Chapter 4 Intro to Business

What percentage of businesses in the United States are sole proprietorships?

72

Earl is having a party at his home because he is now a member of Earl's Hoses, Inc. board of directors. How did he get this position?

He was elected by the company's shareholders.

Becky's Booties, a shop that sells handmade baby booties and other items, has been operated as a sole proprietorship. Becky now wants to close the business. What must she do?

Pay creditors.

Which of the following forms of business create a double taxation situation?

corporation

There are different kinds of partnerships. In a limited partnership, the ___ partners have limited liability.

limited

Heather was sole proprietor of her business until she passed away. Now the company

will cease to exist unless the heirs take it over or sell it.

Disney Corporation was incorporated in California but moved to another state because it offered the lowest organizational costs for corporations of any state in the United States. What state did it move to?

Delaware

Rebekah's business has been running very well but she feels she needs help and would like to share the ownership, control, profits, and responsibilities with another person and has drafted an agreement dividing responsibilities, outlining division of profits and losses, and other pertinent points. What type of business will she change the sole proprietorship into?

Partnership

When Warren Buffet began business, he did not have sufficient personal funds to own the businesses he operated so he brought in friends and family members to help with the funding. The businesses he operated were formed with an agreement but no formal filing was required and taxes were passed through directly to the business owners. What business form did he use to create these businesses?

Partnerships.

What is the normal life span of a corporation that has not been limited in its corporate charter?

Perpetual life.

After many months in business, Hank decides that there are some negative aspects of having a sole proprietorship. All of the following are negatives except

Pride of ownership.

If Miguel, Lawrence, and Joseph want to obtain limited liability for their business but want to avoid double taxation, they should form a(n) ______.

S-corporation

The Bicycle Company has been incorporated and Rebekah and Andy have sold stock to 33 other individuals while retaining just over half of the stock for themselves. During a shareholder meeting, the shareholders unanimously agreed that they would like to have the profits and losses passed through to them just like they would in a partnership. All of the shareholders are individuals and citizens of the United States. The Bicycle Company could be converted into a

S-corporation.

Geraldine is an officer at QBT Corporation. How did Geraldine become an officer?

She was appointed by the board of directors.

Maven decides she wants to open a chicken and waffle restaurant. She rents a restaurant that was closed; gets a business license; opens a business checking account; buys dishes, silverware, cups, saucers and supplies; and opens the doors. She does all of the work herself and operates it herself. What form of business does she operate?

Sole proprietorship.

Rebekah, a former barista and bicyclist, loves to cook. She has decided that the best blend of these interests is to open a bicycle repair and bagel shop along a popular bicycle route in Napa, California, named Bikes, Bytes & Bagels. She has enough money to open the business and would like to open it quickly, have complete control over it, and face little government intervention. What business form will she most likely choose for this business?

Sole proprietorship.

Two hundred U.S.-born citizens in the graduating class of Boonieville High School in Alabama all agree they would like to form an S-corporation. They are reading the rules for forming an S-corporation and discover they cannot form an S-corp because

The S-corporation can have no more than 100 stockholders.

Lumel was elected to a position with Quark Industries. He has an office, and with other people in his position, is responsible for making decisions about the governance of the corporation. What position does Lumel hold with the corporation?

He is a member of the board of directors.

If Aloha Air Cargo Airlines united with Alaska Airlines to become Aloha Alaska Airlines and neither of the original companies remained, what kind of transaction would this be?

Horizontal merger.

What type of merger would be represented by a merger of Coca Cola and Pepsi Co.?

Horizontal merger.

Consolidated Trucking operates in most states of the United States. If it decides to incorporate, which state could it elect to be its state of incorporation?

It could incorporate in any state in the United States.

Fred Smith Auto is incorporated in California and has business in Kentucky, South Carolina, Georgia, Florida, Washington, and Oregon. In the states where he does business, except for California, how is Fred Smith Auto classified?

It is classified as a foreign corporation.

Becky wants to form a business in the easiest way possible. What form of business should she use?

Sole proprietorship.

All of the following are disadvantages of a sole proprietorship except

double taxation.

When Oracle acquired BlueKai, this was an example of a(n)

vertical merger.

Melville and Ishmael would like to form a fishing company that limits their personal liability but gives them complete control over its operations and allows them to share profits and losses. They do not mind filing documents with the secretary of state but would like to maintain privacy as well. What form of business would you recommend they utilize for this business?

