BUSi chapter 5

cooperative

A business owned and controlled through pooled resources by the people who use it is a(n) ______.

articles of incorporation and bylaws

A corporation is formally formed with

horizontal merger Explanation A horizontal merger is the joining of two firms in the same industry, often producing very similar products or services. This strategic move is usually for the purpose of the purchasing firm increasing its market share and competitive advantage.

A few years ago, in order to gain market share, DelRay™, a well-known learning management system software company used by many colleges and universities, joined forces with WEB Cast™, another learning management system software company. Both companies were in the same industry and originally competed against one another. In business, we would call the joining of these two firms a(n)

a fellow franchisee does something that has an impact on growth and profitability

A franchise owner will experience the coattail effect when ______.

vertical merger Explanation A vertical merger is the joining of two firms at different stages of related businesses.

A large computer hardware manufacturer purchased a company that develops computer-based software training, among other types of computer-based training. The computer manufacturer has been looking for just such a company that could open up opportunities for them to diversify and grow both businesses. This strategic decision bringing the two companies together is called a

double or dual

A major disadvantage of the corporate form deals with the tax situation called (. ) taxation.

agreement

A partnership ( ) can spell out the requirements of terminating a partnership.

general partnership

A partnership where all owners share in operating the business and in assuming unlimited liability for the business's debts is a Blank______.

corporation

A state-chartered legal entity with authority to act and have liability separate from its owners is a

corporation

A state-chartered legal entity with authority to act and have liability separate from its owners is a ______.

S

A unique government creation that looks like a corporation but is taxed like a sole proprietorship or partnership is called a(n) (. ) corporation.

an S corporation

A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships is Blank______.

online franchising Explanation The Internet has changed franchising in many ways. Most brick-and-mortar franchises have expanded their businesses online and created virtual storefronts to deliver increased value to customers. Setting up a website is one of the best ways for a franchisee to increase sales quickly.

Advantages of __________ include increasing sales quickly and delivering increased value to customers.

partnership or partner

An LLC submits a written operating agreement, similar to a(n) (. ) agreement, describing how the company is to be operated.

are not involved in daily operations

An advantage of the separation of ownership from management in corporations is that the company can raise money from investors but the investors

franchise

An agreement that gives a business the right to use a business's name and sell a product or service in a given area is a(n) Blank______.

franchise

An agreement that gives a business the right to use a business's name and sell a product or service in a given area is a(n) ______.

limited partnership Explanation A limited partnership is a partnership with one or more general partners and one or more limited partners. Limited partners are owners who invest money but do not have any management responsibilities.

At Derrick's Disc Encore, a store that buys and sells used CDs and DVDs, there is only one general partner, Derrick. He spends all his time running the business and making the decisions. Derrick's mother and sister put up money for him to buy the store. Although they work full time at other jobs and have no management say in the running of Derrick's Disc Encore, they share in some of the profits. This is an example of a(n)

the coattail effect

Because of the poor publicity at a fellow franchise location, you notice that sales at your location have decreased. The impact of the poor publicity on your company is referred to as Multiple choice question.

put all terms of the partnership into writing in a partnership agreement. Explanation When starting a business, a good way to protect yourself and all partners is to put your partnership agreement in writing

Eleanor and her best friend Julie Ann, from beauty college, are starting a salon together. Both stylists have worked for other salons but have no experience working for themselves. Before entering into a partnership, the two friends should first

markets or consumers

Franchises are expanding internationally to access additional ( ) that have new customers and to increase their profit potential.

franchisees, employees, suppliers, investors, stakeholders, franchisee, or workers

Franchisors often use technology to meet the needs of both their customers and their ( ) because technology makes communication faster and more widespread.

technology

Gathering leads on a company website, selling products and keeping up to date on news via email, and chat rooms all serve as examples of using (. ) to assist franchisees and customers.

low overhead expenses relief from the stress of commuting

Home-based franchises have many advantages, such as:

leveraged buyout. Explanation : Leveraged buyout (LBO) is an attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing. The funds borrowed are used to buy out the stockholders in the company. The employees, managers, or investors now become the owners of the firm. When managers buy all of the stock of a firm and take it off the open market, it is referred to as taking the firm private.

