BUSS-1301 Chapter 5

select the reasons a business might change ownership form

-adding a partner to the firm -dropping a partner from the firm -seeking limited liability

select the reasons why size is an advantage of the corporation

-attract experts for hire -acquire the latest equipment -build modern facilities

what are the advantages of the LLC form of organization?

-limited liability -choice of taxation -flexible ownership rules

what are some of the advantages of a corporation?

-limited liability -ability to raise more money for investment

home-based franchises have many advantages, such as

-low overhead expenses -relief from the stress of commuting

what are some of the advanatges of franchising?

-lower failure rate -recognized name -financial advice

rank the forms of business ownership based on ease of starting. Put the easiest form at the top.

1. sole proprietorship 2. partnership 3. corporation

which form of ownership is nontransferable because there is no stock?

LLC

a franchise owner will experience the coattail effect when:

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

a(n) _____ occurs one company purchases the property and obligations of another.

acquisition

a partnership _____ can spell out the requirements of terminating a partnership

agreement

franchisees must follow the franchise _____, which limits the control of the operation by the franchisee through regulations and guidelines

agreement

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

an S corporation

a corporation is formally formed with

articles of incorporation and bylaws

the advantages of becoming a sole proprietorship include

being your own boss

in a leveraged buyout, employees managers, or investors finance the purchase of the company by:

borrowing against its assets

many people do not like working for someone, so being your own _____ is an advantage of sole proprietorships

boss

many foreign firms enter the U.S. markets more quickly by:

buying an established brand

Bruce is meeting with his accountant to choose whether his LLC is to be taxed as a partnership or a corporation. This advantage of forming an LLC is called:

choice of taxation

franchisees can begin to feel burdened if the _____ creates too many managerial orders, directives or limitations

company

the joining of firms in completely unrelated industries is a(n) _____ merger

conglomerate

a _____ is owned by its members, the people who use it, versus a corporation which is owned by people who own stock

cooperative

it is important to have Articles of Partnership because problems between partners may occur due to

disagreements over dividing profits

Sharing risk means sharing rewards in a partnership. A partner expects to be rewarded for putting time and money into a firm through:

divisions of profits

a corporation is a legal _____ with authority to act and have liability separate from its owners

entity

historically, the _____ rate for franchises has been lower than that of other business ventures.

failure

True or false: if you and a friend start a business together, you have started a sole proprietorship

false

True or false: in a limited partnership, the liability of the limited partners is unlimited and personal assets are at risk.

false

true or false: being your own boss is a disadvantage of a sole proprietorship

false

The initial goal of a(n) _____ cooperative was to join together to get better prices for their food products.

farm

a franchisee must know the amount of the _____ for the rights to start the franchise

fee

partnerships have the advatage over sole proprietorships of pooled knowledge and _____ resources

financial

_____ partners participate in operating the business while limited partners do not

general

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

general partnership

long hours and a feeling of isolation are two disadvantages of _____ _____ businesses

home based

the joining of two firms in the same industry is a(n) _____ merger

horizontal

Andy is the owner of Action Auto which was formed as a sole proprietorship. He would like to eliminate the risk of personal liability for the company debt. What is Andy's best course of action?

incorporate

franchises not only help many entrepreneurs start a business but also create many new _____

jobs

the start up costs of filing for incorporation are high because

lawyers and accountants are needed to do the complex filings

sole proprietors can leave their business to their heirs. This is called:

leaving a legacy

if the sole proprietor dies, is incapitated, or retires, the business no longer exists. The disadvantage of a sole proprietorship is called _____ life span

limited

Bob and Dan are doctors in a medical practice. Dan is being sued for malpractice, but it will not affect Bob's assets because they formed a(n) _____ _____ partnership

limited liability

a form of business ownership that provides limited liability, as in corporation, but is taxed like a partnership is a(n) _____ _____ company

limited liability

when two firms join together to form one new company, it is called a(n) _____

merger

_____ do not pay taxes when submitting the organization's tax return to the Internal Revenue Service; the tax return simply provides information about the profitability of the organization and the disribution of profits.

partners

general, limited, and master limited are the three main forms of a(n)

partnership

sole proprietorships far outnumber _____ and _____, but they net far fewer sales and less income

partnerships and corporations

taking a firm _____ is when a corporation decides to maintain, or in some cases regain, control of a firm internally by obtaining all of the stock

private

an advantage of a sole proprietorship is the business owner keeps all the _____, but in a franchise, in many instances, this must be shared with the franchisor

profit

flexible distribution of profits and losses is considered an advantage of an LLC because

profits/losses do not have to be distributed in proportion to the money each person invests

an advantage of an LLC is flexible distribution profits and losses, which means profits/losses do not have to be distributed in _____ to the money each person invests

proportion

an advantage of a sole proprietorship is that the owner:

retains profits

in developing a partnership agreement, it is recommended that you

seek legal advice

a business person concerned about high _____ costs should not invest in a franchise which is associated with this disadvantage

start up

corporations issue _____ to shareholders and this allows ownership to change when it is sold

stock

a key benefit that only corporations can offer to attract skillled employees is

stock options

a corporation allows people to own _____ and share in the profits of the firm

stocks

an advantage of partnerships is a longer _____ rate than sole proprietorships, because they become more disciplined and the business's life is based on all the partners

survival

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

technology

perpetual life for a corporation means that the death of one owner does not _____ the corporation

terminate

_____ liability means partners can lose everything they own if the business loses a lawsuit

unlimited

the responsibility of the owner of a sole proprietorship for all of the debts of the business is _____ liability

unlimited

In a sole proprietorship, any debts or damages incurred by the business are your personal debts and you must pay them. The disadvantage is known as:

unlimited liability

the disadvantage of sole proprietorships is that any debts or losses incurred by the business are your debts because you and the business are legally one and you have:

unlimitted liability

when two firms operating in different stages of relatted businesses join, it is called a(n) _____ merger

vertical

true or false: to end a sole proprietorship, you simply stop operations

true

the Uniform Partnership Act defines the three key elements of a general partnership as

