Chapter IV: How to Form a Business

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

False

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

False

What are some of the advantages of franchising?

Lower failure rate Recognized name Financial advice

A franchise owner will experience the coattail effect when:

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

A corporation is formally formed with:

articles of incorporation and bylaws

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

boss, manager, employer

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 technology websites

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

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

franchise

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.

general

Low overhead costs are an advantage of which type of business?

home-bases businesses

The attributes of a conventional corporation include that:

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

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

like a partnership or sole proprietorship

Home-based franchises have many advantages, such as:

low overhead expenses relief from the stress of commuting

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

merger

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

sole proprietorships

Because of the poor publicity at a fellow franchise location, you notice that sales at your location have decreased. The impact of the poor publicity on your company is referred to as...

the coattail effect

What two items are delineated in a franchise agreement?

the right to use a specific business' name the right to sell a business' products in a given territory

True or false: Partnerships are less likely to survive than sole proprietorships.

False

Which are considered disadvantages of incorporating?

Initial Cost Extensive paperwork Double Taxation

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

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

When producers, consumers, or workers with similar needs pool their resources for mutual gain, they start a(n):

cooperative

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

double

Many minority business owners prefer the ______ form of business ownership because it offers business connections and support.

franchise

In terms of operating flexibility, what are three things that LLCs are not required to do?

keep minutes hold annual meetings file written resolutions

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

Unlimited liability as it relates to sole proprietorships is the risk of loss of assets ___ beyond the assets of the business.

personal

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

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.

technology

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.

An advantage of starting an online franchise is that:

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

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

general partnership

When two or more people legally agree to become co-owners of a business, the organization is called a(n) ___

partnership

What two features characterize a general partnership?

all partners assume liability for the business's debts all partners share the responsibility for operating the business

One of the most important advantages of the sole proprietor form of ownership is that a business owner:

finds it easier to start and end the business

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

markets

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

minority

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

partnership

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

partnership

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

partnership

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