Limited-liability company.

Moe, Harry, and Shepard have been operating a business together as partners without a partnership agreement for several years. Harry falls off of a roof and dies suddenly. What will most likely become of the partnership?

Moe and Shepard will be able to purchase Harry's interest from his estate.

Megan would like to start a sewing club for underprivileged children teaching them to make quilts and other creative items. She does not want to sell stock but would like to take donations to support the club. What would be the best business form for this club?

Not-for-profit corporation.

Inez Investor would like to buy stock in Apple, Inc. She wants to be able to vote and therefore is going to buy common stock. Of the rights listed below, which one will she not have with common stock?

The right to receive part of the profit before the other classes of stock.

Fred and Estelle want to start a dance instruction business together. They have discussed sole proprietorships, partnerships, and corporations and find the corporation to be attractive because it overcomes a primary disadvantage the other two forms do not overcome. What is that disadvantage?

Unlimited liability.

Francis won $1 million in the lottery and wishes to start her own business. Her lawyer suggests she form a corporation rather than a sole proprietorship because

a sole proprietorship has unlimited liability.

Toyota is chartered as a corporation in Japan but does business in the United States. In the U.S. it is known as a(n) ____ corporation.

alien

Fred and Barney have decided to go into the quarry business together. They start by writing an agreement that explains the parameters of the business they will own and the responsibilities and roles each of them will have in the business. They have created

articles of partnership.

The best way to begin a partnership for a professional business practice is to

carefully draft a partnership agreement that states each partner's duties and investments.

Bobby and Brian, brothers, own a machine milling company that they incorporated. They are the only stockholders and have an agreement that upon the death or inability of either to work in the business any longer, the other has the right of first refusal to buy the deceased or disabled individual's stock. This corporation is known as a

closed corporation.

When Pepsi Co. merged with Kentucky Fried Chicken this was known as a

conglomerate merger.

Gary wants to form a business that has very little government regulation. He has investigated different forms of business and determined that he will avoid forming a ____ because it is the most heavily regulated by the government.

corporation

Rebekah and her business partner, Andy, are reviewing their business and think they should add a bicycle tour business to their Bikes, Bytes, & Bagels business that will pick up riders at their hotels, take them to the shop for breakfast, and then provide them with a guide, bicycle helmets, transportation for those unable to complete the ride, and a pick-up of the bicycles and riders at the end of the ride to return them to their hotels. Because of the liability and need for more money to buy the vehicles, bicycles, and other equipment for the new business enterprise, they decide that it would be best to form the new business as a ___ named The Bicycle Company.

corporation

Rogers and Hammers need to raise capital for their new start-up technology business. The most effective form of business organization for raising capital is the

corporation.

Kelsey has just received her distribution of earning from the stock she has in Chevron. That means she has received

dividends.

Disney Corporation is incorporated in Delaware. In Delaware it is considered a(n)___ corporation.

domestic

How corporations are designated changes depending on where the corporation is doing business. When a corporation is in the state in which it is incorporated it is known as a(n)

domestic corporation.

Harry, Moe, and Carol own a lawn mowing business. Moe invested 60 percent of the capital to start the business, Carol invested 25 percent of the capital, and Larry invested 5 percent. Their partnership agreement does not specify how profits should be divided therefore the profits shall be divided

equally.

Siegfried is a member of a partnership with 50 members. All of the other members have limited liability but he has unlimited liability. From this we know that Siegfried is the

general partner.

If ABC Toys and Toys-R-Us merged, this would be known as a

horizontal merger.

Sole proprietorships are the most prolific form of business in the United States, however, ___ businesses account for the highest percentage of all sales revenues.

incorporated

Luis has a trucking company that he would like to expand. To do so he will need more money but does not want to risk any more money of his own. He contacts a lawyer to see if all of the legal requirements have been met to begin the process of

incorporating.

A _______ is a partnership formed to operate for a specific time period or to accomplish a specific purpose.

joint venture

If Giuseppe, owner of a dairy, and Francis, owner of a milk processing plant and laboratory, join together to produce a cream that slows the aging process, this would be called a

joint venture.

If Honda Motor Co. Ltd. and Harley Davidson engaged in a temporary alliance to manufacture and market certain models of motorcycles in order to gain access to one another's national markets, this partnership would be known as a

joint venture.