-common ownership -participation in operations -shared profits and losses

among the reasons that disagreements can ruin a partnership are:

-disagreement over workload -arguments over dividing profits -opposing management styles

when producers, consumers, or workers with similar needs pool their resourced for mutual gain, they start a(n)

cooperative

a legal entity with the authority to act and have liability apart from its owners is a

corporation

selling shares of stock to anyone allows a _____ to raise more money to grow

corporation

the paperwork needed to start a corporation is extensive, but a corporation must also keep detailed _____ records documenting all financial transactions in detail

financial

Bruce owns his own company, but is having trouble working alone because he feels he needs additional expertise, management help, and an influx of money to stay afloat. Bruce should consider

forming a partnership

an entrepreneur would buy a _____ if they are uncomfortable starting their business from scratch

franchise

the right to use a specific business' name and sell its products or services in a given territory is a(n) _____ agreement

franchise

an advantage of cooperatives is that they:

increase the economic power of members

a limited liability partnership limits the liability of limited partners to their

initial invesment

although members may choose to reconstitute an LLC after it dissolves, limited _____ _____ is considered a disadvantage of this form of business

life span

an advantage of the corporate form of business is that limited liability allows it to

limit individual responsibility for losses

Taryn and Eilysh have decided to form a partnership. Taryn will not have management responsibility, but will invest money in the business. Taryn will be considered a(n) _____ partner.

limited

a key advantages of LLCs is _____ liability where personal assets are protected

limited

The limited partners' risk of losing their personal assets in an LLP is:

limited to the outcomes of their own acts and omissions

large size may be a disadvantage to corporations because they

lose flexibility to respond to change

conflicts may occur between the stockholder-elected board of directors and the _____ about how the company is being run.

managers

a business that is owned and managed by one person is a(n) _____ _____

sole proprietorship

funds available to a business are limited to what one owner can gather which is a disadvantage to the form of business known as a(n) _____ _____

sole proprietorship

it is often more difficult for sole proprietorships to attract and retain good employees because

they cannot offer competetive pay and benefits

true or false: a disadvantage of a sole proprietorship is limited financial resources

true

true or false: corporations pay tax on company income and shareholders pay again on any dividends received

true

true or false: sole proprietors set their own schedules, but work many hours

true

select the disadvantages of a partnership

-division of profit -partner disagreements -unlimited liability

which are considered disadvantages of incorporating?

-double taxation -initial cost extensive paperwork

members of cooperatives often participate by

-electing a board of directors to hire managers -working in the cooperative for a period of time each month

LLCs do have to submit articles of organization and an operating agreement, but do not have to:

-file written solutions -hold annual meetings -keep minutes

the failure for franchises is lower than other business ventures because of:

-financial advice and assistance -nationally recognized names

an advantage of starting an onlie franchising is that

-franchisees pay only a set monthly fee -online franchisees can compete in world markets -no upfront fee may be required

select the most popular businesses for franchising

-gas stations with convenience stores -full service restaurants -fast food restaurants

in order to protect the brand name and image, the franchisor often has:

-high standards -tight management controls -required marketing programs

Jane wants to start a new Subway franchise in her town. In the initial stage of investigating, Jane must consider all of the following

-how much capital is needed to purchase the franchise -the financial strength of the franchisor

the attributed of a corporation include that:

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

what are some of the disadvantages of operating a franchise?

-management regulation -large start-up costs -shared profit

what are some of the disadvantages of an LLC?

-more paperwork than sole proprietors -self-employed taxes

in order to qualify to become an S corporation, a company must have:

-no more than 100 shareholders -shareholders who are individuals or estates

Select those items considered fringe benefits that people working for a company are likely to receive, but a sole proprietor has to develop on his own:

-paid health insurance -a pension plan -paid sick leave or vacation leave time

Select ways an LLP deals with liability for partners

-partners are not held liable for each others' actions -liability is limited to losing only personal assets directly related to personal acts -when a partner is sued individually for malpractices, it does not affect other partners

the owner of a sole proprietorship must pay which of these taxes?

-personal income tax -social security and medicare

which statements are accurate as related to corporate taxation?

-stockholders pay income tax on the dividends they receive -double taxation occurs

many bricks and mortar franchisees are using _____ to expand their businesses online to lower costs and better meet needs of their customers

-technology -websites -e-commerce

the advantages of seperating ownership from management in corporation include:

-that the board of directors establishes major policies that guide the corporation -that the company can raise money from investors, but they don't control daily operations

when choosing to form a partnership, a business owner should consider all of the following

-the financial contribution of each partner -the level of participation of each partner -a partner's level of expertise in different areas of business

a sole proprietorship often grows slowl because the owner is

-the main source of creativity -the main source of know-how -the major source of funding

franchises are attractive to minority populations because

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

which are attributes of a master limited liability partnership?

-traded on the stock exchange -acts like a corporation -taxed like a partnership

select the disadvantages of a sole proprietorship:

-unlimited liability -limited financial resources