Question 1

One of the strengths of the sole proprietorship is its ability to sustain rapid growth by raising large amounts of financial resources.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Which of the following statements about partnerships is most accurate?

Accepted Answer

A)  A partnership is a corporation with fewer than 100 owners. 
B)  A major advantage of a partnership is that it offers all owners limited liability. 
C)  A major drawback of a partnership is that it is difficult to terminate. 
D)  Partnerships are taxed at the lowest corporate tax rate. 
A)  A partnership is a corporation with fewer than 100 owners. 
B)  A major advantage of a partnership is that it offers all owners limited liability. 
C)  A major drawback of a partnership is that it is difficult to terminate. 
D)  Partnerships are taxed at the lowest corporate tax rate.

Question 4

A major advantage of S corporations is that they

Accepted Answer

A)  can have more stockholders than a C corporation. 
B)  can operate in foreign nations as if they were domestic corporations. 
C)  require less paperwork to set up than a C corporation does. 
D)  avoid the problem of double taxation associated with conventional corporations. 
A)  can have more stockholders than a C corporation. 
B)  can operate in foreign nations as if they were domestic corporations. 
C)  require less paperwork to set up than a C corporation does. 
D)  avoid the problem of double taxation associated with conventional corporations.

Question 5

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 6

Silver Screen Pictures, Inc. recently bought Superstar Entertainment, Inc. for an undisclosed amount of money. It now owns all of Superstar Entertainment's properties and obligations. This is an example of a(n)

Accepted Answer

A)  merger. 
B)  combination. 
C)  expropriation. 
D)  acquisition. 
A)  merger. 
B)  combination. 
C)  expropriation. 
D)  acquisition.

Question 7

A franchise can be formed

Accepted Answer

A)  only as a general partnership. 
B)  only as a corporation. 
C)  as either a corporation or partnership, but not as a sole proprietorship. 
D)  as a corporation, partnership, or sole proprietorship. 
A)  only as a general partnership. 
B)  only as a corporation. 
C)  as either a corporation or partnership, but not as a sole proprietorship. 
D)  as a corporation, partnership, or sole proprietorship.

Question 8

Many franchisors have rules that prohibit franchisees from sponsoring their own websites.

Accepted Answer

A) True 
 B)False

Question 9

The ________ is usually the easiest form of business to start and end.

Accepted Answer

A)  sole proprietorship 
B)  limited partnership 
C)  corporation 
D)  cooperative 
A)  sole proprietorship 
B)  limited partnership 
C)  corporation 
D)  cooperative

Question 10

Which of the following statements best summarizes the experience of American franchisors in foreign countries?

Accepted Answer

A)  Very few American franchisors of any size have had success in international markets. 
B)  Large franchisors have had success in other nations, but newer and smaller franchisors have lacked the financial strength and reputation to succeed in global markets. 
C)  The only nations in which American franchisors have achieved any success are Great Britain and Mexico. 
D)  Both large and small franchises have found success in foreign countries by providing convenience and a predictable level of service and quality. 
A)  Very few American franchisors of any size have had success in international markets. 
B)  Large franchisors have had success in other nations, but newer and smaller franchisors have lacked the financial strength and reputation to succeed in global markets. 
C)  The only nations in which American franchisors have achieved any success are Great Britain and Mexico. 
D)  Both large and small franchises have found success in foreign countries by providing convenience and a predictable level of service and quality.

Question 11

________ comprise about 20% of all businesses but account for about 81% of U.S. business receipts.

Accepted Answer

A)  Corporations 
B)  Partnerships 
C)  Sole proprietorships 
D)  Limited liability companies 
A)  Corporations 
B)  Partnerships 
C)  Sole proprietorships 
D)  Limited liability companies

Question 12

People who form cooperatives

Accepted Answer

A)  believe the government should play a larger role in the economy. 
B)  dislike the notion of having owners, managers, and customers as separate individuals with separate goals. 
C)  see competitive behavior as the key to ensuring rapid economic growth. 
D)  want to find a way to supply basic necessities free of charge to everyone. 
A)  believe the government should play a larger role in the economy. 
B)  dislike the notion of having owners, managers, and customers as separate individuals with separate goals. 
C)  see competitive behavior as the key to ensuring rapid economic growth. 
D)  want to find a way to supply basic necessities free of charge to everyone.

Question 13

When two firms which do not participate in the same industries, for example, a software company and a fast food restaurant company, decide to merge, the result is called a ________ merger.

Accepted Answer

A)  vertical 
B)  horizontal 
C)  linear 
D)  conglomerate 
A)  vertical 
B)  horizontal 
C)  linear 
D)  conglomerate

Question 14

Mini-Case
Genna Raiter's passion has always been cars, cars, cars! As a teen, she would spend hours with her dad fixing the family car, and he taught her how to change the oil and make minor repairs. While still in high school, Genna got a job at a local garage. After high school graduation, she completed the auto mechanics degree at a local community college and quickly decided she wanted to be her own boss. She quit her job at her first garage, borrowed some money from her dad, and created her own repair shop, the Car Keepers Garage. Genna's hard work gradually attracted a loyal clientele of satisfied customers. Her success has her thinking about expanding and opening garages in two other locations, but she lacks the financial resources needed for development. Furthermore, the success of her business is forcing Genna to spend more time managing the business and less time doing the actual technical work she still enjoys. She wants to find business partners who can help her with management and provide additional financial resources. She has approached a couple of friends she met in high school: Al Ternator and Lou Banfilter, to see if they would like to join the business.
-When Genna confided in Lou and Al that she too was concerned about adding additional risk, Lou suggested that they explore the possibility of a different type of business ownership, a(n) ________, which has very flexible ownership rules and would give them more choices in how the company's earnings are taxed while still protecting all owners from high levels of risk.