If a group of private investors successfully borrowed a large sum of money and purchased the firm from its current owners, we would call this event a

unlimited , liability

If your company's debts or damages are solely your responsibility you could be experiencing the disadvantage associated with owning a sole proprietorship called

cooperative Explanation A cooperative is a business owned and controlled by the people who use it

In a __________, members democratically control the business by electing a board of directors that hires professional management to run the business.

liability

In a general partnership, all partners share the responsibility for operating the business and assume (. ) for the business's debts.

bylaws

In addition to the articles of incorporation, a corporation has (. ) , which describe how the firm is to be operated from both legal and managerial points of view.

royalty Explanation Royalties are shared profit obligations that the franchisee agrees to pay the franchisor. This payment can be in the form of a percentage of the revenues or a percentage of the profits. Shared profits are usually considered a disadvantage of owning a franchised business.

In his search for a franchised business that would satisfy his passion for the outdoors and earn him a decent living, Crispin noted that the shared profit criterion required of franchisors had significant variance. Some required franchisees to pay 7 percent of their monthly revenues to the franchisor. Others required 4 percent of the profits. In business, we refer to this obligation as a

hold annual meetings file written resolutions keep minutes

In terms of operating flexibility, what are three things that LLCs are not required to do?

keep minutes file written resolutions hold annual meetings

In terms of operating flexibility, what are three things that LLCs are not required to do?

keep minutes or hold annual meetings

LLC's are considered to have operational flexibility because while they must submit articles of organization, they are not required to ______.

there are large new markets available

Many franchises are expanding internationally because Blank______.

franchise

Many minority business owners prefer the Blank______ form of business ownership because it offers business connections and support.

boss, employer, or manager

Many people do not like working for someone, so being your own ( ) is an advantage of sole proprietorships.

finds it easier to start and end the business

One of the most important advantages of the sole proprietor form of ownership is that a business owner ______.

Owners/stockholders (elect board of directors) Board of directors (hire officers) Officers (set corporate objectives and select managers) Managers (supervise employees) Employees

Rank the order in which members of a corporation are chosen in order to separate ownership from management. Start at the top of the managerial hierarchy. (Fig. 5.4)

home , based

Relief from the stress of commuting, extra time for family activities, and low overhead expenses are all advantages of ( ) - ( ) franchises.

partnership

Termination of a partnership is difficult without a(n) ______ agreement.

it is a legal entity corporate liability is separate from owners it is state chartered

The attributes of a conventional corporation include that:

merger

The result of two firms (usually corporations) combining to form one company is called a

merger

The result of two firms joining to form one is called a(n) ______.

False

True or false: Partnerships are less likely to survive than sole proprietorships.

True

True or false: The main advantage of a sole proprietorship is ease of start up.

Your parents would only lose the value of their shares. Explanation A corporation's stockholders are its owners. A major advantage of corporations is the limited liability of their owners. Since limited liability means that the owners of a business are responsible for losses only up to the amount invested, your parents would only lose the value of their shares.

Twenty years ago, your parents invested in shares of a large computer company. As the years have gone by, the investment has grown. However, if the company should go out of business and declare bankruptcy, what would happen to your parent's investment?

personal

Unlimited liability as it relates to sole proprietorships is the risk of loss of ( ) assets beyond the assets of the business.

Double taxation Cost of forming a corporation

What are two of the disadvantages of a corporation?

they provide personal ownership of a business some offer financial support to aspiring business owners

What are two reasons that franchises are attractive to minority populations?

Partnerships are more likely to succeed.

