BSAD 101- Ch. 4&5 Practice Exam

How does the SBA define a small business? Approximately what percentage of all businesses in the United States are considered "small"?

The Small Business Administration (SBA) defines a small business as "one which is independently owned and operated for profit and is not dominant in its field." Dependent on the industry, the SBA uses size standards usually by number of employees or average annual sales. In the U.S., 99.7 percent of all businesses are considered small.

Refer to Personal Wellness. A business plan should answer all of the following questions except

a. "Which accounting firm will audit the company?"

To qualify as a small business, a manufacturing plant can employ no more than people.

a. 500

Which of the following is a disadvantage of the corporate form of organization?

a. Both the corporation and its stockholders are taxed on profits retained and distributed.

Mark owns stock in Walgreens. He has the right to vote on company issues and examine corporate records, and he receives dividends from Walgreens' profits. What type of stock does Mark own?

a. Common

Which of the following states offers the lowest organizational costs for corporations?

a. Delaware

Kim Nguyen is planning to open a boutique stocked with exotic imports from around the world. Most probably, this new business will be managed by

a. Kim Nguyen.

What do experts believe is likely to become one of the most popular types of business organizations?

a. Limited-liability companies

Which of the following is not considered a category in the distribution industries?

a. Manufacturing

Which of the following is an advantage of the corporate form of organization?

a. Ownership of stock is easy to transfer.

Quarrels among business associates have become common. The associates quarrel over what products the firm should sell, division of authority, selection of personnel, whether to bring family members into the business, whether to expand, and who is contributing most to the firm's success. Such feuding, which damages business relationships, occurs most frequently in what form of business?

a. Partnerships

Which of the following has a restriction on the number of owners, members, or stockholders?

a. S-corporation

Which of the following organizations aids small businesses with selling overseas?

a. The U.S. Commercial Service

Ted's partnership agreement with two other men was a bit unsound. One of the problems the men were encountering was uneven productivity among the partners. The agreement required each partner to contribute to every aspect of the business to receive an equal portion of the profits. This agreement did not reflect the idea that

a. all partners need not be equal; that is, there are different types of partners. Some may be fully active in running the business, whereas others may have a more limited role.

A carefully constructed guide for the person starting a business is a(n)

a. business plan.

Carmen Catucci is considering going into business. She wants to offer an income tax service. To minimize her chances of failure, she might consider

a. buying a franchise.

A merger between firms in completely unrelated industries is known as a

a. conglomerate merger.

Many small firms seek to establish a particular niche in the market, realizing that they cannot afford to operate on a larger scale without exposing themselves to considerable risk of retaliation from larger companies. When a number of small businesses are operating in this manner, they are forcing the larger businesses to recognize and account for their influence on the market. In this way, small businesses are primarily

a. fostering competition.

In a franchise business, the party paying the franchise fee is known as the

a. franchisee.

Michael Tucker operates Tucker Farms in northern Illinois. Last year, his annual receipts were just under $750,000. According to the Small Business Administration, Tucker Farms is a

a. small business.

An individual's desire to create a new business is referred to as

a. the entrepreneurial spirit.

There are three general types of franchising arrangements. In one approach, the franchisor authorizes retailers to sell a particular brand-name item. This type of arrangement is common in all of the following areas except

a. the soft-drink industry.

Most partnerships have partners.

a. two

Refer to Samantha's Dilemma. What type of company does Samantha's friend operate?

b. Partnership

A new small business, Underwater Wildlife, has opened to sell tours of underwater sites around the country and in South America. However, money has to be paid up front by the Underwater staff to book hotels and other travel arrangements before its clients have paid for the tours. That means Underwater is facing a potential

b. cash-flow problem.

An individual or organization granting a license to operate an individually owned business as though it were part of a chain of outlets or stores is a(n)

b. franchisor.

The primary financial function of the Small Business Administration is to

b. guarantee loans.

Refer to B&G, Inc. B&G, Inc. was going through a merger.

b. horizontal

Service industries account for approximately what percentage of all small businesses?

c. 50

What does double taxation mean?

c. Companies must pay taxes on their earnings, and then stockholders pay taxes on their dividends.

Manju Iyer asks for your advice in opening a new business. She plans to provide tax-related services to individuals and small-business owners in her community. Of course, she wants an attractive means of starting and operating her business with a reasonable hope of succeeding in it. What will be your advice?

c. Consider purchasing a franchise.

Which of the following would least likely be started as a small business?

c. Electricity company

Refer to B&G, Inc. What type of organization is B&G, Inc.?

c. S-corporation

Professors at most universities are highly encouraged to participate in community service. What organization that provides low-cost courses and workshops would welcome management professors with an interest in small companies?

c. SBA

Small-business investment companies

c. are profit-making organizations.

A small business is all of the following except

c. dominant in its field.

Boeing is incorporated in Seattle, Washington. It has a large facility in Huntsville, Alabama, and is considered a(n) ____ because it conducts business within Alabama.

c. foreign corporation

A group of senior and graduate students in business administration providing management counseling to small businesses is known as a

c. small-business institute.

Privately owned firms providing venture capital would be identified as

c. small-business investment companies.

To qualify as a small business, a retailing establishment may not exceed annual sales of

d. $7 million.

A company generally needs more than _____ employees in order to be considered large.

d. 500

The acronym SCORE stands for

d. Service Corps of Retired Executives.

Which of the following is the most likely example of a production industry?

d. Subassembly plant

Which of the following would least likely be stated in the articles of partnership?

d. What products the company will sell

Approximately what percentage of the jobs in the United States do small businesses provide?

d. over 50 percent

Of the small businesses in the distribution industry, nearly three-quarters of them are involved

d. retailing.

The simplest form of business owned and operated by one person is called a(n)

d. sole proprietorship.

To qualify as a small business, an agricultural company's maximum annual receipts must be no more

e. $750,000.

Which form of franchising is the most common today?

e. A franchisor supplies brand names, techniques, or other services instead of a complete product.

Refer to Samantha's Dilemma. What would not be an advantage of Samantha's aunt's business?

e. Unlimited liability

Entrepreneurial spirit is the desire to create a new business.

true

The purchaser of a franchise is called the franchisee.

true

Unlike a person, a corporation exists only on paper.

true

What is a business plan? What are its components? Why is it so important?

A business plan is a carefully constructed guide for someone starting a business. It is a communication tool often presented to potential investors. It is a management tool that can help an owner and/or manager keep track of, monitor, and evaluate progress. It is also a planning tool that can help guide the business owner through various phases of the business.

What is a franchise? Name several and popular franchises.

A franchise is a license to operate an individually owned business as if it were part of a chain of outlets or stores. The business itself is usually called a franchise. Answers will vary but McDonald's, H&R Block, AAMCO Transmissions, GNC, Subway, and Dairy Queen are well-known franchises.

