Question 1

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

Accepted Answer

A)   Congress repealed the limited liability protection of S corporations and limited them to companies with earnings of less than $3 million per year.
B)   limited liability companies, which do not have the restrictive eligibility requirements of S corporations and offer greater flexibility in the choice of tax treatment, are now legal in all 50 states.
C)   many states significantly increased the annual fee that S corporations must pay to maintain their tax status, thus eliminating the financial advantages of this form of ownership.
D)   S corporations have been made illegal in several states as a reaction to widespread abuse of the special benefits available to this type of business.E) A) and B)
F) None of the above

Question 2

A distinguishing feature of a cooperative is that it

Accepted Answer

A)   maintains a distinct separation between ownership and management.
B)   is only intended to operate for a limited period of time.
C)   is owned and operated by the people who use it.
D)   can have no more than 75 owners, all of whom must be citizens of the United States.E) B) and D)
F) All of the above

Question 3

Franchised businesses are successful (both domestically and internationally)  because

Accepted Answer

A)   they require very little start-up revenue.
B)   people prefer the owners and employees of franchised businesses.
C)   laws require franchisors to provide the same level of service to franchisees.
D)   customers like the predictability of the product and/or service.E) A) and B)
F) None of the above

Question 4

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

Accepted Answer

A)   A corporation receives its charter from a state government.
B)   A corporate charter automatically expires in 99 years and must be renewed if the corporation wants to remain in business.
C)   Owners of a corporation have unlimited liability for any claims against their company.
D)   A corporation tends to be much easier to set up than a sole proprietorship or partnership.E) A) and B)
F) B) and C)

Question 5

What entity elects the board of directors for a corporation?

Accepted Answer

A)   Creditors
B)   Stockholders
C)   Managers
D)   EmployeesE) B) and C)
F) A) and D)

Question 6

Although franchise arrangements are a good source of income for the franchisee, these businesses do not contribute significantly toward job creation.

Accepted Answer

A) True 
 B)False

Question 7

Several small vineyard owners in the Napa Valley region of California banded together to market their grapes and wine in an attempt to get better prices. Over the years they expanded the organization to include other services such as buying and selling farm supplies and equipment and providing financial and technical services. The arrangement established by these vineyard owners is an example of a

Accepted Answer

A)   closed corporation.
B)   joint venture.
C)   limited agricultural partnership.
D)   farm cooperative.E) B) and C)
F) A) and C)

Question 8

Which of the following statements about buying a franchise is most accurate?

Accepted Answer

A)   One of the advantages of buying a franchise is that franchisors are so closely regulated that there is virtually no chance for scams to succeed.
B)   Before purchasing a franchise, the buyer should carefully evaluate the franchise, the franchisor, his or her own situation, and the nature of the market.
C)   Franchise agreements are simple to evaluate, since federal law requires that all such agreements must be written in plain English with all fees and terms clearly explained.
D)   Buying a franchise is the simplest and least expensive way to set up a business, since the franchisor has already worked out all of the details for setting up and running the business.E) None of the above
F) B) and D)

Question 9

A partner (owner)  who invests money in a business does not take an active role in managing the operation, and is only subject to losing the funds he/she invested is known as a(n)  ________ partner.

Accepted Answer

A)   implied
B)   limited
C)   partial
D)   corporateE) B) and C)
F) All of the above

Question 10

A closed corporation is one whose stock is held by a few people and is not available to the general public.

Accepted Answer

A) True 
 B)False

Question 11

Jose lives in Mexico City and is a Mexican citizen. He has several friends who are American citizens and own shares in an S corporation. Jose would like to invest in this company. Which statement is most accurate?

Accepted Answer

A)   Jose can invest in this company, but must pay both U.S. and Mexican taxes.
B)   Jose cannot become a shareholder since he is not a citizen or permanent resident of the U.S.
C)   Jose can become a shareholder but cannot become a manager, and his income must be paid in pesos.
D)   Jose needs approval from the Mexican government before he can invest.E) All of the above
F) B) and D)

Question 12

Franchisors give franchisees the right to use their name and product, with the understanding that franchisees obtain all financing and develop all marketing strategies on their own.

Accepted Answer

A) True 
 B)False

Question 13

One of the drawbacks of a limited liability company is that most states do not yet recognize this form of ownership.

Accepted Answer

A) True 
 B)False

Question 14

According to the Uniform Partnership Act, the three key elements of any general partnership are (1) shares of stock to represent ownership, (2) limited liability, and (3) ease of ownership transfer.

Accepted Answer

A) True 
 B)False

Question 15

Opening and operating a franchise in a different country

Accepted Answer

A)   is illegal according to the Clayton Antitrust Act.
B)   is no different than setting up a franchise in the domestic market.
C)   may require the owner to adapt to social and cultural differences.
D)   is much less risky than owning a domestically based franchise.E) A) and B)
F) A) and C)

Question 16

Ravi wants to be his own boss and run his own business. His friend, Josh, suggested that an inexpensive way to get started is to buy a franchise. Therefore he can limit his risk and he will have the freedom to run it exactly as he wants. After reading this chapter, you concur with this advice.

