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Exam 5: How to Form a Business

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Question 101

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Delaware and Nevada are popular states in which to seek incorporation because these states' business-oriented laws make the process easier than it is in other states.

A) True
B) False

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Question 102

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Leanne, a franchisee, runs a chain of small restaurants with a well-known name. Due to her hard work and people skills, her locations are doing quite well. She has noticed that several other franchisees in the same franchise system have let their restaurants deteriorate, especially in terms of lack of upgrades. Leanne should be concerned about this trend, since it eventually could affect her own business.

A) True
B) False

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Question 103

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A merger between two businesses in different stages of related businesses is known as a vertical merger.

Two long-time competitors, Freddie's Market and Greta's Groceries, recently issued an announcement stating their decision to merge. The statement claimed that the new company would have more financial resources, which would enable it to expand services and broaden offerings to customers. This proposed merger is an example of a horizontal merger.

If a corporation has after-tax profits of $360,000, and elects to distribute this amount in the form of dividends to its stockholders, these distributions are free and clear of taxes because the corporation paid taxes on this amount prior to distribution.

The owners of Game Guys are looking to become an S corporation. Unfortunately, after speaking with their lawyer, she advised them that they do not meet some of the requirements necessary to qualify as an S corporation. An alternative form of business that would give them similar advantages is a limited liability company.

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.

Doughboys is a small chain of cookie dough shops owned and operated by eight partners. With the rise of cookie dough shops around the country, the owners think that their chain has the potential for rapid growth. However, several of the partners are concerned about the growing financial risks that will accompany this growth. One way the partners could deal with this problem would be to incorporate their business.

The organizational structure of a corporation permits

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

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

Qiang is ready to become a franchise owner and open one of the 50 Southwest Diners, a very successful fast food chain specializing in dishes from the American Southwest. Which of the following problems is Qiang most likely to encounter if she agrees to become a franchisee?

In a limited liability partnership, each partner's risk of losing personal assets is

The organization structure of a corporation allows for stockholders to exert a significant degree of control over the company's daily operations.

Chipper is the sole proprietor of a golf shop. Because she is a sole proprietor, any profit Chipper's business earns is

Some ________ ask members/customers to work at the organization for a number of hours a month as part of their duties.

Intercontinental Provisions, a specialty grocery store, is considering a conglomerate merger with a company that makes storage solutions. A likely reason is

Franchised businesses are successful (both domestically and internationally) because

One advantage of corporations is that the initial cost of organization is usually lower than for other forms of business ownership.

If firms wish to gain market share in their current market, they would consider a conglomerate merger.