What is a small-business institute? How does it help small-business owners?

A small-business institute (SBI) is a group of senior and graduate students in business administration who provide management counseling to small businesses. SBIs were created in 1972 and are now set up on more than 520 college campuses. Students work in groups guided by faculty to help analyze and solve problems of small-business owners.

What are small-business investment companies? Name some companies that were financed through SBICs during their initial stages.

A small-business investment company (SBIC) is a privately owned firm that provides venture capital to small enterprises that meet its investment standards. Apple Computer, Federal Express, Compaq Computer, Intel Corporation, Outback Steakhouse, Staples, Inc., and America Online were all financed through SBICs during their initial growth period.

Describe the ownership, operation, and size of a sole proprietorship.

A sole proprietorship is owned by one person and usually operated by that same, one person. While there are a few sole proprietorships that are large and have numerous employees, most are of a small size.

What is an owner of a corporation called? What is the difference between a closed corporation and an open corporation?

An owner of a corporation is a stockholder. A closed corporation is a corporation whose stock is owned by relatively few people and is not sold to the general public. An open corporation is one whose stock can be bought and sold by any individual.

What are the advantages of owning a small business? Give examples.

Answers will vary. For individuals that like dealing with people, small business offers personal relationships with customers and employees. Small business offers the advantage of adaptability and ability to change. Record keeping is fairly simplified for small businesses. Independence, ability to retain all profits, and the ease and low cost of going into business as well as going out of business are all advantages of small business ownership.

Give examples to support the statement, "There must be some motivation to start a business."

Answers will vary. Motivation to start a business often comes from an employee becoming fed up with his or her job, or with earning a profit for someone else, or if someone has lost his or her job and is now motivated to start a business rather than seek another job. Another individual may have an idea for a new product or service or a new way to market or distribute the product or service.

What are the disadvantages of owning a small business?

Answers will vary. Risk of failure of the business is a primary disadvantage of small business ownership. Limited potential, such as having a skill such as hair styling that likely cannot be grown into a big business, and limited ability to raise capital are disadvantages of small business ownership.

Data from 2013 from the Small Business Administration shows women-owned businesses as a dominate part of the U.S. economy. What were some of the findings of that data?

Answers will vary. Women owned at least 30 percent of all small businesses in 2012 and 66 percent of all home-based businesses. More than 40 percent of women-owned businesses have been in business for 12 years or more. Compared to other working women, self-employed women are older, better educated, and have more managerial experience. Also, women-owned businesses are financially sound and credit-worthy, and risk of failure is lower than average.

How would you go about incorporating a business?

Most experts recommend that a lawyer be used in the incorporation process. The first steps include choosing the state of incorporation and then developing and submitting the articles of incorporation to the secretary of that state. Also, stockholders' rights need to be decided. The last step includes organizing a meeting to adopt corporate by- laws and elect the first board of directors.

Why do certain industries tend to be more attractive for the start-up of a small business?

Much of the reason that some industries attract start-ups of small businesses and others do not is primarily the investment required to enter the industry. Industries that require a low initial investment and some special skills or knowledge rather than extensive expertise are the ones that attract small business start-ups.

What do small businesses as a group contribute to the U.S. economy?

Small businesses, as a group, provide technical innovation, employment for the general U.S. population, and competition for larger, established firms. Small firms also provide a variety of goods and services to each other and to much larger firms as well.

What is a small-business development center (SBDC)?

Small-business development centers (SBDCs) are university-based groups that provide individual counseling and practical training to owners of small businesses. SBDCs can help provide managerial and technical assistance, data, and other types of specialized assistance of value to small businesses.

What is the Service Corps of Retired Executives (SCORE)? How does it assist small-business owners?

Small-business development centers (SBDCs) are university-based groups that provide individual counseling and practical training to owners of small businesses. SBDCs can help provide managerial and technical assistance, data, and other types of specialized assistance of value to small businesses.

What is the Small Business Administration? Who created it?

The Small Business Administration (SBA) is a governmental agency that assists, counsels, and protects the interests of small business in the United States. The agency helps small firms to bid for and obtain government contracts, and it helps them to prepare to enter foreign markets. The SBA was created by Congress in 1953.

What are the advantages and disadvantages to the franchisee of having a franchise?

The franchisee gets the opportunity to start a business with limited capital and to make use of the business experience of others. The franchisee usually received guidance and advice as well as materials to use in advertising and participation in national promotional campaigns. Disadvantages include the control that the franchisor has over the franchisee as well as the requirements of business aspects such as decor, design of uniforms, signage, and details of the business operation.

Why are small businesses prone to failure?

The most common reasons for failure include the lack of capital, management problems, and lack of planning. Small businesses need start-up capital but also working capital--difficult to come by for small businesses. Many entrepreneurs lack the management skills required to run a business. Money, time, personnel, and inventory all need to be managed effectively if a small business is to succeed. And, planning for growth is a challenge for small businesses.

What is the primary function of SBA financial assistance? Where do most SBA loans originate?

The primary function of SBA financial assistance is to guarantee loans to eligible businesses. Most of SBA's business loans are made by private lenders such as banks, but repayment is partially guaranteed by the agency.

Which statement best characterizes the relationship between franchisor and franchisee in recent years?

a. Disagreements between the two parties have increased, and contract disputes are the cause of many lawsuits.

Refer to Mc-King Chicken. Which of the following would be an advantage for Brian?

a. Guidance from the franchisor

Which of the following statements is true regarding the profitability of new businesses?

a. It may take several years for a new business to begin showing a profit.

Tim owns a McDonald's franchise that is having some troubles. Where is Tim most likely to go for advice and guidance?

a. The franchisor

Which of the following statements is correct?

a. The risk of failure for women-owned businesses is lower than average.

The SBA makes a special effort to

a. assist minorities wanting to start small businesses or expand existing ones.

A merger between two firms that make and sell similar products in similar markets is known as a

a. horizontal merger.

New ways to do a job with less effort and at lower cost is the basic principle characterizing the

a. increases in productivity for the past two hundred years.

Lauren starts a business that sells personal computers. Within the first year she discovers that computer technology becomes outdated very quickly, and she has not been able to sell her products for as much as she thought due to the passage of time. Lauren has mismanaged

a. inventory.

A franchisor supplies all of the following except

a. land to place the business on.

When incorporating, a business

a. may incorporate in any state it chooses.

Small businesses have traditionally added ____ new jobs to the economy.

a. more than their proportional share of

All of the following are disadvantages of corporations except

a. perpetual life.

Prudential and several other large insurance companies have joined together to underwrite an extremely large insurance policy. This sort of association is referred to as a(n)

a. syndicate.