Jose and Juan would like to form a partnership to acquire land, develop a shopping center on it, and then sell the development to a builder. Jose is a real estate investor and Juan is a developer. To accomplish their goal they should form a

joint venture.

Jeeves and Elizabeth would like to form a business that gives them protection from liability but is taxed like a partnership. They have investigated S-corporations but rejected them as having too many government regulations. They should form a

limited liability company.

Shanice has been reading business publications about different forms of business. She reads that experts believe _____ will become the most popular type of business organization.

limited-liability companies

If Microsoft purchased Apple, this would be referred to as a

merger.

The term preferred stock means that the owner

most likely does not have voting rights but has a claim on dividends that are paid before those of common-stock owners.

Helen and Joanne would like to form a corporation to provide string music education to children in their area and concerts in rest homes for the elderly who are unable to travel. Helen and Joanne will most likely form a

not-for-profit corporation.

The Union Rescue Mission, an organization that aids and feeds the homeless, and the American Heart Association are both examples of

not-for-profit corporations.

Jim gave his grandchildren, Liz, Anne, and Ellis, stock in Disney Corporation for Christmas. He bought the stock through his stockbroker. That means Disney is a(n) ___ corporation.

open

A for-profit corporation whose stock can be purchased by members of the public without restrictions is called a(n)

open corporation.

Maurice recently graduated from college and would like to find employment with a large company where he will have the opportunity to advance. Maurice should seek employment with a(n)

open corporation.

Freddie and Mack join together in a voluntary association to act as co-owners of a business. They have formed a(n)

partnership.

Disputes among business associates occur most often in

partnerships

Hannah has been weighing the pros and cons of starting her business as a corporation. She has determined that all but ______ is a disadvantage of starting a business as a corporation.

perpetual life

Andrew receives a postcard in the mail from the corporation in which he owns stock. The postcard directs him to vote in the upcoming election of corporate directors and if he cannot vote then to complete the ____ form allowing someone else to vote for him.

proxy

A technique used to gather enough stockholder votes to control a targeted company is called a

proxy fight.

Company A would like to gather enough stockholder votes to control Company B. To do this it could launch a

proxy fight.

Drusilla owns a large cosmetic store in San Francisco that employs about 25 people. She delegates some of the decision making to two store managers but otherwise makes all of the decisions and is the only owner. Drusilla's business is organized as a

sole proprietorship.

Local residents have always thought that Mike & Ernie's Malt Shop was a partnership, but after Mike passed away it was discovered that he was the sole owner of the business. This means that the malt shop was most likely a

sole proprietorship.

Ofelia has opened a Central and South American food restaurant in the small town she just moved to. She opens the business at 7 a.m. every morning for breakfast. After she has been open three weeks, two patrons call her over to their table and tell her that a group of businesspersons used to meet for breakfast at 6 a.m. every morning in the previous restaurant and suggest that if she opens an hour earlier, she can instantly pick up business. Ofelia opens the restaurant at 6 a.m. the next day and every day thereafter. Ofelia's business is most likely a

sole proprietorship.

Jennifer bought an ownership interest in IBM. The name normally given to an ownership interest in a corporation is

stock.

If Bank of America, Wells Fargo, Union Bank, and USA Bank joined together to make an extremely large loan, this association would be referred to as a(n)

syndicate.

When an individual or company offers to purchase the stock of another company at a price that is just high enough to tempt the current stockholders, it is called a

tender offer.

A closed corporation is one

that has a limited number of stockholders and sales and exchanges of the stock are restricted.

Timothy decides he needs cash and must sell his stock in Google, Inc. When he sells his stock he will discover that one of the benefits of a corporation as a business form is

the ease of transferring ownership.

Gunderson starts his own business as a sole proprietor. This form of business has the advantage of

the owner keeping all of the profits from the business.

Fred and Barney have decided to incorporate their quarry business. One of the first things they will do is submit their articles of incorporation to

the secretary of state.

Able, Baker, Charlie, Edward, and Frank decide to form a partnership. Their partnership is unusual because most partnerships have __ partners.

two

All of the following are advantages of a sole proprietorship except

unlimited liability.

Fannie and Mae decide to form a partnership after discussing it for a few days. They have determined that a partnership has all of the following advantages except

unlimited liability.