Exam 5: How to Form a Business

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

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

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

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

It is impossible to run a franchise completely from home.

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.

Franchised businesses are successful (both domestically and internationally) because

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.

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.

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

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.

Double taxation means

What entity elects the board of directors for a corporation?

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

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.

Opening and operating a franchise in a different country

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

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

A distinguishing feature of a cooperative is that it

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?