When Alyssa decides that she no longer wants her Radio Shack stock, she will discover that a related benefit of a corporation is

a. the ease of transfer of ownership.

A hostile takeover is a situation in which

a. the management and board of directors of the targeted firm disapprove of the proposed merger.

With regard to limited-liability companies, which of the following statements is false?

b. An LLC can have no more than 100 stockholders.

With regard to taxation of partnerships, which of the following statements is correct?

b. Each partner is taxed in the same way as a sole proprietor.

Refer to Personal Wellness. What is not one of the key reasons Personal Wellness would possibly fail?

b. Employees

Which of the following is not a disadvantage of the corporate form of ownership?

b. Limited liability

What is the primary reason that so many new businesses fail?

b. Mismanagement resulting from lack of business know-how

Jamie applies for a small-business loan from the SBA. If he is approved for the loan, where will the money actually come from?

b. Private lenders

Which of the following statements is not true about small businesses?

b. Small businesses create cyclical unemployment.

Refer to Personal Wellness. When Angela suggested that the company contact a group, what type of group was she referring to?

b. Small-business institute

Which of the following is a requirement for an S-corporation?

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

All of the following are franchise establishments except

b. Walmart.

Which of the following organizations would be considered a small business?

b. Wholesaler with 50 employees

You have just opened a new small business. You're really happy to learn that studies show that small-business workers

b. are more innovative than workers in large businesses.

Doug has always wanted to operate his own fast-food restaurant, but he knows the high failure rate of restaurants. To increase his chances of success, he should consider

b. buying a franchise of a well-established restaurant.

Janis starts a small quilting and embroidery business. She purchases a technologically advanced quilting machine and an embroidery machine for a combined $25,000. Her monthly payments on the equipment are $500, but she has only one client at this time. Janis is facing a potential

b. cash-flow problem.

The order of difficulty and expense, from most to least, when forming a business organization is as follows:

b. corporation, partnership, sole proprietorship.

The form of business organization most heavily regulated by the government is the

b. corporation.

The form of business organization that experiences double taxation is the

b. corporation.

The industry concerned with the movement of goods from producer to consumer is

b. distribution.

Genetech, a biotechnology firm engaging in the new field of genetic engineering, has asked your advice about remaining independent and temporarily gaining access to the marketing and manufacturing expertise it lacks from another firm. You would suggest

b. forming a joint venture.

Eric decides to purchase and operate a Subway restaurant. Eric is the

b. franchisee.

You have decided to open a pet store and have engaged in a contract with Dog N' Cat Centers, Inc. You and the company have drawn up an agreement that allows you to use the company's name and its proven method of doing business, to receive training, and to use its advertising materials. In this agreement, Dog N' Cat is the ____ and you are the ____.

b. franchisor; franchisee

Victor owns his own motorcycle and ATV store. He notices that many of his customers talk about golf while in his store. He quickly adds golf carts and golf clubs to his merchandise selection. Rapidly adjusting to the needs of his customers is possible because small businesses

b. have the ability to quickly adapt to change.

Megan always knew she wanted to start her own business. She was very passionate and wanted to create something new. Megan's primary motivation for starting her own business is

b. her entrepreneurial spirit.

Recently there have been several mergers involving Big Four accounting firms. One such merger involved the firms of Arthur Young and Ernst & Whinney, who combined to form Ernst & Young. This is an example of a

b. horizontal merger.

Shane is looking for ways to get more capital for his appliance sales and service business. He is very protective of his company's information and fears that it will get into the wrong hands. Shane would probably not want to

b. incorporate his company.

If Avon and Merck joined together to produce a cream that slows down the aging process, this would be called a(n)

b. joint venture.

A____ invests money in the business but has no management responsibility.

b. limited partner

All of the following are advantages to the franchisor except

b. no involvement in national advertising campaigns.

Anyone with the money can purchase shares of Coca-Cola's stock. This makes Coca-Cola a(n) corporation.

b. open

To close a sole proprietorship, the owner must

b. pay creditors.

Price Waterhouse, a large accounting firm, would be most properly classified in the ____ industry, whereas a grocery store such as Kroger would be included in the ____ industry.

b. service; distribution

University-based groups providing individual counseling and practical training to owners of small businesses are known as

b. small-business development centers.

A limited-liability company is

b. taxed like a partnership.

Suppose Bill Gates, founder of Microsoft, is interested in a small software company. He may offer to purchase the stock of this company at a price that is just high enough to tempt the current stockholders. This action would be called a

b. tender offer.

A guaranteed SBA loan may be as large as

c. $2.0 million.

According to Census Bureau and Federal Reserve surveys, about 50 percent of all new businesses begin with less than _____ in total capital.

c. $30,000

Production industries make up approximately what percentage of all small businesses?

c. 19

Approximately how many businesses are there in the United States?

c. 27 million

Distribution industries account for approximately what percentage of all small businesses?

c. 33

What is the most popular course offered by the SBA?

c. A course that surveys eight to ten areas of business management

Which of the following is not a reason for starting a small business?

c. Desire for a guaranteed financial return

Which of the following is not a disadvantage of sole proprietorships?

c. Double taxation

Which of the following is an advantage to the franchisor in a franchise agreement?

c. Fast and selective distribution of products

The Hamptons enjoy owning and operating their own restaurant. They enjoy being the masters of their own destinies and closing down the restaurant for one week a year so that they can take a vacation. The Hamptons seem to enjoy which advantage of a small business?

c. Independence

Which of the following was established to arbitrate disputes between franchisors and franchisees?

c. National Franchise Mediation Program

Chelsea is about to purchase a Baskin-Robbins franchise because she loves ice cream. How much work should Chelsea expect to have to do to make the franchise successful?

c. She should expect to work very hard, putting in long hours about six days a week.

Natalie owns a highly successful bakery and coffee shop, Mocha & Muffins. Others have expressed interest in starting nearly identical shops at various locations. Natalie decides to sell franchises of Mocha & Muffins. Why is this option a less expensive way to increase the distribution of her treats?

c. She will not incur the high costs of constructing and operating more shops.

How can the following quotation best be explained: "Stockholders control the activities of a corporation"?

c. Stockholders elect the board of directors, and this board is responsible for appointing corporate officers who manage the daily business of the corporation.

Sarah owns a 7-Eleven franchise. What is the primary disadvantage of owning a franchise for Sarah?

c. The franchisor still retains a great deal of control.

Which of the following is an example of a vertical merger?

c. The purchase of Kentucky Fried Chicken by PepsiCo

The following statement answers which major question that a business plan should address? "This business will serve over 200 customers by the end of the year and employ seven full-time employees."

c. What are the goals for the business?

Corporate officers are

c. appointed by the board of directors.

Walters Company, LLC, is a wholesale distributor of industrial packaging. A primary advantage that Walters enjoys as an LLC that corporations do not have is

c. avoiding double taxation.

