Business Dynamics: Chapter 5

What are the advantages of the LLC form of organization?

Flexible ownership rules Limited liability Choice of taxation

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

S

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

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

Which of following are true about the advantages and disadvantages of being a franchise owner:

While the upfront costs of a franchise may be steep, a franchise has a better chance of succeeding than starting a business from scratch Having a nationally recognized name for your business in a franchise can help with marketing and awareness

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

True or false: Corporations must be large in size to benefit from the advantages of incorporating.

false

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

merger

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

What are some of the disadvantages of a corporation?

Cost of forming a corporation Double taxation

Which are considered disadvantages of incorporating?

Double Taxation Extensive paperwork Initial Cost

Select all attributes that make the initial cost of incorporating a disadvantage.

High start-up costs associated with documentation The high cost of hiring lawyers and accountants for the complex filings needed

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

LLC

A form of business ownership that provides limited liability, as in a corporation, but is taxed like a partnership is a(n) _________ company

S corporation

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

acquisition

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

acquisition

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

agreement

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 merger that joins two companies involved in different but related levels of an industry is a(n) ______ merger.

vertical

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

vertical

Because of the difficulty in ending a partnership, decisions regarding what two areas should be spelled out in a partnership agreement?

when a partner can retire how to distribute assets

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

false

Taryn and Eilysh have decided to form a partnership. Taryn will not have management responsibility, but will invest money in the business. Taryn will be considered a(n) ________ partner.

limited

The responsibility for a loss only up to the amount invested is ______ liability

limited

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

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

boss

Bruce is meeting with his accountant to choose whether his LLC is to be taxed as a partnership or a corporation. This advantage of forming an LLC is called:

choice of taxation

When the actions of others with the same franchise as yours have an impact on your future growth and profitability, this is an example of ________ effects

coattail

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

coattail effect

When the actions of other franchises have an affect on your business operation, this is called:

coattail effect

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

conglomerate

A merger that joins firms in completely unrelated industries is a:

conglomerate merger

Many franchises are expanding internationally because:

there are large new markets available

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

true

While your are still your own boss as a franchise owner, your territory or selling boundaries may be regulated by the franchisor.

true

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

franchise

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

franchisees

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

hold annual meetings keep minutes file written resolutions

The joining of two firms in the same industry is a(n) __________ merger

horizontal

The attributes of a conventional corporation include that:

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

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

market

Corporations can raise large amounts of money, take advantage of economies of scale, and hire experts in all areas of operation. This can be summarized as ______ advantage.

size

A business that is owned and managed by one person is a(n)

sole proprietorship

If you start and manage a landscaping business on your own, you have likely started a

sole proprietorship

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

sole proprietorship

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

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

cooperative

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

cooperative

Selling shares of stock to anyone allows a _________ to raise more money to grow.

corporation

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

entity

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

false

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

Many minority business owners prefer a(n) __________ because it offers business connections and support.

franchise

Ed has decided to purchase and follow a business format by becoming a franchisee. The ___________ he will sign gives him the right to use the business name and sell the products of the firm.

franchise agreement

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

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

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.

horizontal

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

horizontal merger

A sole proprietorship has a limited life span unless:

it is sold to someone else it is taken over by an heir

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

The start-up costs of filing for incorporation are high because:

lawyers and accountants are needed to do the complex filings

In a general partnership, all partners share the responsibility for operating the business and assume _______ for the business's debts

liability

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

like a partnership or sole proprietorship

A key advantage of LLCs is _________ liability where personal assets are protected.

limited

If the sole proprietor dies, is incapacitated, or retires, the business no longer exists. This disadvantage of a sole proprietorship is called _________ life span.

limited

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

limited liability

The form of business ownership called _______ protects the person's personal assets from the debts of the business.

limited liability

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

limited partnership

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.

overhead

Select those items considered fringe benefits that people working for a company are likely to receive, but a sole proprietor has to develop on his own:

paid sick or vacation leave time paid health insurance a pension plan

LLCs can be taxed as ______ or ________, which allows the business owners to choose their method of taxation.

partnership, corporation

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

personal

Home-based franchises have many advantages, such as:

relief from the stress of commuting low overhead expenses

Stockholders are _______ from the managers and employees of the firm because they are not actively involved in the operations of the firm

separate

Stockholders are _______ from the managers and employees of the firm because they are not actively involved in the operations of the firm.

separate

What are two reasons that franchises are attractive to minority populations?

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

For a business to grow, prosper, and create economic opportunity, many people have to be willing to invest money in it. An advantage of a corporation is its ability to raise money through the sale of

stock

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

stock

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

technology websites e-commerce