Chapter 4: How to Form a Business

Mark, Cal and Aidan have decided to form a business where all owners will share in operating the business and in assuming liability for the business debts. They are most likely forming a(n) partnership.

Blank 1: general

A company similar to an S corporation but without the special eligibility requirements is an:

LLC

Which is an advantage of the corporate form of business ownership?

Limited liability

What are some of the advantages of franchising?

Lower failure rate Recognized name Financial advice

True or false: The main advantage of a sole proprietorship is ease of start up.

True

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

boss

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

file written resolutions keep minutes hold annual meetings

An agreement that gives a business the right to use a business's name and sell a product or service in a given area is a(n):

franchise

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

general partnership

Stockholders' liability for losses only up to the amount they invest is called ______________.

limited liability

A partnership has partners who do not share in operating the business.

limited partnership

When there is one or more general partners and one or more limited partners, the firm is a(n):

limited partnership

Franchises offer those starting a business the advantage of a recognized name, management assistance, and:

lower failure rates

Franchises are expanding internationally to access additional that have new customers and to increase their profit potential.

markets

Rank the order in which members of a corporation are chosen in order to separate ownership from management. Start at the top of the managerial hierarchy. (Fig. 5.4)

owner/stockholder Board of directors hire officers of the corporation Officers hire managers of the corporation Managers hire employees

A legal form of business with two or more owners is a(n):

partnership

Termination of a partnership is difficult without a(n) ______ agreement.

partnership

The result of two firms joining to form one is called a(n):

merger

The joining of firms in completely unrelated industries is a(n) merger.

Blank 1: conglomerate

A(n) is a state-chartered entity that exists in the eyes of the law and controls risk to the owners of the firm.

Blank 1: corporation

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

Blank 1: entity

Financial advice and a nationally recognized name are both benefits of owning a(n)

Blank 1: franchise

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

unlimited liability

A(n) ______ is where one company purchases the property and obligations of another.

acquisition

One company's purchase of the property and obligations of another is called a(n):

acquisition

A major disadvantage of the corporate form deals with the tax situation called taxation.

double

A merger of two firms in the same industry that allows the companies to diversify or expand their products is a(n):

horizontal merger

Many franchises are expanding internationally because:

there are large new markets available

One of the most notable advantages of an online franchise is

there is no brick-and-mortar real estate cost.

In addition to the articles of incorporation, a corporation has , which describe how the firm is to be operated from both legal and managerial points of view.

Blank 1: bylaws

The actions of a fellow franchisee will affect your franchise. This is known as the

Blank 1: coattail Blank 2: effect

If a software company and a snack food company merged, it would be called a(n) merger.

Blank 1: conglomerate

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

Blank 1: franchise

Franchisors often use technology to meet the needs of both their customers and their because technology makes communication faster and more widespread.

Blank 1: franchisees, employees, suppliers, investors, or stakeholders

Relief from the stress of commuting, extra time for family activities, and low overhead expenses are all advantages of - franchises.

Blank 1: home Blank 2: based

When a soft drink company and a mineral water company merge and then are able to supply a variety of drinking products they have formed a(n) merger.

Blank 1: horizontal

Don wanted to incorporate his business and liked the attributes of an S-corporation, however, he did not feel the eligibility requirements would work for his purposes. He is likely to choose to form a(n) company.

Blank 1: limited Blank 2: liability

What are some of the disadvantages of a corporation?

Cost of forming a corporation Double taxation

Which are considered disadvantages of incorporating?

Double Taxation Initial Cost Extensive paperwork

Which of the following are true regarding the process of forming a corporation.

The articles of incorporation must be filed in the state in which the company will be incorporated The bylaws of the corporation describe how the firm is to be operated

A franchise owner will experience the coattail effect when:

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

Because owners are only responsible for losses up to the amount they have invested in a corporation, limited liability is considered:

a major advantage

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

an S corporation

An advantage of the separation of ownership from management in corporations is that the company can raise money from investors but the investors:

are not involved in daily operations

A corporation is formally formed with:

articles of incorporation and bylaws

A state-chartered legal entity with authority to act and have liability separate from its owners is a:

corporation

Many brick and mortar franchisees are using ______ to expand their businesses online to lower costs and better meet the needs of their customers.

e-commerce websites technology

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

False

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

False

Which of these are advantages of a limited liability companies?

Limited liability Choice of taxation Flexible ownership rules

The attributes of a corporation include that:

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

LLC's are considered to have operational flexibility because while they must submit articles of organization,they are not required to:

keep minutes or hold annual meetings

An S corporation has the liability protections of a corporation but is taxed:

like a partnership or sole proprietorship

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

limit individual responsibility for losses

Studies have indicated that partnerships are four times more likely to succeed than:

sole proprietorships

Franchises are attractive to minority populations because:

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

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

survival

A unique government creation that looks like a corporation but is taxed like a sole proprietorship or partnership is called a(n) corporation.

Blank 1: S

A partnership can spell out the requirements of terminating a partnership.

Blank 1: agreement

Limited liability, choice of taxation, flexible ownership rules, and operating flexibility are all advantages of a(n) company.

Blank 1: limited Blank 2: liability

Shareholders are not liable for the debts of a corporation beyond the money they invest in it by buying company

Blank 1: stock or shares

Gathering leads on a company website, selling products and keeping up to date on news via email, and chat rooms all serve as examples of using to assist franchisees and customers.

Blank 1: technology

If your company debts or damages are solely your responsibility you could be experiencing the disadvantage associated with owning a sole proprietorship called

Blank 1: unlimited Blank 2: liability

A merger between a soft drink company and an artificial sweetener maker could be considered a(n) merger.

Blank 1: vertical

When two firms operating in different stages of related businesses join, it is called a(n) merger.

Blank 1: vertical

When you own a sole proprietorship you and the business are considered one, so you have liability for financial obligations such as debt.

unlimited

A key advantage of a home-based franchise is low costs, which can be ongoing. These are the costs associated with rent, utilities, and other fixed costs.

Blank 1: overhead or operating

An LLC submits a written operating agreement, similar to a(n) agreement, describing how the company is to be operated.

Blank 1: partnership

owned businesses are growing at more than the national rate.

Blank 1: Minority

True or false: If producers, consumers, or workers with similar needs pool their resources for mutual gain, they have created a franchise.

False

About 30 percent of franchises are owned by African Americans, Latinos, Asians, and Native Americans. Franchisors are becoming more focused on recruiting franchisees.

Blank 1: minority or diverse

The result of two firms (usually corporations) combining to form one company is called a

Blank 1: merger

A business owned and controlled through pooled resources by the people who use it is a(n) ______.

cooperative

An advantage of starting an online franchise is that:

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

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

unlimited liability