Chapter 5 Review: Forming a Business

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

-Advantage, Positive, or Benefit -Disadvantage, negative, or drawback

Which are considered disadvantages of incorporating?

-Double Taxation -Extensive paperwork -Initial Cost

What are some of the disadvantages of a corporation?

-Double taxation -Cost of forming a corporation

What are the advantages of the LLC form of organization?

-Flexible ownership rules -Limited liability -Choice of taxation

The attributes of a conventional corporation include that:

-It is state chartered -Corporate liability is separate from owners -It is a legal entity

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

-Sole -Proprietorship

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 must be filed in the state in which the company will be incorporated

Franchises are attractive to minority populations because:

-They provide personal ownership of a business -Some offer financial support to aspiring business owners

Ending a partnership can be difficult because of problems deciding:

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

Home-based franchises have many advantages, such as:

-relief from the stress of commuting -low overhead expenses

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

-technology -e-commerce -websites

Rank the order in which members of a corporation are chosen in order to separate ownership from management. Start at the top of the managerial hierarchy.

1. Owners/Stockholders elect Board of Directors 2. Board of Directors hire officers of the corporation 3. Officers hire managers of the corporation 4. Managers hire employees

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

Agreement

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/Employer/Manager

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

Corporation

A(n) ________________ is a state-chartered entity that exists in the eyes of the law and controls risk to the owners of the firm.

Corporation

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

Diverse or Minority

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

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

General Partnership

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

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

LLC

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 ______________________ partnership has partners who do not share in operating the business.

Limited

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

Limited Corporation or S Corporation

Don wanted to incorporate his business and liked the attributes of an S-corporation, however, he did not feel the eligibility requirements would work for his purposes. He is likely to choose to form a(n) _______________ ______________company.

Limited Liability

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

Limited partnership

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

Markets

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/Operating

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

Partnership

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

Separate/Independent

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

Sole Proprietorships

The easiest type of business entity to form is a

Sole proprietorship

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

True

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

True

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

Unlimited

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

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

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 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

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

Because owners are only responsible for losses up to the amount they have invested in a corporation, limited liability is considered:

A major advantage

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

Coattail Effect

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

Entity

Which is an advantage of the corporate form of business ownership?

Limited liability

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

Personal

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

Stock/Shares

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

The responsibility of the owner of a sole proprietorship for all of the debts of the business is ____________ liability.

Unlimited/Full