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Exam 5: How to Form a Business

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Question 51

Multiple Choice

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A separation between ownership and management is most likely to occur in a

A) sole proprietorship.
B) general partnership.
C) corporation.
D) limited liability partnership.

E) A) and B)
F) B) and C)

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Question 52

True/False

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James and Reilly were arguing over who was the senior partner and who was the junior partner, even though they started the business at the same time. If you were brought on board as their business advisor, you would explain to them that all partnerships have at least one general partner (known as the senior partner) and one limited partner (known as the junior partner).

A) True
B) False

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Question 53

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The three major types of mergers are acquisition, joint, and connective.

Sole proprietors sometimes have trouble competing with large firms for expert talent. Large firms can usually pay better and offer fringe benefits that are unaffordable to the sole proprietor.

An advantage of corporations is their ability to attract good talent by offering stock options and other employee benefits.

One of the major disadvantages of a sole proprietorship is the

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

To many businesspeople, one of the major attractions of a sole proprietorship is

The strategy of investors who are attempting a leveraged buyout is to

Tee Time Golf Club just announced plans to purchase the property and assume the obligations of Chipper's Golf Resort, one of its major competitors. Tee Time Golf Club's plans are an example of a merger.

If a partner in a limited partnership dies, the partnership ceases to exist.

Compared to sole proprietorships, an advantage of partnerships is their ability to obtain more financial resources.

In a general partnership, all partners share in management of the business and in the liability for the firm's debts.

Maria is already a successful franchisee with Nite Lite, a chain of "no frills" motels that provide clean rooms and good service at affordable rates. The motel she currently operates is located in Texas, but she is considering an opportunity to open another Nite Lite motel in Canada. Although her costs of operating in a foreign nation may be higher, she has the benefit of an expanding market and less competition.

One disadvantage of a limited liability company is that it

A limited partner is an owner who assumes no management responsibility and has no liability for losses beyond the amount invested.

The reason a professional such as a lawyer or doctor would incorporate his/her business is

A horizontal merger refers to a merger between two companies in the same industry, and serving the same markets.

Although most new firms start out as sole proprietorships, few large firms are organized this way. Why is the sole proprietorship such a popular form of ownership for new firms? What features of the sole proprietorship make it unattractive to growing firms?

The franchisee pays the franchisor a share of profits or a percentage commission on sales, known as a royalty.