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Exam 5: How to Form a Business

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Question 21

Multiple Choice

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Which of the following is normally considered a disadvantage of the corporate form of business?

A) Unlimited liability of owners.
B) Difficult transfer of ownership.
C) Limited life.
D) Double taxation of earnings.

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Question 22

Multiple Choice

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Unlimited liability means:

A) When you own your own business you are responsible for all the business debts.
B) You are only liable for the money you invest in the business.
C) As a franchisee your franchisor is responsible for the debts of the franchise.
D) You are liable for whatever advertising promises your firm makes.

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Question 23

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A ____________ is two firms combining to form one company.

Emma Pebble and Chase Stone formed a partnership in a landscape business.Under their arrangement,Emma actively manages the company and assumes unlimited liability for the firm's debts.Chase 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.Emma and Chase participate in a limited partnership.

Tess and Tijuana have considered starting their own business but are concerned about the possibility of losing their personal assets if the business fails.One way for Tess and Tijuana to avoid this risk would be to organize their firm as a(n) :

Foreign investment in U.S.companies continues to be strong.When Belgian-based,In-Bev purchased the largest beer company in the U.S. ,Anheuser-Busch,this action constituted a(n) _________________ with a negotiated selling price of $52 billion.

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

A prospective franchise owner wants to keep his monthly costs at a minimum.The franchisor he is reviewing is advertising that royalty payments of 8% of sales could be as high as $250,000 per month.The franchisor is claiming that a franchisee can expect monthly sales to be as high as:

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:

In a sole proprietorship,the profits earned by the business are:

A company that loses its status as an S corporation may not reelect this status for at least 5 years.

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

Mel,Tim,and Bill agreed to partner in a small rehab business.Initially,they were enthusiastic contributors until their first project took more work than Mel initially estimated;Tim wanted morning meetings and long lunch hours;and,Bill decided to go on vacation even though the project was not complete and ready to sell.As Figure 5.2 indicates,

Mojo Motors is a small conventional corporation with only 212 stockholders.Eleven of the stockholders are citizens of Mexico,and eight others are citizens of Canada.Due to its size and diversity in ownership,you would recommend that Mojo Motors change to an S-Corporation.

A group of medical doctors are interested in incorporating their business.There is no advantage due to the costs involved.

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:

The reason a professional such as a lawyer or doctor would incorporate his/her business is

A merger involving a software producer and a clothing manufacturer is an example of a:

If a corporation has after-tax profits of $360,000,and elects to distribute this amount in the form of dividends to its stockholders,these distributions are free and clear of taxes because the corporation paid taxes on this amount prior to distribution.

Your friend,Brett called to tell you he just left a sales pitch for a new web site development franchise where "he can get in for a few thousand dollars." He wants to know if you are ready to invest too.Although you lack expertise in graphic design or html programming,this should be a safe investment since it is already advertised as a franchise system.It's probably too good to pass up.