Chapter 5. How to Form a Business

Which are considered disadvantages of incorporating?

- Initial Cost - Double Taxation - Extensive paperwork

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

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

LLCs do have to submit articles of organization and an operating agreement, but do not have to:

- file written resolutions - keep minutes - hold annual meetings

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

False

______ owned businesses are growing at more than the national rate.

Minority

True or false: The main advantage of a sole proprietorship is ease of start up.

True

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

True

A franchise owner will experience the coattail effect when:

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

In a franchise, having management support from the franchisor is a(n) ______ whereas the coattail effect is considered a ______.

advantage; disadvantage

A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships is:

an S corporation

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

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

boss

In addition to the articles of incorporation, a corporation has ______, which describe how the firm is to be operated from both legal and managerial points of view

bylaws

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

coattail effect

A state-chartered legal entity with authority to act and have liability separate from its owners is a:

corporation

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

double

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

entity

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

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

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

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

franchisees

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

general partnership

Relief from the stress of commuting, extra time for family activities, and low overhead expenses are all advantages of ______-______ franchises.

home-based

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

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

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

markets

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

merger

The result of two firms joining to form one is called a(n):

merger

When two firms join together to form one new company, it is called a(n) ______.

merger

About 20 percent of franchises are owned by African Americans, Latinos, Asians, and Native Americans. Franchisors are becoming more focused on recruiting ______ franchisees.

minority

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

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

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

personal

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

separate

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

sole proprietorship

The easiest type of business entity to form is a

sole proprietorship

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

sole proprietorships

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

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

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.

If your company debts or damages are solely your responsibility you could be experiencing the disadvantage associated with owning a sole proprietorship called ______ ______.

unlimited liability

Ending a partnership can be difficult because of problems deciding:

- when a partner can retire - the worth of a retiring partner's share - how to distribute assets

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

Advantages of starting an online franchise are:

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

Home-based franchises have many advantages, such as:

- low overhead expenses - relief from the stress of commuting