Business Law (DECA Prep)
ABC Specialty Wear is the only company that has written permission to use a national football team's logo on its sportswear. This is an example of a
Licensing agreement. ABC Specialty Wear's agreement with the football team is a licensing agreement. Licensing refers to an owner's authorization for another entity to use trademarked, copyrighted, or patented material for a specific activity, during a specific time period, for the profit of both parties. Product trade-name (also called dealership or exclusive distributorship) refers to a franchise arrangement based on an independent sales relationship between a franchisor and franchisee to stock and sell a specific line of goods. A sole proprietorship is a business that is owned by one person. A joint venture is an arrangement that involves two or more businesses combining complementary resources for the benefit of all parties.
Lois and Lora plan to open a florist shop. Lois is unable to devote full time to the daily operations of the shop but wishes to provide financial support. Which form of business partnership is most likely to appeal to Lois?
Limited. Limited partnership permits a partner to invest in a business but have limited responsibility. A general partnership is one in which all partners are liable for the business's losses. Private refers to a corporation that is owned by a few people and does not offer its shares for sale to the general public. A nonprofit corporation is a business that has a specific mission or purpose other than to make a profit. Many times, the mission or purpose of the organization is to help society. Any income made by a nonprofit organization is used to cover expenses.
The Scott Company decided to sell stock to raise capital. Under what form of business organization does the company operate?
Corporation. A corporation is the only form of business organization that is permitted to sell stock. The other alternatives are types of businesses that must use personal funds, borrow, or take on new partners to raise capital.
Which of the following is a characteristic of a product trade-name franchise: a. The franchisee has unlimited liability. b. The franchisee can choose the name of the business. c. It is not open to the public. d. It is owned by shareholders.
The franchisee can choose the name of the business. A product trade-name franchise is an independent sales relationship between a supplier (franchisor) and a dealer (franchisee) to stock and sell a specific or exclusive line of products. In this relationship, the franchisee is able to choose the name of the business. These franchises are open to the public, usually have limited liability, and are owned by the franchisee, not shareholder.
What type of corporation may be owned by just a few people and does not offer its shares for sale to the general public?
Private. A private corporation may be owned by just a few people and does not offer its shares for sale to the general public. It usually is not required to make its financial activities public. For tax reasons, it must prepare reports for the states in which it operates. A public corporation usually sells millions of shares of stock to many stockholders. Limited and general are types of partnerships.
Which of the following statements is true regarding joint ventures: Select one: a. Joint ventures are used only when it is necessary to raise a lot of capital. b. Large corporations are the only business structures that can benefit from joint ventures. c. Joint-venture arrangements are usually short-term relationships. d. An independent attorney should always be consulted before signing a joint-venture agreement.
Joint-venture arrangements are usually short-term relationships. A joint venture is an arrangement that involves two or more businesses entering into a relationship by combining complementary resources such as technology, skills, capital, or distribution channels for the benefit of all parties. The relationship is usually short-term and involves the execution of a single project or transaction. A joint-venture arrangement can be used by virtually any type and size of business. Although it is a good idea to have an attorney draw up or review a contractual agreement between both parties, it is not usually required in the United States.
Olivia runs a home-based business that distributes high-quality, handmade baskets. She sells the products and earns commissions on the baskets sold by four other basket representatives. This is an example of
Multi-level marketing. Multi-level marketing refers to a business, usually well-known, that pays commissions on sales earned to people at two or more levels. The sales representatives usually work independently of the company. A product trade-name franchise is a franchise arrangement based on an independent sales relationship between a franchisor and franchisee to stock and sell a specific line of goods. It is also known as a dealership or exclusive distributorship. Licensing is a business arrangement that requires the authorization or permission from an owner to another entity to use trademarked, copyrighted (e.g., logo, name), or patented material for a specific activity, during a specific time period, for the profit of both parties. Strategic partnering is not a term that is recognized as a method of business ownership.
What type of corporation sells millions of shares and must furnish complete information about its earnings, assets, and debts?
Public. The public corporation usually sells millions of shares of stock to many stockholders. The public corporation must furnish information to the public and to prospective investors about its earnings, assets, and debts. A private corporation may be owned by just a few people and does not offer its shares for sale to the general public. The "S" corporation is a private, state-chartered corporation that was developed to help small businesses by taxing them as individuals in a partnership. It is limited to 100 or fewer shareholders. Limited is a type of partnership.
Illegally run organizations that emphasize the collection of high fees from potential product distributors are often referred to as
Pyramid schemes. Pyramid schemes are recognized as illegally run businesses that operate by using multi-level marketing strategies. Typically, pyramid clubs require potential members to pay an investment fee up front. Sometimes this amount can be thousands of dollars. Most of the emphasis is on recruiting new members, so that more investment fees can be collected. Very little emphasis is placed on product attributes or quality. Deceptive advertising refers to the use of nonpersonal, paid promotional venues to mislead the audience about the attributes of a product. Marketing rackets and pressure-cooker tactics are not recognized terms in regard to multi-level marketing concepts.
A state-chartered corporation that was developed to help small businesses by taxing them as individuals in a partnership is a/an __________ corporation.
The Subchapter "S," or "S," corporation is a private, state-chartered corporation whose owners are taxed as individuals in a partnership, if they meet certain conditions. It is limited to 100 or fewer shareholders, has limited shareholder liability, and requires little financial reporting. A private corporation may be owned by just a few people and does not offer its shares for sale to the general public. A public corporation usually sells millions of shares of stock to many stockholders. General is a type of partnership.
