MGT161 Chapter 6 Business Formation

Global Keys, a software firm, wants to raise financial capital. However, its encryption division brings the firm very little profit and does not fit well with the firm's strategic goals. Therefore, Global Keys converts the encryption division into a separate company and sells it to outside investors. Which form of corporate restructuring is best illustrated in this example?

A divestiture

Jonah and Alex are the owners of Robust Glass Inc., a glass manufacturer. Jonah has the right to actively participate in the company's management, whereas Alex does not have the right to do so. Based on this information, which of the following is true?

Alex is the general partner.

Which of the following is true of a limited liability partnership?

All partners have the right to participate in management.

Mike owns Sweet Tooth, an exotic candy store. Which of the following, if true, would indicate Mike's business to be a sole proprietorship?

All the profits of the business go to Mike.

Arthur, Dan, and Millie are stockholders of PowerUp, an energy company. The company was established as a C-corporation after filing articles of corporation and adopting corporate bylaws. In the context of this scenario, which of the following statements is true?

Arthur, Dan, and Millie can elect a board of directors to oversee PowerUp's operations.

CloudConnect LLP provides cloud computing services. It is owned by two business partners, Robert and Tom. Which of the following, if true, would indicate that it is a limited liability partnership (LLP)?

Both Robert and Tom have restricted financial responsibility for company debts.

StreetEats is an established fast food chain with several outlets across America. Carl, after signing the franchise agreement with StreetEats, opens a fast food outlet in Maine. He uses StreetEats's logo, adopts its business plans, and mimics its standard recipes. In the context of this agreement, which of the following statements is true?

Carl earns instant brand recognition through the franchise agreement.

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

Flexible ownership

Identify the disadvantage of sole proprietorships.

Heavy workload and responsibilities

Graham is the owner and manager of Ice Bubbles, a small restaurant. In the context of this scenario, which of the following is most likely to be true?

If Graham dies, Ice Bubbles will cease to exist.

Which of the following is true of an S corporation?

It cannot have more than 100 stockholders.

Which of the following is true of a sole proprietorship?

It has a limited ability to attract and maintain talented employees.

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

It is difficult to operate LLCs in more than one state, if the state laws are not uniform.

A(n) ________ is best described as a form of corporation that avoids double taxation by having its income taxed as if it were a partnership.

S corporation

Which of the following is an advantage of general partnerships?

The ability to capitalize on complementary skills

Which of the following is an advantage of franchising?

There is less risk to franchisees as the business methods of franchisors have a proven track record.

Farren, Liam, and Joe decide to start Teal Landscapes, LLC. In the context of this scenario, which of the following statements is true?

They have the liberty to include foreign investors

A(n) ________ is a type of franchising arrangement in which the franchisor makes a product and licenses the franchisee to sell it.

distributorship

A general partnership is one in which:

each partner has the right to participate in the company's management and share in profits.

A sole proprietorship is best described as a:

form of business ownership with a single owner who usually actively manages the company.

TimeTune Inc., a watch manufacturer, signs a licensing agreement with WristMates, a watch dealer. According to this agreement, WristMates has the right to use TimeTune's trademark, copyrights, and business strategies to sell its products. In this example, WristMates best illustrates a(n) ________ .

franchisee

Blackstone, a software firm, is owned and managed by Matt and Irene. The firm is a separate legal entity and neither Matt nor Irene is responsible for any of Blackstone's obligations. However, they have the right to decide whether to tax Blackstone as a corporation or as a partnership. Blackstone best illustrates a ________ .

limited liability company

GreenPro, owned by Hal and Jon, manufactures eco-friendly products. The firm has a distinct legal identity and has been created by filing the requisite government documents. It is mandatory for the firm to pay annual franchise taxes but the owners are exempt from corporate income taxes. GreenPro is most likely to be classified as a(n) ________ .

limited liability company

Anna owns a boutique. She is the boutique's ultimate authority and is personally responsible for repaying the loan taken to start the business. Any debt that the boutique incurs is Anna's personal debt. This scenario best represents a:

sole proprietorship.