Exam 5: How to Form a Business

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?

Which of the following people would be most interested in participating in a business organized as a cooperative?

One reason that companies participate in mergers and acquisitions is:

Limited liability companies have both flexibility in tax treatment of earnings and limited liability protection for owners.

A comparison of the three major forms of business ownership shows that sole proprietorships are usually the most difficult type of business to establish.

One result of taking a firm private is:

Jim is one of several general partners who own Beef 'N Beer, a small chain of restaurants located in Missouri and Illinois. Jim is interested in converting the partnership into a master limited partnership. If he convinces other partners to go along with his idea, Beef 'N Beer will:

Selma owns a roofing business. She enjoys being her own boss, but her satisfaction comes at a price. Her days are filled with organizing the activities of her employees and soliciting new customers. She often misses activities with friends and family because of the obligations of running her own business. She also knows that she has unlimited personal liability for any of her firm's debts. Selma's business is organized as a(n):

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.

Kali owns Dog Trotters, a dog-walking business that she started to earn money after school and supplement her allowance. She planned to keep all the profits, and has kept things simple by putting a flier on the bulletin board at the local grocery store announcing that she was available to provide this service. Kali's business is a:

Adam is a major stockholder in Precision Transmission Services (PTS), a nationwide network of transmission repair shops founded by his father. Currently, PTS stock is sold on the open market, but Adam has talked to several relatives about his desire to get all of the PTS stock back in his family's hands. Adam is interested in _______________________________.

Two competitors, Stanley's Food Mart and Bluejay Groceries, recently issued a joint announcement stating their decision to merge. The announcement claimed that the new firm would have more financial resources, which would enable it to expand services and broaden offerings to consumers. This proposed merger is an example of a horizontal merger.

Although shares of master limited partnerships can be purchased on one of the national stock exchanges, these companies are taxed like partnerships.

A merger is a mutual agreement where a firm joins together with another firm, whereas an acquisition is when one firm purchases the assets and obligations of another firm.

A type of partnership called a ___________ acts much like a corporation and is traded on stock exchanges, but it is taxed like a partnership with profits passing through to the owners and taxed as the owner's personal income.

Naomi is planning to invest in a new online franchise, the Novel Artist, Inc. The franchisor provides proprietary software and training for designing invitations and cards for special occasions such as weddings, graduations, and birth announcements. The franchisee is obligated to pay a monthly fee to the franchisor. Naomi will use the software to create her own special designs that she will ultimately feature on her website. Order turn-around time must be fast. She can only take on as many clients as she can make good on delivery. An advantage of Naomi's online franchise is:

The major differences between an S corporation and a limited liability company are limits on the number of owners and the citizenship status of individuals who are owners.

The limited liability company requires a minimum of 10 members.

The S corporation form of business would be particularly attractive to fast growing companies that want to attract thousands of new stockholders.

Global franchising is unlikely to experience major growth due to the high costs of operations in global markets.