One of the characteristics of the form of business ownership known as an LLC is that
The owners' personal property cannot be taken to pay the business's debts. An LLC (limited liability company) form of business ownership is growing in popularity because of some of the ways it benefits its owners. One of these is that the owners' personal property cannot be taken by creditors to satisfy the debts of the LLC. Other characteristics of the LLC include its limited life and taxation of the owners' income rather than the LLC's income. LLCs may need to have at least one or two members but does not necessarily set a minimum of three members.
If all of the individuals who own a business share unlimited liability for the business's losses, these individuals are part of a/an
General partnership. With a general partnership, all partners are liable for the debts of the business. If one partner refuses to pay her/his share of the debts, the other partners will be responsible for paying them. Owners of public, private, and "S" corporations have limited liability.
John, Robert, and Charles were college friends who wanted to start a business. John has creative ability, Robert's expertise is selling, and Charles' expertise is management. However, each has limited capital. The ideal business ownership for these young men is a
Partnership. A partnership is a form of business ownership in which the business is owned by two or more persons. Often, the purpose of forming a partnership is to combine the capital, the experience, and the abilities of the partners. A corporation is a form of business ownership owned by stockholders who have purchased stock. A franchise is an agreement between a parent company and a franchisee to distribute goods and services. A merger is the absorption of one company by another.
What do business owners consider when they select a business ownership structure?
Personal circumstances, financial needs, and the type of business. Because each business owner's situation is unique, the owner must consider the type of business being operated, the amount of capital needed to start the business, and the owner's personal circumstances. For example, an independently wealthy, single person who starts a consulting business has different needs than a chef who has little capital and wants to open a full-service restaurant. Product versatility, advertising strategies, and product mix are not generally considered when determining the appropriate business ownership structure.
Jane is the owner of a pizza shop associated with a national chain of pizza restaurants. She established her business in a regional supermarket. The pizza shop is referred to as a
Piggyback franchise. Piggyback franchising is a form of ownership in which a retail franchise operates within the facilities of another store. The host is the retailer that allows the franchise to operate within its facilities. The host does not necessarily have to be a franchised retailer. A strategic alliance, sometimes called a joint venture, is an arrangement that involves two or more businesses entering into a relationship by combining complementary resources such as technology, skills, capital, or distribution channels, for the benefit of all parties. The relationship is usually short-term or for a single project or transaction. Master licensee refers to a person or firm who helps franchisors find franchisees in a particular region or territory.
The American Red Cross is an example of a/an ___________ corporation.
Nonprofit. A nonprofit corporation is a business structure that primarily operates to achieve a mission rather than to make a profit. Its income is used to cover operational expenses. A nonprofit can be exempt from paying some or all taxes. Educational, religious, charitable, or scientific organizations are often established under this form of ownership. Hybrid is a term that is used to describe a limited liability corporation (LLC) or limited liability partnership (LLP) because it combines the advantageous characteristics of a corporation and a partnership. The Subchapter "S," or "S," corporation is a private, state-chartered corporation whose owners are taxed as individuals in a partnership, if they meet certain conditions. It is limited to 100 or fewer shareholders, has limited shareholder liability, and requires little financial reporting. The public, or open, corporation usually sells millions of shares of stock to many stockholders. The public corporation must furnish information to the public and to prospective investors about its earnings, assets, and debts.
Jake wanted to run his own business but was unsure that he had adequate business skills to be successful. Which type of business would give Jake the help he needs?
Business-format franchise. A business-format franchise is a franchise agreement in which the franchisee must operate under the trade name of the parent company that provides continuous assistance in setting up and operating the business. This kind of business arrangement would give Jake more assistance than any of the other alternatives. A sole proprietorship is a form of business ownership in which the business is owned by one person who takes all of the risk and responsibility. A private corporation is a type of corporation owned by a few people that does not offer its shares for sale to the public. A product trade-name franchise is based on an independent sales relationship between a franchisor and a franchisee to stock and sell a specific line of goods.
Wendy's sells the right to operate its restaurants to individuals who meet the company's criteria. The arrangement between Wendy's and these individuals is an example of
Franchising. Franchising is a method of distributing goods and services through a licensing arrangement between the franchisor and the franchisee. Multi-level marketing businesses pay commissions to sales representatives at two or more levels. Licensing refers to an owner's authorization for another entity to use trademarked, copyrighted, or patented material for a specific activity, during a specific time period, for the profit of both parties. A partnership agreement is a written document that specifies the terms of a partnership.
One reason a physicians' practice might form a partnership as an LLP is to
Protect innocent partners from the malpractice of another partner. LLPs are used primarily by professionals such as doctors, lawyers, and accountants. Because they provide limited liability, innocent partners are protected from loss if another partner is sued. Most LLPs are required to pay the state government annual fees, and each partner (member) must carry malpractice insurance. An LLP does not offer stock and, therefore, cannot pay dividends. Licensing rights are not sold by LLPs to the general public. Members of LLPs have limited liability, not unlimited liability.
"To form my business, I used all of my savings, borrowed from the bank, and I'm personally liable for all of the debts." This is an example of which of the following forms of business ownership
Sole proprietorship. A sole proprietorship is a form of business ownership in which the business is owned by one person. Sole proprietors finance their own businesses, run them, and are personally liable for all losses. A partnership is a form of business ownership in which the business is owned by two or more persons. A corporation is owned by stockholders, and a cooperative is owned by its members.