Accepted Answer

A) True 
 B)False

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Double taxation means

Accepted Answer

A)   if stockholders decide to sell their shares, they are subject to paying twice the amount of taxes on any capital gains.
B)   as the owner of the company, you pay twice the amount in employment taxes on yourself, as you do on your employees.
C)   corporations pay taxes on their profits. If they distribute after-tax profits to the stockholders, the stockholders also pay taxes on the distribution.
D)   if the corporation doubles its profits from the previous year, the firm's tax rate (the percentage it pays in taxes)  will also double.E) A) and D)
F) B) and C)

Question 19

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.

Accepted Answer

A) True 
 B)False

Question 20

It is impossible to run a franchise completely from home.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

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

Correct Answer
verified

Franchisors give franchisees the right to use their name and product, with the understanding that franchisees obtain all financing and develop all marketing strategies on their own.

Correct Answer
verified

One of the drawbacks of a limited liability company is that most states do not yet recognize this form of ownership.

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

A distinguishing feature of a cooperative is that it

Correct Answer
verified

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.

Correct Answer
verified

Franchised businesses are successful (both domestically and internationally) because

Correct Answer
verified

It is impossible to run a franchise completely from home.

Correct Answer
verified

What entity elects the board of directors for a corporation?

Correct Answer
verified

According to the Uniform Partnership Act, the three key elements of any general partnership are (1) shares of stock to represent ownership, (2) limited liability, and (3) ease of ownership transfer.

Correct Answer
verified

Although franchise arrangements are a good source of income for the franchisee, these businesses do not contribute significantly toward job creation.

Correct Answer
verified

A closed corporation is one whose stock is held by a few people and is not available to the general public.

Correct Answer
verified

Opening and operating a franchise in a different country

Correct Answer
verified

Ravi wants to be his own boss and run his own business. His friend, Josh, suggested that an inexpensive way to get started is to buy a franchise. Therefore he can limit his risk and he will have the freedom to run it exactly as he wants. After reading this chapter, you concur with this advice.

Correct Answer
verified

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

Correct Answer
verified

A partner (owner) who invests money in a business does not take an active role in managing the operation, and is only subject to losing the funds he/she invested is known as a(n) ________ partner.

Correct Answer
verified

Double taxation means

Correct Answer
verified

Which of the following statements about buying a franchise is most accurate?

Correct Answer
verified

Jose lives in Mexico City and is a Mexican citizen. He has several friends who are American citizens and own shares in an S corporation. Jose would like to invest in this company. Which statement is most accurate?

Correct Answer
verified

Exam 5: How to Form a Business

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

Correct AnswerverifiedShow Answer

Franchisors give franchisees the right to use their name and product, with the understanding that franchisees obtain all financing and develop all marketing strategies on their own.

Correct AnswerverifiedShow Answer

One of the drawbacks of a limited liability company is that most states do not yet recognize this form of ownership.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A distinguishing feature of a cooperative is that it

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Franchised businesses are successful (both domestically and internationally) because

Correct AnswerverifiedShow Answer

It is impossible to run a franchise completely from home.

Correct AnswerverifiedShow Answer

What entity elects the board of directors for a corporation?

Correct AnswerverifiedShow Answer

According to the Uniform Partnership Act, the three key elements of any general partnership are (1) shares of stock to represent ownership, (2) limited liability, and (3) ease of ownership transfer.

Correct AnswerverifiedShow Answer

Although franchise arrangements are a good source of income for the franchisee, these businesses do not contribute significantly toward job creation.

Correct AnswerverifiedShow Answer

A closed corporation is one whose stock is held by a few people and is not available to the general public.

Correct AnswerverifiedShow Answer

Opening and operating a franchise in a different country

Correct AnswerverifiedShow Answer

Ravi wants to be his own boss and run his own business. His friend, Josh, suggested that an inexpensive way to get started is to buy a franchise. Therefore he can limit his risk and he will have the freedom to run it exactly as he wants. After reading this chapter, you concur with this advice.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

A partner (owner) who invests money in a business does not take an active role in managing the operation, and is only subject to losing the funds he/she invested is known as a(n) ________ partner.

Correct AnswerverifiedShow Answer

Double taxation means

Correct AnswerverifiedShow Answer

Which of the following statements about buying a franchise is most accurate?

Correct AnswerverifiedShow Answer

Jose lives in Mexico City and is a Mexican citizen. He has several friends who are American citizens and own shares in an S corporation. Jose would like to invest in this company. Which statement is most accurate?

Correct AnswerverifiedShow Answer

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