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Exam 5: How to Form a Business

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Question 161

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Unlike partnerships, if sole proprietorships find themselves in bankruptcy, they need not worry about a court of law requiring them to sell off personal assets to pay for the debts of the firm.

A) True
B) False

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Question 162

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One important consideration when prospecting for a good franchise business is:

A) the saturation rate of the franchise. The more saturation the better.
B) the market potential for the product or service, at the prices you need to charge.
C) the population level of the area where you will operate. Large populations are too overwhelming, often needlessly increasing demand.
D) a limited disclosure statement, and being mindful that any disclosure statement may limit your success.

E) B) and C)
F) None of the above

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Question 163

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Taking a firm private means turning a profit-seeking corporation into a nonprofit corporation in order to avoid a hostile takeover.

If a corporation distributes after-tax profits to its stockholders in the form of dividends, the government considers these distributions as part of each stockholder's personal income. Stockholders pay taxes on these distributions.

Jane has always disliked the notion that the customers, managers and workers of a business are separate individuals with competing goals. She has joined with many other people in her community who share this view to become a member, and part owner, of a child care center. Jane and the other members operate the center for their own benefit, and each is expected to work at the center at least 12 hours each month. The type of organization Jane belongs to is known as a joint venture.

Cory Raider is leading a group of stockholders who want to take the Bigbux Corporation private. If Cory's group succeeds, Bigbux's stock will no longer be available to investors on the open market.

In the Figure 5.2, the authors suggest that potential partners discuss the types of skills that each brings to the business. Partners with complementary skills may enhance the business.

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

The Uniform Partnership Act is law in every state except Louisiana.

When two companies in the same industry agree to become one firm, the result is called a:

Sandy Beech, a talented fashion designer who wants to start her own women's swimwear and beach towel line, is trying to decide which form of business ownership is right for her. As a young mother who aspires to send her children to college some day, she does not want to jeopardize her savings account in any way. In order to overcome these risks, Sandy should start her business as a sole proprietorship.

An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing is called a(n) :

The S corporation is likely to be less popular in the future because:

Dane is a stockholder in SmallWorld, Inc., a C corporation that manufactures amusement park rides. The company recently lost a major court decision and will probably be forced into bankruptcy. In fact, the damages awarded are so great that, even if all company assets are sold and the proceeds are used to pay its debts, SmallWorld is likely to still owe money to its creditors. If SmallWorld goes bankrupt, Dane and the other stockholders will:

According to Figure 5.2, attributes such as trust and integrity are not something you should get overly concerned about when selecting partners, due to the fact that this is a business decision, not a friendly game of golf.

Which of the following statements best summarizes the experience of American franchisors in foreign countries?

The first step in starting a sole proprietorship is to fill out a proprietorship charter application form and file it with the state government.

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

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.

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