ETH/321T Week 2 Practice

Tawny wants to be involved in a business. She has lots of capital to invest and she wants to be involved in management, but does not want to be exposed to personal liability for losses the business might incur and she does not want to have to pay excessive taxes on her gains. Which form of business would be best for Tawny?

LLC Only an LLC would satisfy all of the details of Tawny's situation. Found in the following section(s) of the text: 2.8: Limited Liability Corporations

Which of the following is false concerning LLCs?

LLCs are formed in much the same way as a general partnership. The text states that LLCs are a creation of state statute. Found in the following section(s) of the text: 2.8: Limited Liability Corporations

Leo and Josh have a welding business organized as a general partnership. A customer comes into the business seeking a welding contract. Leo agrees to do the work for the customer as a separate project from his business with Josh. Which of the following is true?

Leo has usurped the concept of joint ownership of the business. Setting aside the details of some of the response options, general ethical rules state simply that Leo would be attempting to usurp a partnership opportunity for himself. Found in the following section(s) of the text: 2.3: General Partnerships

Under the notion of effective corporate governance, which of the following is not an example of an internal control?

Accounting disclosure requirements Accounting disclosure is highly regulated by law. Found in the following section(s) of the text: 11.11: Corporate Governance

The primary purpose for a company's issuance of stocks is:

To raise capital Raising capital through stocks is one of the primary benefits of a corporation organization, as stated in the text. Found in the following section(s) of the text: 2.7: Corporate Financing and Termination

Albus wants to build a business. He wants to start the business fast and reach a large customer base, but he only has a small amount of opening capital. He has no partner with whom to form the business. Which of the following is not a valid reason for Albus to choose a sole proprietorship organization for his business?

Wants to reach a large customer base Reaching a large customer base is the only detail of Albus' situation that is not a reason to pursue sole proprietorship based on the text. Found in the following section(s) of the text: 2.2: Small Business Structures

Kim wants to be involved in a business but is not sure what type of business to join or create. She has some capital to invest, several years of managing experience, and a good network of potential investors and partners. What role would be best for Kim?

More than one possible option Kim's characteristics qualify her to be a general partner, so with the information given she may be safe in choosing any of several options. Found in the following section(s) of the text: 2.4: Limited Partnerships

Hector is opening a sole proprietorship. Which of the following would not be included in a list of possible steps Hector would take in setting up his business?

Obtain a federal The only government approval a proprietor would typically need would be a local business license. It would be impractical for every single sole proprietorship to have to seek federal approval when organized. Found in the following section(s) of the text: 2.2: Small Business Structures

Papapop makes a franchise agreement with a bottling factory to sell its product to the company for bottling and subsequent sale. Over the next several years, Papapop steadily demands a higher percentage of the bottler's profit from sales. Which of the following is true?

Papapop is restricted from demanding a higher profit percentage if such increases are arbitrary Demanding a higher percentage might be normal and necessary depending on the economy, competition, or other factors. The text states that franchisors used to take advantage of franchisees through arbitrary increases in the amount of profits taken from franchisees, and this was one of the causes for governmental intervention. Found in the following section(s) of the text: 2.9: Franchises

Chloe is a non-executive supervisor at her company. She directs other employees but has no control of financial information or decision-making responsibilities. She would be responsible for contributing to which of the following areas?

Promoting integrity and ethical behavior Regular employees are not responsible for most areas of corporate citizenship, but nearly everyone has a role to play in promoting an ethical culture in a business. Found in the following section(s) of the text: 11.11: Corporate Governance

Which of the following is not a basic requirement of good corporate citizenship?

Provision of benefits to employees Providing benefits to employees could be a minor facet of meeting stakeholders' interests, but it is not a main area of corporate citizenship. Found in the following section(s) of the text: 11.11: Corporate Governance

Which of the following is restricted under the constraints of the Franchise Rule?

Raising prices or profit margins without notice Franchises may not be terminated without cause, but conditions for when or how a termination may occur are allowed. A requirement to purchase products is fair as long as the franchisor is not overcharging or arbitrarily raising prices. Training is also a fair and foreseeable part of a franchise agreement. Found in the following section(s) of the text: 2.9: Franchises

Reed works for Marimart. He assembles components for consumer products. He also conducts training for new hires at Marimart. Reed additionally purchases stock in the company? What is Reed's position in the company?

Shareholder Reed's responsibilities are insufficient to qualify him as an executive or director. Buying stock makes him a shareholder only. Found in the following section(s) of the text: 2.6: Corporate Formation and Management

What is a public corporation?

A business formed by the government

What is the definition of a foreign corporation?

A business formed in a different state

What is the definition of a Subchapter S corporation?

A business that passes profits directly to shareholders

What is a closely-held corporation?

A business with a small number of shareholders

Which of the following could result in the termination of a limited partnership?

All of the Above All are valid reasons for a partnership to be terminated. Found in the following section(s) of the text: 2.4: Limited Partnerships

Which of the following is true concerning bonds?

As a company's credit increases, the interest on its bonds tend to decrease. Stocks, not bonds, are equity interests. A bond may be but is not always based on a physical asset. Bonds are a debt instrument, the opposite of an asset. Found in the following section(s) of the text: 2.7: Corporate Financing and Termination

Wade and Hunter want to start a business. They have a large amount of capital. They have a good working relationship and believe they will do well sharing management responsibility and in sharing profits. They are happy to be organizing a business together in order to avoid full liability for the business. Which detail(s) of this situation would be most unhelpful toward Wade and Hunter's decision to organize a general partnership?

Avoiding full liability Wade and Hunter's anticipation of limited liability would be a mistake if they are organizing a general partnership. Sharing management responsibility and profits are valid benefits of a general partnership, and while a large amount of capital is unnecessary in organizing one, it would certainly still be beneficial. Found in the following section(s) of the text: 2.3: General Partnerships

Jaden works for LeoHart. He meets with a team to discuss shareholders' interests and assign managers to run certain parts of the company. What is Jaden's position in the company?

Director It is the board of directors that must meet shareholders' demands, and the board also selects executives in the company. With no further details, Jaden can only be determined to be a director on the board of directors. Found in the following section(s) of the text: 2.6: Corporate Formation and Management

What type of franchise would a car dealership typically belong to?

Distributorship

Which of the following is true concerning dividends?

Dividends tend to make a stock seem more favorable to investors The incorrect response options may be true for any given corporation, but are certainly not true for the majority. Found in the following section(s) of the text: 2.7: Corporate Financing and Termination

The board of directors for Glenncorp makes an investment in distribution services that ultimately result in a net loss for the company and its shareholders. Shareholders in the company may:

Do nothing, as the board is protected by the business judgment rule The business judgment rule protects directors from lawsuits when their decisions result in losses to a corporation. Found in the following section(s) of the text: 2.6: Corporate Formation and Management

Del organized his business in Alaska. He does business in both the U.S. and Canada. In Texas, Del's business would be considered a(n) __________ corporation.

Foreign By definition, a corporation is called a foreign corporation in states other than that in which they were created. Found in the following section(s) of the text: 2.5: Introduction to Corporations