Question 1

One reason individuals incorporate is to obtain the advantage of limited liability.

Accepted Answer

A) True 
 B)False

Question 2

When two of Mercedes's friends approached her about starting a business, Mercedes's was sure she did not want to risk any amount beyond her initial investment or be involved with the day-to-day management. However, she was willing to invest in the business. Mercedes's preferences suggest that she prefers a general partnership form of business ownership.

Accepted Answer

A) True 
 B)False

Question 3

To qualify as an S corporation, a company must

Accepted Answer

A)  have no more than 50 shareholders. 
B)  have shareholders who are individuals or estates and qualify as permanent residents of the United States. 
C)  have a different class of stock for each owner. 
D)  have not more than 5 percent of income derived from passive sources. 
A)  have no more than 50 shareholders. 
B)  have shareholders who are individuals or estates and qualify as permanent residents of the United States. 
C)  have a different class of stock for each owner. 
D)  have not more than 5 percent of income derived from passive sources.

Question 4

Like stockholders of a C corporation, owners of a limited liability company (LLC) are free to sell their ownership without the approval of other members.

Accepted Answer

A) True 
 B)False

Question 5

Huong is opening an international food store. Though her products will span the globe, she wants to focus on items from the Middle East. She wants to be the firm's only general partner, but she is trying to get several friends to participate as limited partners. It's apparent Huong wants to

Accepted Answer

A)  limit her personal liability to the amount she personally invests in the company. 
B)  keep all of the firm's profits. 
C)  obtain a strong financial base for the firm while maintaining personal control over the firm's management. 
D)  meet the legal requirements of the Uniform Partnership Act. 
A)  limit her personal liability to the amount she personally invests in the company. 
B)  keep all of the firm's profits. 
C)  obtain a strong financial base for the firm while maintaining personal control over the firm's management. 
D)  meet the legal requirements of the Uniform Partnership Act.

Question 6

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 7

It is impossible to run a franchise completely from home.

Accepted Answer

A) True 
 B)False

Question 8

Harper has always disliked the concept that the customers, managers, and workers of a business are separate individuals with competing goals. She joined with many other people in her community who share this view to become a member, and part owner, of a childcare center. Harper 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 Harper belongs to is known as a joint venture.

Accepted Answer

A) True 
 B)False

Question 9

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 10

If you want to sell your ownership in a publicly traded corporation, you find someone willing to buy your shares.

Accepted Answer

A) True 
 B)False

Question 11

The limited liability company requires a minimum of 10 members.

Accepted Answer

A) True 
 B)False

Question 12

A foreign corporation is chartered in a country outside the U.S.

Accepted Answer

A) True 
 B)False

Question 13

Stockholders in a corporation accept unlimited liability for the corporation's debts.

Accepted Answer

A) True 
 B)False

Question 14

In a partnership, a(n) ________ partner (owner) actively manages the company and has unlimited liability for claims against the firm.

Accepted Answer

A)  unlimited 
B)  limited 
C)  general 
D)  associate 
A)  unlimited 
B)  limited 
C)  general 
D)  associate

Question 15

Global franchising offers

Accepted Answer

A)  few opportunities for American investors. 
B)  opportunities for large franchise systems, but not small ones. 
C)  opportunities for both large and small franchises. 
D)  American firms the opportunity to market goods overseas without any need to adjust for cultural differences. 
A)  few opportunities for American investors. 
B)  opportunities for large franchise systems, but not small ones. 
C)  opportunities for both large and small franchises. 
D)  American firms the opportunity to market goods overseas without any need to adjust for cultural differences.

Question 16

Franchisors may send reverse royalties to franchisees who

Accepted Answer

A)  have not yet created their own website. 
B)  feel their sales have been hurt by the franchisor's online sales. 
C)  are using e-commerce to expand their sales territory. 
D)  desire to streamline their communication with employees, customers, and vendors. 
A)  have not yet created their own website. 
B)  feel their sales have been hurt by the franchisor's online sales. 
C)  are using e-commerce to expand their sales territory. 
D)  desire to streamline their communication with employees, customers, and vendors.

Question 17

The franchisee pays the franchisor a share of profits or a percentage commission on sales, known as a royalty.

Accepted Answer

A) True 
 B)False

Question 18

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 19

Mackenzie's dream is to open a chain of salons. She hopes to attract investors to help finance growth. Having once considered forming a C corporation, Mackenzie wants to have more flexibility about how the new business will be taxed. She also wants to offer investors/owners limited liability. Mackenzie can satisfy her objectives by setting up a(n)

Accepted Answer

A)  limited liability company. 
B)  S corporation. 
C)  alien corporation. 
D)  general partnership. 
A)  limited liability company. 
B)  S corporation. 
C)  alien corporation. 
D)  general partnership.

Question 20

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

Accepted Answer

A)  to be assured that another professional firm would not take over and make decisions, similar to a hostile takeover. 
B)  to comply with the law because insurance companies require that they be corporations. 
C)  to protect his/her other assets with limited liability. 
D)  to protect his/her assets with unlimited liability. 
A)  to be assured that another professional firm would not take over and make decisions, similar to a hostile takeover. 
B)  to comply with the law because insurance companies require that they be corporations. 
C)  to protect his/her other assets with limited liability. 
D)  to protect his/her assets with unlimited liability.

Exam 5: How to Form a Business

One reason individuals incorporate is to obtain the advantage of limited liability.

To qualify as an S corporation, a company must

Like stockholders of a C corporation, owners of a limited liability company (LLC) are free to sell their ownership without the approval of other members.

Huong is opening an international food store. Though her products will span the globe, she wants to focus on items from the Middle East. She wants to be the firm's only general partner, but she is trying to get several friends to participate as limited partners. It's apparent Huong wants to

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.

It is impossible to run a franchise completely from home.

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.

If you want to sell your ownership in a publicly traded corporation, you find someone willing to buy your shares.

The limited liability company requires a minimum of 10 members.

A foreign corporation is chartered in a country outside the U.S.

Stockholders in a corporation accept unlimited liability for the corporation's debts.

In a partnership, a(n) ________ partner (owner) actively manages the company and has unlimited liability for claims against the firm.

Global franchising offers

Franchisors may send reverse royalties to franchisees who

The franchisee pays the franchisor a share of profits or a percentage commission on sales, known as a royalty.

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.

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

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding Economics and How It Affects Business

Doing Business in Global Markets

Demanding Ethical and Socially Responsible Behavior

Entrepreneurship and Starting a Small Business

Management and Leadership

Structuring Organizations for Todays Challenges

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Employeemanagement Issues

Marketing: Helping Buyers Buy

Developing and Pricing Goods and Services

Distributing Products

Using Effective Promotions

Understanding Accounting and Financial Information

Financial Management

Using Securities Markets for Financing and Investing Opportunities

Money, Financial Institutions, and the Federal Reserve

Appendix: Working Within the Legal Environment

Appendix: Using Technology to Manage Information

Appendix: Managing Risk

Appendix: Managing Personal Finances

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