The form of business organization that accounts for 82 percent of all sales revenues in the United States is the

c. corporation.

By age 26, Tom was a plant manager in the snack-foods division. By 33, he headed the division, one of the most profitable in the corporation. Eventually, however, the company decided to move its corporate offices. Although he loved the job and thought the work was great, Tom's lifestyle was awful. He was on the road so often that he was giving up much of his family life. Tom had also become disenchanted with corporate life. He saw that the closer one got to the top, the more vulnerable one's position became. Thus, Tom left the corporation to start his own snack-foods company. His thoughts and actions most clearly reveal his

c. desire to determine his own destiny.

Businesses are generally placed into three broad categories: service industries, production industries, and ____ industries.

c. distribution

You have been running a successful art and framing shop for three years. You have decided to allow others to use your business name, materials, and methods in operating their own business for a fee. You are going to enter a

c. franchise agreement.

Refer to Personal Wellness. In preparing the business plan, Angela would have incorporated all of these components except

c. government regulations.

All of the following are reasons people go into business except the

c. guaranteed return on investment.

When Compaq and Hewlett-Packard decided to become one company, this was an example of a(n)

c. horizontal merger.

A partnership formed to operate for a specific time period or to accomplish a specific purpose is known as a

c. joint venture.

Beau works for a small pest-control company that has a total of five employees. From his point of view, the primary disadvantage of a small business is the

c. limited potential for him to advance.

The SBA places special emphasis on aid to

c. minority-owned businesses.

The disadvantages of small businesses include all of the following except

c. no opportunity to support your family.

Most Small Business Administration loans are actually made by

c. private lenders.

The main reason there are fewer production industries than distribution or service industries is that

c. production industries need a large initial investment.

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

c. proxy fight.

Your friend Steve owns a considerable amount of common stock in Microsoft, a computer software company. He wants to cast his votes on various issues at the annual stockholders' meeting in Seattle, but he does not have the time to travel a great distance to the meeting. Instead of attending the meeting, Steve decides to register his votes by

c. proxy.

Ben has been thinking about going into business. However, he has discounted entering automobile manufacturing because it

c. requires huge investments in machinery and equipment.

Dana owns and operates a catering business. This is an example of a

c. service business.

Mary's cleaning business has several customers but is not dominant in its field. This is an example of a(n) ____ business.

c. small

Ronald is the director of a university-based group that provides individual counseling, specialized training, and research data to owners of small businesses. Ronald's group is called a

c. small-business development center.

Your friend has just been awarded a franchise in a particular industry. He explains that his franchisor has licensed him to sell and distribute a product to retailers. Knowing that this type of franchise arrangement is most common in one particular industry, you suspect that your friend has obtained a franchise in the _____ industry.

c. soft-drink

The fact that insulin and power steering both originated with individual inventors and small companies is testimony to the power of small businesses as providers of

c. technical innovation.

The average size of an SBA-guaranteed business loan is about

d. $300,000.

Tracy is considering expanding his business and has several potential new investors in mind. He originally wanted to form an S-corporation to protect the liability of the investors, but he is now considering a limited-liability company instead because he knows there can be only stockholders in an S-corporation.

d. 100

Tiffany is about to finish her degree in business management and wants to find a job that will provide her with opportunities to advance within an organization. What type of business organization should Tiffany work for?

d. A corporation

Refer to Personal Wellness. Personal Wellness can be classified as operating in what type of industry?

d. Distribution

Which statement best describes the general success rate for franchises?

d. Franchises have a very high success rate compared to other small businesses.

Which of the following would most likely be classified as a distribution industry?

d. Grocery store

The retail card and gift shop chain that Heidi started has since been incorporated. Which of the following best describes the limited liability that Heidi has as the primary stockholder in this corporation?

d. Heidi's personal assets will be protected in the event that the corporation fails, although she could lose her entire investment.

Which of the following is not a franchise establishment?

d. JCPenney

To raise capital, Candace Tyson and Martha Black plan to sell stock to between 108 and 200 investors. They also want to avoid double taxation. Which type of business ownership would you recommend?

d. Limited-liability company

Which of the following statements is true?

d. Mergers in the first part of the twenty-first century will be driven by cash-rich companies looking to acquire businesses that will enhance their position in the marketplace.

Evan Dean owns a Wendy's franchise. Evan feels that the franchisor is hurting his business by forcing him to use certain high-priced suppliers. The franchisor says that this power is implied in the franchise agreement. Who is likely to arbitrate this dispute?

d. National Franchise Mediation Program

In her small retail shop, Jocelyn knows most of her best customers by name and knows their preferences in clothing and shoes. This demonstrates which advantage of a small business?

d. Personal relationships with customers

Judy Barnes, Betty Turley, and Bob Turner want to obtain limited liability for their business, but they want to avoid double taxation. Which type of business ownership would you recommend?

d. S-corporation

Twenty-five young investors decided that they want to start a dating service; however, they do not want to be held personally liable for losses of the company. They want to avoid double taxation. Which type of business organization would best fit the needs of these individuals?

d. S-corporation

What organization created by Congress in 1953 assists, counsels, and protects the interests of small businesses?

d. SBA

What organization issues management, marketing, and technical publications of interest to present and prospective small-business managers that can be obtained from the U.S. Government Printing Office?

d. SBA

A friend of yours has recently received his MBA. He wants to open his own business but feels that it might be too risky at this point in his career. As an SBA counselor, you are able to advise him and explain more clearly to him some of the advantages and disadvantages of starting a small business. Which of the following statements best represents something you might tell him?

d. Small businesses foster personal relationships and offer flexibility and independence.

Which form of business is the easiest to start?

d. Sole proprietorship

Which of the following statements is false?

d. There is no connection between growth and executive power, prestige, and reputation.

What is a common mistake that small-business owners make when their businesses begin growing?

d. They overexpand without proper planning.

Kevin has considered selling franchises of his very successful hardware store. However, he is concerned that the franchises will destroy the reputation of the company and end up hurting his business. What advice would you give Kevin?

d. Through the franchise agreement, he can ensure that the new stores are operated according to his own standards.

"This business will create a caring, learning environment for elementary school children after regular school hours to meet the needs of working parents." This statement answers which of the following issues that should be addressed in a business plan?

d. What is the nature and mission of the business?

Imagine that you want to open your own small business. You will probably be most concerned with having

d. a good source of capital and good management skills.

Before seeking financial backing for his new business, Tyler puts together a concise document explaining the nature, mission, and goals of his new business and its expected costs and potential. Tyler has constructed a(n)

d. business plan.

Penicillin, airplanes, and air conditioning were all

d. created by individual inventors and small companies.

