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Exam 5: How to Form a Business

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Question 81

True/False

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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 82

Multiple Choice

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A merger involving a software producer and a clothing manufacturer is an example of a ________ merger.

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

E) B) and D)
F) A) and D)

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Question 83

Multiple Choice

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Double taxation is experienced by corporations that pay dividends. Which of the following scenarios is an accurate example of double taxation?

Dr. Limmer, Dr. Lowder, and Dr. Lynch want to incorporate their practice. There is no advantage due to the costs involved.

Oliver wants to start his own business. He should consider a sole proprietorship if he

Rafael is a limited partner in an online clothing company. As a limited partner, Rafael can be involved with the company for a maximum of five years.

The owners of a limited liability company (LLC) must pay self-employment taxes on any profits they earn, even if they did not obtain a salary from the company.

Attracted to the idea of being his own boss, Christian wants to start a new business. He is confident in his abilities, and knows his potential market is strong, so he is not particularly worried about the financial risks. All of these factors suggest that Christian may favor starting his business as a sole proprietorship.

Lorenzo and Lila own all of the Double L Corporation's stock. The stock of this corporation is not sold to the general public. Lorenzo and Lila own a(n)

What is the difference between a general partner and a limited partner? Give an example of a situation in which a person would want to be a limited partner.

A cooperative is simply another name for a corporation.

By filling out the correct paperwork annually, any corporation can qualify to be classified as an S corporation.

All partners in a general partnership have limited liability for the debts of their firm.

The owners of a corporation are known as general corporate partners.

Although shares of master limited partnerships can be purchased on one of the national stock exchanges, these companies are taxed like partnerships.

A type of partnership called a ________ acts much like a corporation and is traded on stock exchanges, but it is taxed like a partnership with profits passing through to the owners and taxed as the owner's personal income.

Compared to sole proprietorships, partnerships offer the advantage of shared management and pooled knowledge.

________ are companies that are similar to S corporations but are not restricted with similar eligibility requirements.

Tee Time Golf Resort has the opportunity to buy 1,000 acres of property adjacent to its award-winning 18-hole golf course. After talking with her banker and her lawyer, the owner is encouraged to begin the paperwork to change from a limited liability company form of business ownership to a corporation. You applaud this strategy because she will eliminate the problem of double taxation.

Which of the following is normally considered a disadvantage of the corporate form of business?