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Exam 5: How to Form a Business

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Question 141

True/False

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A drawback of sole proprietorships is that they usually have limited access to additional financial resources.

A) True
B) False

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Question 142

True/False

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Your friend Bainbridge called to tell you he attended a pitch for a new franchise in website development. Bainbridge says, "We can get in for a few thousand dollars." He wants to know if you are ready to invest too. Although both of you lack expertise in graphic design or html programming, this should be a safe investment since it is already advertised as a franchise system. It's probably too good to pass up.

A) True
B) False

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Question 143

Multiple Choice

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________ is by far the most popular target for American franchisors seeking to establish franchises in other countries.

A good reason why partners should spell out the details of their partnership arrangements in writing is

Compared to partnerships and sole proprietorships, a major advantage of the conventional (C) corporation as a form of business ownership is that it

If a firm is advertising that it is selling franchise opportunities, the prospective franchisee can be assured that the government has performed due diligence on this company, and has deemed it a safe investment.

Double taxation means that a corporation pays twice the amount of taxes as a sole proprietorship or partnership.

One advantage of an S Corporation is that the profits are distributed to the owners and taxed as each owner's personal income, thus avoiding the problem of double taxation.

Kiersten and her four siblings are starting their own home design business. One of their primary goals is keeping the loving relationship they currently enjoy, so they are following the Model Business Corporation Act recommendations as they write their partnership agreement. Which of the following is an accurate recommendation of the Act?

Which of the following is an advantage of franchises?

If a corporation distributes after-tax profits to its stockholders in the form of dividends, the government considers these distributions as part of each stockholder's personal income. Stockholders pay taxes on these distributions.

Autumn wants to start a business. She has two goals. First, she doesn't have much money but she's ready to get business up and running with the least possible hassle and expense. Second, she wants to minimize her personal risk in the event that her company experiences difficulties. If Autumn chooses a sole proprietorship, she would

The purpose of a conglomerate merger is to diversify operations and investments.

Tadashi's uncle passed away and left him a Realty Experts franchise. Tadashi is not a licensed agent or broker, nor does he know the first thing about the real estate business. He plans to sell his Realty Experts franchise to his friend Devonte, who recently got his real estate license. One of the advantages of owning a franchise is that you can decide to sell out to anyone you think is suitable for the business.

Which of the following is an attractive benefit of a corporation?

Alani and Jeremy have considered creating their own company but are concerned about the possibility of losing all of their personal assets if the business fails. One way for Alani and Jeremy to avoid this risk would be to organize their firm as a

Public utilities, like electricity and water, are examples of quasi-public corporations.

Limited partnerships are just like general partnerships, except that they are partners for a limited time period.

Enok, a prospective franchise owner, is looking to keep his monthly costs as low as possible. The franchisor he is checking out is advertising that royalty payments of 8% of sales could be as high as $300,000 per month. The franchisor is claiming that a franchisee can expect monthly sales to be as high as

Rhonda is convinced she has the best idea for a new business. Unfortunately, her business would require a fairly high initial investment and Rhonda has poor credit and very little personal wealth. She would be unlikely to find success if she organized her business as a sole proprietorship.