandwich shops.His business was doing well until several Daggies franchisees got in trouble and were forced to close their shops.Soon afterward,Marco's business deteriorated and he too was forced to close.This is an example of:

The sole proprietorship form of ownership tends to be attractive to people who want to invest in a company without taking an active role in management.

A partner who invests money in a business,but does not take an active role in management or assume unlimited liability for the firm's losses is known as a(n) :

One of the major disadvantages of a partnership is that profits must be divided according to very specific legal guidelines.

When a group of investors take a firm private,they obtain all of the stock for themselves.

When evaluating different franchise opportunities,the lower the franchise fee,the greater the chance of operating a profitable franchise.

A corporation is a federally or provincial-chartered legal entity,with authority to act and have liability separate from its owners.

A franchise agreement is an arrangement where a franchisor sells the rights to a business name and to sell a product or service within a given territory to a franchisee.

A __________ joins two firms in the same industry and allows them to diversify or expand their products.

Les is a franchisee in the Far Horizons Travel Agency franchise.As a franchisee,Les is guaranteed the right to retain all of his franchise's profits.