What can be said about the survival rate of partnerships as compared to sole proprietorships?

the right to use a specific business' name the right to sell a business' products in a given territory

What two items are delineated in a franchise agreement?

franchisee Explanation Franchisees are the people who buy franchises.

When Betsy Blackwell bought a Mighty Maid franchise, she became a

master limited partnership Explanation A master limited partnership (MLP) looks much like a corporation in that it acts like a corporation and is traded on the stock exchanges like a corporation, but it is taxed like a partnership and thus avoids the corporate income tax. Master limited partnerships are limited to the oil real estate and gas industries. Income received is not taxed before it is passed on to investors as dividends as it would be if it were a corporation.

When J.R. joined his Uncle's oil exploration company in east Texas, he was given several hundred shares of stock in the firm, and was officially made a partner. The firm's accountant explained that this partnership looks much like a corporation and is traded on a stock exchange but is taxed like a partnership and thus avoids the corporate income tax. Income received is not taxed before it is passed on to investors as dividends as it would be if the company were a corporation.. This firm is likely a special form of ownership called a

limited liability company Explanation The advantage of the LLC, limited liability company, is limited liability (members are only liable for the funds each invested) and a choice of how the organization will be taxed. In this case, the partners were concerned with liability. The other three forms of ownership have unlimited liability.

When Matt, John, and Jevonte lost their jobs during the recent recession, they pooled their resources, borrowed a little more, and bought a couple of houses to renovate. All three were concerned about the risk involved in owning their own business, particularly the risk of losing personal assets. As their advisor, which form of business ownership would you recommend?

cooperative

When producers, consumers, or workers with similar needs pool their resources for mutual gain, they start a(n) Blank______. Multiple choice question.

merger

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

coattail effect Explanation The coattail effect is when the actions and success or failure of other franchises have an impact on your future growth and profitability, positively or negatively.

When your profitable franchise fails simply because other similar franchisees have failed, this is known as the

taxed separately from its owners who also enjoy limited liability Explanation C corporations are taxed separately from their owners, and owners enjoy limited liability.

Which characteristic is typical of a C corporation?

sole proprietorship Explanation A sole proprietorship is an easy form of business ownership to form with limited start-up expenses, unlimited liability, and no special taxes, meaning the profits from the business are taxed at the individual owner's personal income tax rate.

Which form of business ownership is the most common in the United States?

While the upfront costs of a franchise may be steep, a franchise has a better chance of succeeding than starting a business from scratch Having a nationally recognized name for your business in a franchise can help with marketing and awareness

Which of following are true about the advantages and disadvantages of being a franchise owner

Having a nationally recognized name for your business in a franchise can help with marketing and awareness While the upfront costs of a franchise may be steep, a franchise has a better chance of succeeding than starting a business from scratch

Which of following are true about the advantages and disadvantages of being a franchise owner:

While the upfront costs of a franchise may be steep, a franchise has a better chance of succeeding than starting a business from scratch Having a nationally recognized name for your business in a franchise can help with marketing and awareness

Which of following are true about the advantages and disadvantages of being a franchise owner:

The articles of incorporation are usually filed in the state in which the company will be incorporated The bylaws of the corporation describe how the firm is to be operated

Which of the following are true regarding the process of forming a corporation?

The bylaws of the corporation describe how the firm is to be operated The articles of incorporation are usually filed in the state in which the company will be incorporated

Which of the following are true regarding the process of forming a corporation?

double taxation Explanation Corporate income is taxed twice. First the corporation pays tax on its income before it can distribute any, as dividends, to stockholders. Then the stockholders pay income tax on the dividends they receive. This is known as double taxation.

You inherited 500 shares of IBM stock from your Great Aunt Mildred. As you contemplate selling the shares, your accountant informs you that the company pays a generous dividend, and advises you to start watching the firm's profits. When you are awarded the first dividend, you learn that it is considered a source of income and you will be taxed on that amount. You find this bothersome because the firm paid the dividend from after-tax profits. (These dollars were already taxed.) This phenomenon is called