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Exam 5: How to Form a Business

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Question 121

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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.

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B) False

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Question 122

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One method to avoid conflicts between partners is to solicit the services of a lawyer to create a well-written partnership agreement.

A) True
B) False

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Question 123

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Once a business is established,it's almost impossible to change from one form of business ownership to another.

If a group of stockholders or management obtain all the stock of a previously publicly traded firm for themselves,this is referred to as:

The "coattail effect" refers to inevitable repercussions on your business if a fellow franchisee should fail.

The three major forms of business ownership in the U.S.are sole proprietorships,partnerships,and corporations.

The owners of California Canines,a firm that designs and manufactures coats,sweaters,jackets,and rainwear for dogs want to organize as an LLC.Two members are college students and two others are thirty something couples with young children.This is good strategy because each member can choose to commit to limited or unlimited liability.

Mini-Case For as long as she could remember,Jenna Raiter's passion was cars.As a teenager,she spent hours with her dad tinkering with the family car,learning to change the oil and making minor repairs.She got a job at a local garage while still in high school.A few years after graduating from high school and completing the auto mechanics degree at a local community college,Jenna decided she wanted to be her own boss.She quit her job,borrowed some money from her dad,and began her own repair shop,the AutoMotion Garage.Jenna's hard work gradually attracted a loyal clientele of satisfied customers.Her success has her thinking about opening garages in two other locations,but she lacks the financial resources needed for expansion.Furthermore,the success of her business is forcing Jenna 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 Lew Banfilter,to see if they would like to join the business. -Jenna approached Al Ternator about joining the business as an owner.She proposed that she continue to provide the technical expertise and deal directly with customers,while Al,who has a college degree in finance,handles many of the financial aspects of running AutoMotion.In addition,Jenna wants Al to contribute some much-needed money for expansion.Under Jenna's proposal,she and Al would operate the business together as:

As noted in the Connecting with Small Business box,passing ownership of a franchise to heirs is simple.

One disadvantage of a limited liability company is that it:

Marco is a franchisee with Daggies,a chain of sandwich shops.His business was doing well until several Daggies franchisees got in trouble and were forced to close their shops.Soon afterward,Marco's business deteriorated and he too was forced to close.This is an example of:

A major objective of a leveraged buyout is to enable investors to gain control of a company by issuing new shares of ownership,thus minimizing the use of debt.

To change ownership in a corporation you simply sell your stock to someone else.

The organizational structure of a corporation permits:

The profits of a sole proprietorship are taxed as the personal income of the owner.

Which of the following people would be most interested in participating in a business organized as a cooperative?

Several years ago,Regis Corporation,a very large hair styling salon company purchased 60 "Your Father's Mustache" salons.Although this was initially an acquisition,the merging of these two businesses was a(n) ___________.Regis went on to purchase several hair care product companies.Joining forces with hair care product companies would represent a ____________.

Which of the following statements is the most accurate? A foreign corporation:

When a sole proprietor dies:

After spending a summer down-under,two Oregon friends,Rick and Mick created a general partnership to import emu from Australia to the U.S.After a year,Rick found himself at the mercy of Mick who seemed to keep the books and seldom share the financial results,even though Rick was out selling the emu idea to farmers and ecologically conscious consumers;and,shipments were increasing.As their consultant,one of the first things that you inquire about is whether they are familiar with the UPA (Uniform Partnership Act),specifically the right to participate in managing the operations of the business.