business law module 5

Which category of investor is typically more willing to invest in the early stage of a start-up business, invest amounts from $10,000 to $100,000, be more "hands-off" but may contribute their special skills or knowledge to the business owner? Venture Capitalist Angel Investor

Angel Investor

When a buyer purchases all the stock of a business this is known as what type of a sale? Asset Entity

Entity

The thorough investigation of a business' financial and operational records by a prospective buyer is known as brokering? True False

False

As a florist, you sell a bouquet of flowers for an average of $50 with a gross profit of $20 with a profit margin of 40%. You have determined your monthly fixed costs are $4,000. In order to break even each month you much sell 150 bouquets. True False

False slide

Business expenses such as insurance, utilities, and rent are best described in your Business Plan as what? Gross margin costs Fixed costs Start-up costs Break-even costs

Fixed costs

The seller of a business often wants to include the value of the business' reputation into the purchase price. This value is known as what? Goodwill Fair Market Value Assets Entity

Goodwill

Which document should be signed by a prospective buyer of a business before the seller shares confidential documents? Financing Statement Warranty Letter of Intent Non-disclosure Agreement

Non-disclosure Agreement

An interest in personal property or fixtures that secures payment or performance of an obligation is known as what? Security Interest Warranty Interest Debt Interest Equity Interest

Security Interest

Whether you are buying the entity or assets of a corporation, you should have the principal owners of the business sign which one of the following documents, both as individuals and as officers, to assure that their personal assets can be seized to pay any liabilities discovered after the sale. Warranty Bylaws Collateral Shareholder Resolution

Shareholder Resolution

When purchasing the assets of a small business organized as a corporation, the buyer should request a copy of what document that indicates owners of the corporation authorized the sale of assets. Bylaws Articles of Incorporation Letter of Intent to Purchase Shareholder Resolution

Shareholder Resolution page 159

Banks will typically extend a line of credit to a small business only after they review the business owner's capacity to repay the loan and review the owner's Business Plan True False

True

Since your Business Plan will be reviewed by potential investors, you should use conservative sales revenue forecasting. True False

True

Another source of funding small business startup costs is for the owner to use the difference between what their house is presently worth and how much they have left to pay on its mortgage. This difference is known as collateral? True False

True page 141

To assure the buyer does not make any detrimental changes to the business between the time you sign the Sales Agreement and the time you actually close (i.e. purchase the business); you should include a clause in the Sales Agreement detailing your specific concerns about the conduct of the business pending closing. True False

True page 177

Which type of investor expects a longer term to achieve their return on their investment in a small business? Angel Investor Venture Capitalist

Venture Capitalist

state laws that prevent exorbitant interest on loans are known as collateral laws. True False

false

For tax reasons, a buyer may want most of the purchase price of a business to be assigned to specific assets that will provide the fastest recovery on their purchase. This reduction of the recognized value of an asset is known as a security interest. True False

false page 141

A Letter of Intent to Purchase is a binding contract. True False

page 170 false

If you secure a loan using equipment from your business as collateral, the lender will complete a Uniform Commercial Code (UCC-1) financing statement form and file it with the appropriate state regulatory office. This form notifies your future creditors that the lender is a secured creditor and holds a lien on the equipment. True False

true

To avoid confusion as to which party as the original promissory note, it is best to sign only one promissory note and then make copies for others if necessary.

true

Your spouse is potentially liable for any business loan s/he co-signs if the business cannot repay the loan. True False

true

s the buyer of a business with existing employees you will assume the workers' unemployment compensation claims rate of the prior business owners. True False

true

As a small business owner, you borrow $10,000. In years one, two and three you only pay $1,000 interest each year; in year four you pay $10,000 plus $1,000 interest. This repayment plan includes a balloon payment. True False

true page 140

If you own a limited partnership, you can mitigate your investor's risk by making them a limited partner; but make certain they never become involved in the operation of the business. True False

true page 143

When buying only a business' assets, you minimize the risk of assuming the business' liabilities. True False

true page 159