Exam 5: How to Form a Business

A corporation can raise financial capital by selling shares of stock to interested investors.

Taking a firm private involves converting a firm from a corporation to a general partnership.

In recent years, foreign firms were reluctant to merge with or acquire American corporations.

A ____________ is the share of profits or percentage of sales a franchisee pays to a franchisor.

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):

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

If a sole proprietorship fails, the owner may lose whatever was invested in the business; however, the owner's personal assets are not at risk.

States may levy special taxes on corporations that are not imposed on other businesses.

Although most new firms start out as sole proprietorships, few large firms are organized this way. Why is the sole proprietorship such a popular form of ownership for new firms? What features of the sole proprietorship make it unattractive to growing firms?

Corporations are easy to start and easy to terminate.

Chad recently invented Wave-Aerobics, a next generation watercraft that can safely perform water stunts similar to an amusement park ride. As the founder of a fast growing business, you think his goal of incorporating, "to remain in steadfast control of the firm's operations for an indefinite number of years," is good strategy.

An S corporation has fewer ownership rules than a limited liability company.

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

A disadvantage of corporations is that they generally require extensive paperwork.

A conventional corporation is a state-chartered legal entity, with authority to act and have liability separate from its owners.

In order to establish a C corporation, it is a requirement that investors run the company, whereas in an S corporation, this is not the case.

A general partner takes an active role in the management of the business.

If an established franchisor agrees to provide you the opportunity to become a franchisee in its franchise system, the franchisor may also be willing to serve as a source of financing for your operation.

The board of directors for a corporation is elected by its:

In a limited partnership, the general partners should encourage the limited partners to take a more active role in the operations of the business. After all, the limited partner has comparable liability in the business, even though he/she may not be a partner for as long a period of time as the general partners.