Business Law Chapter 6

In the context of a limited partnership, which of the following statements is true of general partners?

They have the right to participate fully in managing their partnership.

Which of the following is a drawback of franchising?

Restrictions on sale

In the context of formation, which of the following is a similarity between limited liability companies (LLCs) and corporations?

Similar to the bylaws of a corporation, organizers of most LLCs draft an operating agreement.

In the context of corporate restructuring, which of the following is a common objective of a vertical merger?

Providing tighter integration of production and increased control over the supply of crucial inputs

In the context of corporate restructuring, which of the following is a common objective of a conglomerate merger?

Reducing risk by making a firm less vulnerable to adverse conditions in any single market

A _____ is a form of business ownership in which the business is considered a legal entity that is separate and distinct from its owners.

corporation

In the context of corporate restructuring, a _____ refers to a combination of firms that are at different stages in the production of a good or service.

vertical merger

Which of the following statements is a similarity between general partnerships and sole proprietorships?

Both allow owners to avoid double taxation.

Which of the following is a disadvantage of a limited liability company (LLC)?

Complexity of formation

Which of the following is an advantage of sole proprietorships?

Ease of formation

From the franchisee's perspective, which of the following is an advantage offered by franchising?

Easy access to funding

_____ are organizations that pool contributions from investors, clients, or depositors and use these funds to buy stocks and other securities.

Institutional investors

The _____ considers a C corporation to be a separate legal entity and taxes its earnings accordingly.

Internal Revenue Service

Which of the following statements best describes an S corporation?

It is a form of corporation that avoids double taxation by having its income taxed as if it were a partnership

Which of the following statements best describes a C corporation?

It is a legal business entity that offers limited liability to all of its owners, who are called stockholders

Which of the following statements is true of sole proprietorships?

Owner receives the entire share of the firms' profits.

Which of the following is a disadvantage of sole proprietorship?

The company legally ceases to exist if the owner withdraws

Which of the following statements is true of franchises set up across borders?

The limit of a franchisee's right over a territory is decided through a franchise agreement.

Which of the following statements is true of limited liability companies (LLCs)?

There is no separate tax on the earnings of the companies if they choose to be treated as a partnership.

In the context of C corporations, which of the following is a difference between preferred stockholders and common stockholders?

Unlike preferred stockholders, common stockholders normally have the right to vote in stockholder meetings

Which of the following is a disadvantage of general partnerships?

Unlimited liability

In the context of corporations, _____ is a corporate restructuring in which one firm buys another.

an acquisition

Unlike corporations, limited liability companies (LLCs):

are subject to less paperwork.

In the context of business ownership, the document filed with a state government to establish the existence of a new corporation is referred to as the _____.

articles of incorporation

In accordance with corporate bylaws, stockholders elect a _____ and rely on it to oversee the operation of their company and protect their interests.

board of directors

Comfy Trend Inc., a clothing in the United States, licenses a garment manufacturing firm in Tokyo to operate under its name and trademark. The firm also buys the rights to use Comfy Trend Inc.'s production and business methods. This scenario is an example of a _____.

business format franchise

An advantage of a general partnership is that the:

business is taxed as the personal income of its owners.

In the context of corporations, the _____ and other corporate officers manage the company on a daily basis.

chief executive officer

Gerrilyn works for a business firm that manufactures breakfast cereal. The firm is owned by many individuals who are not personally responsible for any debts or losses incurred by it. Legally, the firm is considered a separate artificial person. In this scenario, Gerrilyn is working for a _____.

corporation

A _____occurs when a firm transfers total or partial ownership of some of its operations to investors or to another company.

divestiture

An individual who decides to establish a sole proprietorship must realize that he or she would be:

facing unlimited personal liability for the company's debts

A _____ is a licensing arrangement under which one party allows another party to use its name, trademark, patents, copyrights, business methods, and other property in exchange for monetary payments and other considerations.

franchise

In the context of the various forms of operating a business, instant brand-name recognition is a benefit ensured by a:

franchise.

Max and Lucio start a retail store. They take turns to manage the store, and they share the profits equally. Max and Lucio understand that they are personally liable for any debts or losses that the store may incur in the future. This type of business venture exemplifies a _____.

general partnership

In the context of corporate restructuring, a _____ is defined as a combination of firms in the same industry.

horizontal merger

Daynon Inc. buys Leeston Corp., a firm that makes shipbuilding components, despite the opposition from Leeston's board of directors and its top management. This acquisition exemplifies a _____.

hostile takeover

A key advantage of a C corporation is:

its ability to raise large amounts of financial capital

Irina, Ron, and Benz want to start the business of designing the interiors of offices. All of them want to actively manage the company and do not want to be personally responsible for the debts and obligations of the company. Moreover, they do not want to hold regular board meetings. The three are most likely to form a _____.

limited liability company

Silva and Ron start a taxi service together. Ron only invests money in the venture and does not actively participate in managing the business. Silva, on the other hand, manages the venture entirely. According to the agreement between Silva and Ron, Silva is personally responsible for the debts and losses while Ron takes responsibility of the debts only up to a certain amount. The agreement also mentions that Ron cannot participate in the management of the business. In this scenario, Ron and Silva have formed a _____.

limited partnership

One of the drawbacks of sole proprietorships is that the owners:

may find it difficult to attract and maintain talented employees

A _____ refers to a corporate restructuring that occurs when two formerly independent business entities combine to form a new organization.

merger

In the context of franchising, a Franchise Disclosure Document (FDD):

must be provided to the franchisee at least 14 calendar days before the franchise agreement is signed.

The _____ is a situation where the behavior of an incompetent or an irresponsible franchisee adversely affects not only the franchise as a whole but also the success of other franchisees.

negative halo effect

The vast majority of limited liability companies (LLCs) elect to be taxed as:

partnerships

Thiago has spent a long time working in various commercial establishments owned by some of his close relatives. He now wishes to establish his own business, a sporting goods retail store. Thiago plans to manage the store single-handedly. In the context of the various business ownership options, Thiago's store will be an example of a:

sole proprietorship