Exam 5: Business Formation: Choosing the Form That Fits

A corporation is a form of business ownership in which the business is considered a legal entity separate and distinct from its owners.

Which of the following is an advantage of a corporation as a form of business ownership?

A merger is a corporate restructuring that occurs when one firm, called the acquiring firm, buys another firm, called the target firm.

Which term describes the shareholders of a corporation, who have the right to vote on issues affecting the operation of the business?

In terms of total revenue by form of ownership, the sole proprietorship is the largest form of business ownership; partnerships follow, with corporations being the smallest form.

What type of liability do sole proprietors have for the debts of their companies?

Ralph Florez owns and operates his own business as a sole proprietor. Recently his company was sued. The fact that Ralph has organized his business as a sole proprietorship means that Ralph is protected against any financial loss if the company loses the lawsuit.

Who do the shareholders in a corporation elect to oversee the operation of the company and ensure that their interests are protected?

Limited liability partnerships (LLP) are generally available only to professional groups, such as accountants, architects, doctors, and lawyers.

A sole proprietorship is a business that is owned, and usually managed, by a single individual.

Identify and discuss five advantages of operating a business as a sole proprietorship.

Identify and describe three disadvantages of general partnerships as a form of business ownership.

Most sole proprietorships are unable to attract and maintain talented employees.

Liza owns 1000 shares of common stock in Bigbux Inc. As a shareholder in the company, she may vote in the election of Bigbux's board of directors.

How does a merger differ from an acquisition? What are the three basic types of mergers, and how do they differ? Identify a reason why firms might pursue each type of merger.

Acquisition is a corporate restructuring in which one firm buys another. After the acquisition, the target firm ceases to exist as an independent entity, while the acquiring firm continues to operate.

Franchisors seldom succeed in their attempts to move into foreign markets.

A key goal of horizontal mergers is to achieve tighter integration of production and increased control over supply of crucial inputs.

Most shareholders in large corporations take an active role in managing their companies.

Which of the following is a legal entity created by permission of a provincial or federal government?