Megan's business sells souvenirs and craft items to tourists in Myrtle Beach, South Carolina. This is an example of a _____ business.

d. distribution

Walmart is incorporated in Arkansas, the state of its origins and headquarters. Within Arkansas, Walmart is classified as a(n) corporation.

d. domestic

Refer to Mc-King Chicken. When Brian opens the Mc-King Chicken restaurant in his town, he would be known as the

d. franchisee.

Large firms generally buy parts and assemblies from smaller firms because

d. it is less expensive than making their own.

To gain access to one another's markets, several U.S. and Japanese automobile manufacturers (for example, Chrysler and Mitsubishi) are engaging in temporary alliances to manufacture and market certain models of cars. These types of partnerships are known as

d. joint ventures.

The Smithsonian Institution exists to preserve historical and cultural items of value and to share those items with the public; it does not exist to maximize the wealth of any shareholders. This entity is organized as a(n)

d. not-for-profit corporation.

Unless specified in the charter, a corporation has a

d. perpetual life.

Nathan's business constructs storage sheds for new housing developments as requested by the builders. Nathan's business would best be classified as a

d. production business.

Through her university, Gwen and her classmates work together to provide management counseling to small businesses in their community. This is called a

d. small-business institute.

A temporary association organized to perform a specific task requiring a large amount of capital is known as a(n)

d. syndicate.

Steven Jobs and David Wozniak, the founders of Apple Computer, Inc., are creative, free-spirited individuals who decided that being corporate underlings was not what they wanted from a career. They had an innovative idea for a product and desired to create their own business based on this idea. All of the following are factors that could have led them to go into business except

d. the low risk and high rewards inherent in entrepreneurship.

Small businesses are typically managed by

d. the people who start and own them.

A ____ is a merger between firms operating at different but related levels in the production and marketing of a product.

d. vertical merger

Statistically, approximately what percentage of all new businesses can be expected to fail within their first seven years?

e. 69

Wade serves on Foot Locker's board of directors. How did Wade get this position?

e. He was elected by the company's stockholders.

Cindy compiles a business plan for a business she hopes to start. This plan should answer all of the following questions except

e. How often will the business have a sale?

Not-for-profit organizations must meet specific guidelines in order to obtain tax-exempt status. These guidelines are structured by the

e. Internal Revenue Service.

What do franchisees typically have to pay to the franchisor?

e. One-time franchise fee and monthly royalties based on sales

What is the main advantage of small business that helps retain effective employees who could earn more at a larger firm?

e. Personal relationships with employees

David Fisher, a recently retired corporate executive, is becoming restless in his new role and would like to make this transition smoother by participating in the business community in some limited manner. Since David is financially secure and primarily interested in some sort of volunteer work, he should consider becoming involved with which of the following SBA programs?

e. SCORE

Your friend, Shonta, started a graphic design firm about a year ago. The business has done well, but it needs a lot more equipment, computers, and employees to continue expanding. Shonta does not see any problem because she thinks she can easily get all the money she will need from her local bank. What advice might you give her?

e. She should consider alternative sources of financing because banks provide only about one-fourth of the total capital to small businesses.

SBA stands for

e. Small Business Administration.

Refer to Mc-King Chicken. Which of the following would not be an advantage of a franchise?

e. Success will cause another outlet to be opened nearby.

Which of the following is an example of a horizontal merger?

e. The purchase of Mobil Oil by Exxon

Wade Comer and Tom Busby decide to start a partnership and offer accounting services. Which of the following is the best way to start this partnership?

e. With the help of an attorney, they should draft a partnership agreement that states each partner's duties and investments.

When many banks join together to lend money to developing countries such as Bangladesh and Malaysia, they seek to spread out the risk of default. This is called

e. a syndicate.

John and Ruby Couch just opened a computer store in a small community. Before opening the store, they listened to their SBA counselor's warnings about the importance of having balanced experience, that is, marketing, finance, and personnel experience in the computer-store business because

e. about two out of three small firms close within five years of their founding.

Before Troy can incorporate his advertising business in Champaign, Illinois, he must have a(n) ____ approved by the ____.

e. articles of incorporation; secretary of state of Illinois

The top governing body of a corporation is known as the

e. board of directors

The most effective form of business organization for raising capital is the

e. corporation.

You stop at a SUBWAY to get a sandwich for lunch and you notice that they now have TCBY yogurt. This is an example of a

e. dual-branded franchise.

The average life for an SBA-guaranteed business loan is ___ years.

e. eight

All of the following are advantages that small businesses have except

e. greater potential for making a profit.

Businesses such as flower shops, restaurants, bed and breakfasts, and automobile repair are good candidates for entrepreneurs because they

e. have a relatively low initial investment.

The franchisee supplies

e. labor and capital, and owns and operates the outlet.

The purchase of one corporation by another is referred to as a

e. merger.

A corporation organized to provide a social, educational, religious, or other nonbusiness service is known as a(n)

e. not-for-profit corporation.

Habitat for Humanity and Girl Scouts are both examples of

e. not-for-profit corporations.

The SBA is offering to help the nation's small-business owners enter world markets. SBA assistance includes all of the following except

e. offering long-term loans to U.S. business owners.

As a businessperson planning to open a new small business, you know that the business plan should not contain

e. pages and pages of detailed facts and figures.

Joe decides to start his own business designing websites for other businesses. Joe's business would be classified as a

e. service business.

In the early days of franchise agreements, franchising was used primarily for automobile dealerships and

e. service stations.

All of the following are disadvantages to the franchisee except

e. starting a business with limited capital.

Money that is invested in small and sometimes struggling firms that have the potential to become very successful is called

e. venture capital.

A banker or lender is more likely to make sizable loans to a sole proprietor than to a partnership.

false

A corporation chartered in Canada and doing business in the United States is known as a foreign corporation in the United States.

false

A corporation is perhaps the easiest form of business to organize.

false

A horizontal merger is a merger between firms in completely unrelated industries.

false

A limited-liability company is taxed like a corporation.

false

A main disadvantage of a small business is that employees and customers usually develop too close of a relationship.

false

A small-business investment company (SBIC) is a government agency that provides venture capital to small enterprises.

false

About 85 percent of all business firms in the United States are sole proprietorships.

false

About half of small businesses are in the production industries.

false

About one-third of franchised businesses fail during the first two years of operation.

false

About three-quarters of all small businesses are in the service industry.

false

All corporations operate primarily for profit.

false

All franchisors give geographical protection to their franchise holders.

false

All not-for-profit corporations rely solely on volunteers to perform services of the organization.

false

An S-corporation can have no more than twenty stockholders.

false

An agreement between two franchisors in which the two franchisors offer their products together is called double franchising.

false

An investor who is considering investing in Diane's Burger Bar would not likely want to see her business plan.

false

Articles of partnership are a legal document issued by the secretary of state.

