Chapter 6

Which of the following statements is true of a franchisor-franchisee relationship?

A franchisor limits the franchisee's territory from expanding into other areas.

Which of the following is a disadvantage of franchising?

The franchise agreement usually requires the franchisee to follow the franchisor's procedures to the letter.

A sole proprietorship is a form of business ownership in which:

a single owner actively manages the company

Sarcosine Chemicals Corp. issues stock in one of its operating units and sets it up as a separate company called Prussic Corp., with its own board of directors and corporate officers. Sarcosine Chemicals Corp. then distributes the stock in Prussic Corp. to its existing stockholders. Which of the following forms of divestitures does this scenario exemplify?

a spin-off

A group of five people wants to start a limited liability company (LLC) in their city. The group files a document with the state government to establish the existence of the LLC. In this scenario, which of the following documents is filed by the group?

articles of organization

A textile corporation has two hundred odd stockholders. As it is inconvenient for so many stockholders to manage the company, the stockholders elect a group of individuals to oversee the company's operation and to represent their interests. In this scenario, the stockholders elect a _____.

board of directors

CofBean Corp. and Coffeedust Inc. are leading producers and distributors of coffee beans. They join together to become the world's largest distributor of coffee. This association allows the amalgamated company to increase its size and market power within the coffee industry. This is an example of a(n) _____.

horizontal merger

IFGI Life Insurance, an insurance company, is one of the stockholders of a pharmaceutical company. Given this information, IFGI Life Insurance is most likely a(n) _____.

institutional investor

A large film production company merges with a popular sound processing studio, resulting in the formation of a new company out of the two previously independent firms. This is most likely an example of a______.

vertical merger

Which of the following is a difference between a C corporation and an S corporation?

A C corporation is double taxed, whereas an S corporation is taxed as a partnership.

The stockholders of a construction firm decide to start a steel company, but they want to have limited liability. After completing the business plan, they initiate the process of establishing the company by filing articles of incorporation and paying the filing fees to the state government. In this scenario, the stockholders of the firm want to start a _____.

C Corporation

Which of the following is a difference between limited partnerships and limited liability partnerships?

In limited liability partnerships, all the partners actively participate in the management of the company, whereas in limited partnerships, only the general partners actively manage the company.

The owners of limited liability companies (LLCs) are called members because:

LLCs are neither corporations nor partnerships.

In the context of limited partnerships, which of the following is an aspect that differentiates limited partners from general partners?

Participation in the management of a company

Which of the following is a disadvantage associated with sole proprietorships?

Raising money to finance growth can be tough for business owners

Mikhail, a Korean, wishes to be a stockholder in an airline company in the United States. However, he is told that he cannot buy shares of the company as he is neither a U.S. citizen nor a permanent resident of the country. Besides this, he can become a stockholder only if any of the current stockholders decide to sell their shares as the company already has 100 stockholders. Given this information, it can be assumed that Mikhail wants to be a stockholder of a(n) _____.

S corporation

The nature of work and the workflow in the animation department of Hanzel Talkies, a movie production company, completely differs from that of other departments in the company. Hence, Hanzel Talkies decides to branch the animation department out into a new company by selling the stock to outside investors. In this scenario, Hanzel Talkies is using a strategy called a(n):

carve-out

A(n)__________is a combination of two firms that are in unrelated industries.

conglomerate merger

A premium brand of men's wear introduces a new range of dinner suits and licenses its franchisees to sell this product. However, the brand retains the production rights. This scenario exemplifies a(n) _____.

distributorship

Amanda has always been inclined toward baking and wants to open her own bakery. She takes a loan of $20,000 from the bank and starts a bakery in her hometown. In the context of the four forms of business, Amanda most likely _____.

has a sole proprietorship

FoodieGo, a catering company, is owned by foreign investors and local businessmen. Its earnings are equally divided among its members. It does not face the problem of double taxation as taxes are only levied on the personal income of the members. The owners of FoodieGo do not have personal liability for any debts incurred by the company. In the given scenario, FoodieGo is an example of a _____.

limited liability company

Three brothers of a family own a furniture showroom. Each of them is actively involved in handling the day-to-day business activities. However, when the business suffered huge losses at the end of the last fiscal year, the personal wealth and assets of the brothers did not get affected. This is most likely because the brothers have a:

limited liability partnership.

Tania starts a bookstore with her friend. However, owing to other commitments, Tania is unable to help with the daily operations of the bookstore. Therefore, Tania proposes that she would not actively participate in managing the business but would provide financial support to the business. By doing this, she would be sharing the profits equally with her friend, without incurring any of the business debts personally. In this scenario, Tania is a(n) _____.

limited partner

In the context of an acquisition, the firm that is purchased by another firm is called the _____.

target firm