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Exam 5: How to Form a Business

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Question 71

Multiple Choice

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Although Lou Banfilter, now a young attorney, is impressed with Car Keepers and believes it could be a good investment, he told Genna that his professional position at a law firm prevents him from taking an active role in the business. He is also concerned about accepting more risk since he and his wife are expecting a child. He mentioned a preference for limited liability. If Lou joined Genna and Al, the three might consider forming a

A) limited partnership.
B) general partnership.
C) sole proprietorship.
D) master limited partnership.

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

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Question 72

Multiple Choice

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Amelia has a lot of business knowledge and is confident in her abilities to open a successful store. She recently opened a bakery as a sole proprietor. She is expecting a high level of profits and is looking forward to

A) the lower corporate tax rate paid by sole proprietorships.
B) keeping all of the money she earns except for the taxes she is required to pay.
C) keeping all of the money she earns since she does not have to pay taxes as a sole proprietor.
D) easily raising additional large sums of money from the capital markets since she is a sole proprietor.

E) All of the above
F) B) and D)

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Question 73

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What is the difference between a general partner and a limited partner? Give an example of a situation in which a person would want to be a limited partner.

One important consideration when prospecting for a good franchise business is

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

One of the major disadvantages of a partnership is that profits must be divided equally.

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?

A person who buys the right to use a business name and sell a product within a given territory is called a

Stockholders in a corporation entrust control over the company's daily operations to managers selected by the board of directors to run the company.

For 11 years, Dennis and Tom have owned a car wash business as partners. Now they would like their younger brother Jimmy to join them. Unfortunately, partnership law states that only two partners can participate in a partnership.

Which of the following statements is the most accurate?

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

A ________ is a form of business that is owned, and usually managed, by one person.

Payton recently purchased 100 shares of stock in Game Guys, Inc. Payton is a(n) ________ of this company.

Lorenzo and Lila own all of the Double L Corporation's stock. The stock of this corporation is not sold to the general public. Lorenzo and Lila own a(n)

If a sole proprietorship fails, the owner may lose whatever was invested in the business, and the owner's personal assets are also at risk.

Midwest Auto Experts, Inc. sells franchises to prospective businesspersons who want to use the Midwest Auto Experts name and offer its products. In a franchise arrangement, Midwest Auto Experts would be the ________, and the buyer of the franchise is the ________.

GloboTech, Inc., a large manufacturer of laptops, is considering a merger with ChipComm, a leading producer of microprocessors and other computer chips. GloboTech believes such a merger would give it a guaranteed source of needed components, and enable it to have better control over quality. If this merger occurs, it would be an example of a horizontal merger.

The strategy of a leveraged buyout is used when employee talent is at a minimum.

One result of taking a firm private is