false

Because of unlimited liability, it is easy for sole proprietors to borrow large sums of money.

false

Because there are two or more people in a general partnership, bankers, suppliers, and other creditors are not concerned about unlimited liability.

false

Compared to a corporation, a partnership is more difficult and expensive to establish.

false

Corporate officers are elected by the stockholders.

false

Corporations are forbidden by law to enter joint ventures.

false

Economically, the U.S. government is not concerned with whether or not small businesses make it.

false

Economists, financial analysts, corporate managers, and stockholders all agree that mergers are good for both the company and the economy.

false

Every partnership must have at least one limited partner.

false

Few Americans take advantage of their freedom to start a business.

false

Financial experts agree that takeovers enhance corporate profitability and productivity.

false

Franchising experienced tremendous growth during the early 1430s.

false

Franchising is a win-win combination; both franchisees and franchisors are guaranteed success.

false

Franchising is limited only to fast foods.

false

In a limited partnership, a limited partner's name must be included in the partnership's name.

false

In the past, the SBA could guarantee loans up to $5 million.

false

It is rare that managers of small businesses lack the management skills necessary to run their businesses.

false

Most stockholders attend a corporation's annual meeting and vote in person.

false

Small businesses account for all nongovernment employment.

false

Small businesses are generally managed by professional managers.

false

Small businesses operate only in the service industry, not in manufacturing.

false

Society usually does not benefit from entrepreneurs who pursue their individual goals; it is only the entrepreneurs who reap the benefits of their own work and creativity.

false

Some franchisors claim that contracts are unfairly tilted toward the franchisees.

false

Surplus funds of a not-for-profit organization are distributed to members of the board of directors.

false

The Reader's Digest Association began as an open corporation and later changed to a closed corporation.

false

The SBA is a private organization rather than a government agency.

false

The SBA's website resource targeted at assisting womenowned business is known as the SBA's Online Women's Resource and Growth Center.

false

The average length of an SBA loan is about twenty-five years.

false

The courts have held that an oral partnership agreement is not legally binding and, therefore, cannot be enforced.

false

The purchaser of a franchise is called the franchisor.

false

The various types of businesses attracting small business are generally grouped into service industries, distribution industries, and financial industries.

false

When a business incorporates, it receives articles of incorporation from the Internal Revenue Service.

false

A common tactic of corporate raiders is to start a proxy fight.

true

A corporation chartered in Kansas and doing business in Kansas is known as a domestic corporation.

true

A corporation is an artificial person created by law.

true

A general partner is responsible for any debts of the partnership, regardless of whether he or she was directly involved in the transaction that created the debt.

true

A license to operate an individually owned business as though it were part of a chain is a franchise.

true

A limited-liability company extends the concept of personal-asset protection to small business owners.

true

A new business is built around the entrepreneur.

true

A syndicate is a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital.

true

A tender offer is an offer to purchase stock from existing stockholders.

true

A vertical merger is a merger between firms that operate at different but related levels in the production and marketing of a product.

true

A voluntary association of two or more people acting as co-owners of a business is known as a partnership.

true

According to a government source, more than half of this century's technological innovations came from small companies.

true

Although a partnership pays no income tax, the Internal Revenue Service requires partnerships to file an annual information return that states the amount of distributions made to each partner.

true

As with a sole proprietorship, one disadvantage of a partnership is a lack of continuity.

true

Because of limited liability, individuals are more willing to invest in corporations than in other forms of business.

true

Because of small-business competition, large companies must become more efficient and responsive to consumers' needs.

true

Common stockholders have the right to elect a corporation's board of directors and vote on corporate matters

true

Corporations account for about 82 percent of all sales revenues.

true

Experts predict that mergers in the first part of the twenty-first century will be the result of cash-rich companies looking to acquire businesses that will enhance their position in the marketplace.

true

For those who like dealing with people, small business is the place to be.

true

If the owner of a sole proprietorship retires or dies, the owner's heirs may take over the business and either sell it or continue to operate it.

true

In a franchise, the franchisee gets the opportunity to start a business with limited capital and to make use of the business experience of others.

true

International trade will become more important to small-business owners in the new century.

true

John Wells, an African-American small business owner, might be eligible for a grant from the Minority Business Development Agency.

true

Joint ventures are created for a specific purpose and dissolved when that purpose is achieved.

true

Large companies often find it less expensive to purchase parts from small companies than to manufacture their own.

true

Many entrepreneurs lack the management skills required to run a business.

true

Money invested in small firms with the potential to become very successful is known as venture capital.

true

Preferred stockholders receive dividends before dividends are paid to common stockholders.

true

Profits of a large corporation are taxed twice, once as corporate income and again as personal income of stockholders.

true

SCORE is a group of retired businesspeople who volunteer their services to small businesses through the SBA.

true

Service industries make up about 48 percent of all small businesses.

true

Shareholders of an S-corporation are taxed as if they were owners in a partnership.

true

Since someone must be responsible for a partnership's debts, a limited partnership must have at least one general partner.

true

Small businesses are expected to remain the dominant form of organization in this country.

true

Small businesses are prone to failure.

true

Small businesses are typically managed by people who started and own them.

true

Small firms have traditionally added more than their proportional share of new jobs to the economy.

true

Some advantages of the sole proprietorship also apply to the small business.

true

Statistically, one can expect about two out of every three new businesses to fail within six years of their founding.

true

The SBA has defined a small business as one independently owned, operated for profit, and not dominant in its field.

true

The business plan should deceive neither investors nor loan officers and should convey accurate and realistic expectations of business potential.

true

The corporation, partnership, and sole proprietorship are the three most common forms of business ownership in the United States.

true

The disadvantages of franchising mainly affect the franchisee because the franchisor retains a great deal of control.

true

The incidence of innovation among small-business workers is significantly higher than that among workers in large businesses.

true

The main reasons small businesses fail are poor management skills on the part of owners, inadequate capital, and poor planning.

true

The purchase of one corporation by another is called a merger.

true

The weakness of one partner may be offset by another partner's strength.

true

There is much less likelihood of failure with a franchised outlet than with an independently owned small business.

true

Unlimited liability holds a sole proprietor personally responsible for all the debts of the business.

true

Explain the differences among a domestic, a foreign, and an alien corporation.

A domestic corporation is an incorporated business in the state in which it is incorporated. In all other states where the organization does business, it is called a foreign corporation. An alien corporation is a corporation chartered by a foreign government and conducting business in the United States.

In your own words, explain the differences among a horizontal merger, a vertical merger, and a conglomerate merger.

A horizontal merger is a merger between "like" firms—firms that make and sell similar products or services in a similar manner and in similar markets. A vertical merger is between firms that operate at different but related levels in the production and marketing of a product. A conglomerate merger is between firms in completely different industries.