Accepted Answer

A)  alien corporation 
B)  master limited partnership 
C)  limited partnership 
D)  limited liability company 
A)  alien corporation 
B)  master limited partnership 
C)  limited partnership 
D)  limited liability company

Question 15

Katie and her siblings created a design company called Homeward Bound LLP. Although key business functions are centralized, each sibling is a licensed architect that designs, builds, and installs residential and commercial buildings for his/her own clients. Unfortunately, a recent design of Katie's that was ultimately created and installed for one of their clients resulted in water damage to the basement of the client's new home. The limited liability partnership

Accepted Answer

A)  guarantees that none of the company's partners will lose more than the amount they invested in the company. 
B)  guarantees that only those partners who were directly involved in designing and building this home face unlimited liability for claims against the firm. 
C)  protects the partners from any suit by the client. 
D)  will enable the firm to quickly reorganize with only minor financial losses. 
A)  guarantees that none of the company's partners will lose more than the amount they invested in the company. 
B)  guarantees that only those partners who were directly involved in designing and building this home face unlimited liability for claims against the firm. 
C)  protects the partners from any suit by the client. 
D)  will enable the firm to quickly reorganize with only minor financial losses.

Question 16

A master limited partnership (MLP) is

Accepted Answer

A)  is not traded on the stock exchanges. 
B)  pays corporate income taxes. 
C)  is taxed like a partnership. 
D)  is the corporate form of choice for small groups of individuals. 
A)  is not traded on the stock exchanges. 
B)  pays corporate income taxes. 
C)  is taxed like a partnership. 
D)  is the corporate form of choice for small groups of individuals.

Question 17

Which of the following statements about S corporations is most accurate?

Accepted Answer

A)  The major attraction of S corporations is that they avoid the problem of double taxation. 
B)  S corporations are similar to C corporations, except that the majority of owners are foreign investors. 
C)  Any corporation willing to pay the necessary fees and fill out the required paperwork can become an S corporation. 
D)  Only large corporations with operations in more than one state can qualify to be classified as S corporations. 
A)  The major attraction of S corporations is that they avoid the problem of double taxation. 
B)  S corporations are similar to C corporations, except that the majority of owners are foreign investors. 
C)  Any corporation willing to pay the necessary fees and fill out the required paperwork can become an S corporation. 
D)  Only large corporations with operations in more than one state can qualify to be classified as S corporations.

Question 18

Which of the following is an advantage of the corporate form of business when compared to sole proprietorships and partnerships?

Accepted Answer

A)  Ease of formation 
B)  Lower taxes 
C)  Simplified paperwork 
D)  Limited liability of owners 
A)  Ease of formation 
B)  Lower taxes 
C)  Simplified paperwork 
D)  Limited liability of owners

Question 19

Three types of corporate mergers are

Accepted Answer

A)  economic, geographic, and financial. 
B)  vertical, horizontal, and conglomerate. 
C)  flexible, differentiated, and conditional. 
D)  explicit, implicit, and intrinsic. 
A)  economic, geographic, and financial. 
B)  vertical, horizontal, and conglomerate. 
C)  flexible, differentiated, and conditional. 
D)  explicit, implicit, and intrinsic.

Question 20

A limited liability company is similar to an S corporation, but without the special eligibility requirements.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

One of the strengths of the sole proprietorship is its ability to sustain rapid growth by raising large amounts of financial resources.

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

Which of the following statements about partnerships is most accurate?

A major advantage of S corporations is that they

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.

Silver Screen Pictures, Inc. recently bought Superstar Entertainment, Inc. for an undisclosed amount of money. It now owns all of Superstar Entertainment's properties and obligations. This is an example of a(n)

A franchise can be formed

Many franchisors have rules that prohibit franchisees from sponsoring their own websites.

The ________ is usually the easiest form of business to start and end.

Which of the following statements best summarizes the experience of American franchisors in foreign countries?

________ comprise about 20% of all businesses but account for about 81% of U.S. business receipts.

People who form cooperatives

When two firms which do not participate in the same industries, for example, a software company and a fast food restaurant company, decide to merge, the result is called a ________ merger.

A master limited partnership (MLP) is

Which of the following statements about S corporations is most accurate?

Which of the following is an advantage of the corporate form of business when compared to sole proprietorships and partnerships?

Three types of corporate mergers are

A limited liability company is similar to an S corporation, but without the special eligibility requirements.

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

Working Within the Legal Environment

Using Technology to Manage Information

Managing Risk

Managing Personal Finances

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