What is the difference between a joint venture and a syndicate?

A joint venture is an agreement between two or more groups to form a business entity in order to achieve a specific goal or to operate for a specific period of time. A syndicate is a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital. Corporations and individuals may enter into a joint venture. Syndicates are primarily made up of corporations, none of which are willing to put up an entire amount required for an undertaking nor that are willing to share the risk of a venture individually.

How does an S-corporation differ from a limited-liability company? Does an LLC type of ownership appeal to you? Explain your answer.

A limited-liability corporation (LLC) is not restricted to 100 stockholders which is a limitation of an S-corporation. LLCs are also less restricted with more flexibility than S-corporations. Answers will vary, but most students will say that the LLC form of business organization appeals to them due to pass-through taxation and limited-liability protection.

What is a not-for-profit corporation? Discuss some of the similarities between not-for-profit corporations and for- profit corporations.

A not-for-profit corporation is a corporation organized to provide a social, educational, religious, or other service rather than to earn a profit. Employees of both for-profit and not-for-profit organization are responsible for making sure the organization achieves its goals and objectives, ensuring accountability for finances and donations, and monitoring activities to improve performance of both employees and volunteers.

What types of information should a partnership agreement contain?

A partnership agreement should generally include information about who will make the final decisions of the partnership, what each partner's duties will be, and the investment amount of each partner. It will also include how much profit or loss each partner receives or is responsible for and what happens if the partnership dissolves and one partner wants to exit the partnership or dies.

How do management tasks differ for a general partner and a limited partner?

In a general partnership, all partners assume shared responsibility for operating the business. A general partner assumes an important share of the management tasks of the business and must make decisions in consultation with the other general partners. A limited partner, on the other hand, invests money in a business but has no management responsibility or liability for losses beyond his or her investment in the partnership.

What does it mean when someone says that a corporation is an artificial person created by law? In your answer, describe some things that an artificial person and a real person like you could both do.

In an 1819 Supreme Court decision, Chief Justice John Marshall spoke of a corporation as "an artificial person, invisible, intangible, and existing only in contemplation of the law." The corporation is an artificial person created by the law and includes most of the following rights: * The right to start and operate a business * The right to buy or sell property * The right to borrow money * The right to sue or be sued * The right to enter into binding contracts

Describe the array of advantages of a corporation.

Limited liability is an important advantage of the corporate form of business organization. Limited liability is a feature of corporate ownership that limits each owner's financial liability to the amount of money that he or she has paid for the corporation's stock. Also, the greater ease of raising capital, the ease of transfer of ownership, perpetual life of the corporation, and the ability to include specialized management in the organization are all advantages of the corporate form of business ownership.

Define "growth from within" in regard to a corporation. Is it generally a suggested path for corporations?

Many corporations grow by expanding their present operations either through introducing and selling new, but related, products. Other corporations choose to expand their geographic reach and introduce their products and/or services to new locations. Internal growth, when planned and organized, is generally an effective method to expand a corporation and may have little adverse effect on the business.

Describe the merger trends affecting American business.

Most experts predict that mergers and acquisitions will result from companies that have large amounts of cash and are looking to acquire other businesses that will enhance their position within the marketplace. Experts also predict that more mergers involving investors from other countries will occur. There will be a real focus on mergers and acquisitions driven by solid business logic and the desire to compete in the international marketplace.

What are the primary responsibilities of the board of directors? What do corporate officers manage?

The major responsibilities of the board of directors are to set company goals and develop general plans (or strategies) for meeting those goals of the corporation. The board of directors is responsible for the firm's overall operation as well as appointing corporate officers. The corporate officers help the board to make plans, carry out the plans, hire employees, and manage day-to-day activities.

Why is a sole proprietorship the most flexible type of business?

The sole proprietorship form of business ownership is the simplest type of ownership as well as the easiest to start. It is flexible because an owner can make decisions without having to consult anyone else. By comparison, a manager in a store in a large corporate chain may have to seek the approval of numerous managers and company officials before making a decision.

When compared to partnerships and corporations, sole proprietorships account for ____ percent of total annual sales.

d. 4

Allied Services is a transportation company that operates in most of the United States. If Allied Services decided to incorporate, in which state would it incorporate?

d. Any state that the company chooses

Lisa and John own a partnership that provides rental equipment for parties and special occasions. Which of the following is true about the way Lisa and John would handle company profits?

d. Distribute the profits according to the terms of the partnership agreement.

How might a sole proprietorship have a possible tax advantage?

d. It does not pay special state and federal taxes that corporations pay.

Refer to B&G, Inc. What type of organization was Kevin considering switching to?

d. Not-for-profit corporation

Which of the following is an advantage of a sole proprietorship?

d. Profits are taxed as individual income.

According to the text, which of the following statements is false?

d. When compared to larger businesses, the lure of employee benefits is one reason why people go to work for sole proprietorships.

The ____ is a legal document that lists and explains the terms of the partnership.

d. articles of partnership

Nortons, Inc. is a hardware store that is owned by members of the Norton family as well as a few close friends of the family. This company is a(n)

d. closed corporation.

In all states besides the one in which it is incorporated, a business is known as a(n)

d. foreign corporation.

The major reason why businesses change from sole proprietorships to other forms of ownership is to

d. obtain help and eliminate the problem of too much to do in one day.

As a limited partner in a construction business, Joe

d. only risks his initial investment.

A corporation whose stock can be purchased by anyone and is traded in stock markets is known as a(n)

d. open corporation.

Common stock carries all the following rights except the right to

d. receive part of the profit before other classes of stock.

Angela is tired of her boss as well as corporate America in general. She decides she would like to start a business where no one tells her what to do, and she can always make the decisions. The best form of business for Angela is a(n)

d. sole proprietorship.

Unlimited liability means

d. the owner is responsible for all business debts.

Which of the following is necessary for starting a sole proprietorship?

e. Limited legal documents

Refer to Samantha's Dilemma. Based on the information provided, what type of business does Samantha's aunt operate?

e. Sole proprietorship

Stephen decides his business will begin staying open until 7 p.m. instead of 6 p.m. The next day, the shop stays open until 7 p.m. This environment of flexibility to quickly change is characteristic of what form of business organization?

e. Sole proprietorship

Mars, Inc., maker of M&Ms and other candy, is 100 percent owned by the Mars family and is therefore referred to as a(n)

e. closed corporation.

Shares of Burger House stock cannot be purchased on any stock exchange or by just any individual. This means that Burger House is a(n)

e. closed corporation.

The form of business organization that comprises about 19 percent of all businesses in the United States is the

e. corporation.

In the state in which it is incorporated, a business is known as a(n)

e. domestic corporation.

All of the following are disadvantages that Sean should consider before entering a partnership agreement with his cousin except

e. double taxation.

The person who assumes full co-ownership of a partnership, including unlimited liability, is a

e. general partner.

The partner who can lose only what he or she has invested in a business is the

e. limited partner.

Karen Howard loves to cook and receives unqualified praise whenever she prepares a meal for someone. Encouraged by these compliments and eager to put her culinary talents to good use, Karen decides to open a small neighborhood restaurant. Since she plans to maintain complete control of the business, she will most likely organize it as a

e. sole proprietorship.

List at least three criteria a corporation must meet for the IRS to grant the business an S-corporation status.

Answers will vary, but the list of criteria include the following: * No more than 100 stockholders * Stockholders must be individuals, estates, or certain trusts * Only one class of outstanding stock * Must be a domestic corporation eligible to file for S-corporation status * No partnerships, corporations, or nonresident-alien stockholders * All stockholders must agree to the decision to form an S-corporation

What are some of the disadvantages of partnerships? Are the disadvantages enough to dissuade you from forming this type of business ownership?

Answers will vary. Disadvantages of the partnership form of business ownership include unlimited liability—each general partner being responsible for the debts of all other general partners—and the likelihood of management disagreements among partners. Lack of continuity and the challenges of getting an investment out of a partnership are also disadvantages. For many individuals, the disadvantages of a partnership outweigh the advantages. Unlimited liability for a general partner is especially troubling for partners with substantial personal wealth. If, however, partners can complement one another's strengths and can multiply the capital and credit brought into the firm by having more than one owner, the advantages may outweigh the disadvantages.

A ____ is a form that enables stockholders to allow someone else to vote for them.

c. proxy

Glenn owns and operates a large hardware store in Missouri that employs about fifty people. He delegates some of the decision making to two managers, but he remains the only owner. Glenn's business is organized as a

c. sole proprietorship.

In the United States, approximately 72 percent of all businesses are

c. sole proprietorships.

Brian wants to start a business that provides canoe and kayak trips. He decides that it would be better to ask his brother Brad to become his partner because

c. together they will be able to get more capital and credit to start the business.

Why is the concept of unlimited liability a concern for the sole proprietor?

Unlimited liability is a legal concept that holds a business owner personally responsible for all the debts of the business. Debts of the business are not legally separated or different from the debts of the sole proprietor. Therefore, if the business is involved in a lawsuit or sustains substantial loss or debt, the sole proprietor is legally responsible and personal assets can be seized to pay creditors. Unlimited liability is perhaps the major factor that tends to discourage would-be entrepreneurs with substantial personal wealth from using the sole proprietor form of business organization.

Refer to Samantha's Dilemma. If Samantha worked for the large retail company in Philadelphia, what type of corporation would that be?

a. Foreign

Darrell inherited a large amount of money from his uncle. Darrell wishes to start his own business, and his lawyers encourage him to make it a corporation. What disadvantage of a sole proprietorship are the lawyers trying to avoid?

a. Unlimited liability

Keisha Cook and Donnie Blackman decide to go into business together. They start by writing an agreement listing and explaining the terms of the business they will both own, along with each of their responsibilities. Keisha and Donnie created a(n)

a. articles of partnership.

Thomas wants to make money, so he starts his own business as a sole proprietor. He likes this form of business because

a. he will get to keep all of the profits the business makes.

A voluntary association of two or more people acting as co-owners of a business is known as a

a. partnership.

All of the following are advantages of the partnership form of organization except

a. unlimited liability.

With respect to combined business skills and knowledge, which of the following partnerships is best?

b. Carolyn, Melvin, and Cindy own a boutique. Carolyn has marketing expertise. Melvin has ten years' experience operating a successful small store, including hiring employees, handling inventory control, buying, and managing credit. Cindy is a CPA. Each has agreed to use his or her experience and expertise for the success of the business.

When the owner of a sole proprietorship dies, what becomes of the business?

b. It ceases to exist unless the heirs take it over or sell it.

Which of the following is not an advantage of a sole proprietorship?

b. It has unlimited liability.

What is the significance of the name preferred stock?

b. Its claims on dividends are paid before those of common stock.

Refer to B&G, Inc. Which of these features does not belong to this type of corporation?

b. Management flexibility

Mercedes-Benz, which is chartered as a corporation in Germany but conducts much of its business in the United States, is known as a(n) ____ in the United States.

b. alien corporation

A contract between a business and a state recognizing the business as an artificial person is known as the

b. articles of incorporation.

A distribution of earnings to the stockholders of a corporation is a(n)

b. dividend.

Jack has been saving his excess funds for several years and has contemplated entering a partnership with a friend from college. Jack hesitates because he knows that it is ____ to invest money in a partnership and ____ to get the money back out.

b. easy; difficult

Sears Holding Corporation is incorporated in Delaware, but when it operates in Illinois and Texas, it is considered a(n) _____ corporation in those states.

b. foreign

Legally, a partnership must

b. have at least one general partner.

Local residents have always thought the mom-and-pop store on the corner of Locust and Congress was a partnership between Mr. and Mrs. Jones. But Mr. Jones is the real owner. This probably means that the store is a

b. sole proprietorship.

Kayla purchases shares of ownership in General Electric. These shares are referred to as

b. stock.

When starting a corporation, people submit articles of incorporation to

b. the secretary of state.

Daniel, Thomas, and Lucas are partners in a law firm under a typical partnership agreement in which each owns an equal share of the business. Thomas dies suddenly of a heart attack. What will most likely become of the partnership?

c. Daniel and Lucas will be able to purchase Thomas's interest from his estate.

Kerry wants to start a business to sell handmade jewelry. She is very competent at making the jewelry and teaching others to make it, and she has saved a reasonable amount of money to start the business. Who of the following would make the best partner for Kerry?

c. Natalie, who has business experience with accounting, management, and marketing

Laura wants to start a business, but she is unsure of the legal form best for her. Short of cash, she has decided to take the form that is the least expensive and most flexible in terms of decision making and implementation. Which would you recommend?

c. Sole proprietorship

What is the primary disadvantage of both a sole proprietorship and a partnership that a corporation overcomes?

c. Unlimited liability

Susan has a commercial laundry service that has been growing rapidly. She wants to continue to grow the business, but she needs access to more money and does not want to risk her personal assets. Susan contacts her lawyer to see if all the legal requirements are met to start the process of

c. incorporating.

Mike Nettles approached Nathan Lang about becoming a partner in a firm that destroys environmental waste. While Mike would like to become a partner in the firm, he is concerned about his liability because he has recently inherited a lot of money. In this situation, Mike should become a

c. limited partner.

Amy owns 100 shares of General Electric preferred stock. She wants to attend the annual stockholder meeting to cast her vote on company issues. Based on your knowledge from school, you caution Amy that

c. most preferred stock does not have voting rights.