Chapter 6 BA 105

Question 24 The average cost to create a legal business entity is ________. $2,000 $1,000 $5,000 $500

1000

Question 31 A partnership agreement defines how the partners will be compensated. Normally, ________. both general and limited partners are permitted salaries, but all silent or dormant partners are compensated only by sharing in the profits the general partner's salary is set at two times the salaries of the limited partners while the agreement establishes payout schedules, it does not spell out what constitutes profit partners are not entitled to salaries or wages, but are compensated by a share of the profits of the business

partners are not entitled to salaries or wages, but are compensated by a share of the profits of the business

Question 26 When evaluating the assets of an existing business, the inventory ________. usually appreciates over time, making the business a bargain is always current and salable is usually stated honestly and does not need an independent audit should be judged on the basis of its market value, not its book value

should be judged on the basis of its market value, not its book value

Question 22 Generally, a seller of an existing business can assign any contractual right to the buyer unless ________. None of the above. Business sellers typically cannot assign any contractual rights to buyers. A and B are correct the contract is personal in nature the contract specifically prohibits the assignment

A and B are correct

Question 23 A corporation receives its charter from ________. the state the board of directors the federal government the stockholders

A and B are correct

Question 36 Skip to question text. Laurette has entered into a contract with Jackson to purchase his retail music shop. Jackson's lease on the existing building (which is in an excellent location) has five years remaining. If Laurette wants the lease to be part of the business sale ________. she should include a clause in the sales contract in which Jackson agrees to assign to her/his rights and obligations under that lease A and B are correct. None of the above. Because Jackson does not actually own the building, he can transfer no rights to it to Laurette. she should notify the landlord of Jackson's assignment of the lease agreement to her

A and B are correct.

Which of the following documents must an entrepreneur file to create a limited liability company? A and C only Articles of Incorporation Articles of Organization Operating Agreement

A and C only

Question 5 Which of the following is required to form a partnership? A limited partner A silent partner A general partner A secret partner

A general partner

Question 19 Which of the following generally is not required by a Certificate of Incorporation? The corporation's bylaws. The names and the addresses of the incorporators. A statement of how stock proceeds will be used. A statement of the corporation's purpose.

A statement of how stock proceeds will be used.

Question 30 Which of the following is not true of a limited liability partnership? Most states restrict this form of ownership to certain types of professions such as attorneys, physicians, dentists, accountants, etc. It must involve a general partner, a limited partner, a silent partner, and a dormant partner. All partners are limited partners. Although LLPs have many of the characteristics of partnerships, they are taxed as a corporation.

Although LLPs have many of the characteristics of partnerships, they are taxed as a corporation.

Question 16 Sources of potential legal liabilities for the buyer of an existing business include all but which of the following? Labor problems and disputes. Problems with the physical premises, such as hazardous materials. Errors and omissions. Product liability claims.

Errors and Omissions

Question 21 Which of the following is not an advantage of the corporate form of ownership? Easy transfer of ownership. It is the easiest and least expensive form of ownership to create. Limited liability for the owners. Perpetual life.

It is the easiest and least expensive form of ownership to create

Question 25 A special type of partnership in which all partners, who in many states must be professionals, are limited partners is called ________. limited liability partnership silent partnership limited partnership general partnership

Limited liability partnership

Question 6 ________ is a special type of limited partnership in which all partners who, in many states must be considered to be professionals, are limited partners. Limited partnership Master limited partnership (MLP) Limited liability partnership (LLP) General partnership

Limited liability partnership

Question 39 Skip to question text. An entrepreneur who is considering purchasing a business is analyzing a company's accounts receivable. The following table summarizes her findings. Age of Accounts Amount Probability of Collection 0 - 30 days $12,000 .96 31 - 60 days $ 4,000 .87 61 - 90 days $ 2,500 .71 91 - 120 days $ 1,400 .65 121 + days $ 800 .24 How much should this potential buyer be willing to pay for these accounts receivable? Not enough information given to determine $20,700 Nothing a buyer should never purchase existing accounts receivable. $17,877

Nothing a buyer should never purchase existing accounts receivable

Question 37 Which of the following is required for the covenant not to compete to be enforceable? The assistance of an attorney and approved by a court of law Approved by a court of law and reasonable in scope. Part of a business sale and reasonable in scope. The registration of the due-on-sale agreement.

Part of a business sale and reasonable in scope.

Question 7 A limited liability company is most like a(n) ________. S corporation master partnership general partnership sole proprietorship

S corporation

Question 40 Which of the following is not true regarding the limitations of professional corporations? At least one of the incorporators, one director, and one officer must be licensed in the profession. The professional corporation must obtain from the appropriate licensing board a certification that declares the shares of stock are owned by individuals who are duly licensed in the profession. The Articles of Incorporation, in addition to all other requirements, must designate the professional services to be provided by the corporation. Seventy-five percent of the shares of stock must be owned and held by individuals licensed in the profession of the corporation.

Seventy-five percent of the shares of stock must be owned and held by individuals licensed in the profession of the corporation.

Question 28 Which of the following statements concerning financing the purchase of an existing business is true? The buyer should be able to make the payments on the loans out of the company's cash flow. All of the above It is usually more difficult than securing financing for a start-up business. Usually, the business seller is not a good source of financing.

The buyer should be able to make the payments on the loans out of the company's cash flow.

Question 2 Which of the following statements concerning financing the purchase of an existing business is not true? All of the above The business seller usually is a good candidate for a source of financing. The buyer should wait until late in the purchase process to arrange financing to avoid processing fees in case the deal falls through. The deal should allow the buyer to make the loan payment out of the company's cash flow.

The buyer should wait until late in the purchase process to arrange financing to avoid processing fees in case the deal falls through

Question 4 An S corporation form of ownership overcomes which disadvantage of the regular or C corporation form of ownership? The potential loss of control by the founder. The expense and difficulty of formation. The amount of regulation and red tape involved in its operation. The double taxation issue.

The double taxation issue.

Question 3 Which of the following statements is not true regarding the liquidation of an S corporation? The owners distribute all assets of the corporation to the shareholders. The owners file a statement of intent to dissolve with the secretary of state's office in each state where they conduct business. The owners pay all taxes, debts, and creditors. The owners obtain the written approval of shareholders to dissolve the company.

The owners file a statement of intent to dissolve with the secretary of state's office in each state where they conduct business.

Question 12 Skip to question text. Carlos founded the "Taco Factory" 20 years ago as a family-oriented restaurant. Over the years as they grew the business, he incorporated and sold stock to outside investors. Recently the stockholders voted to seek liquor licenses and to sell beer and hard liquor in the restaurants. Carlos opposed this, citing the history of the restaurant's "family" environment, but was voted down. Carlos has experienced which drawback of the corporate form of ownership? The inability to accumulate capital. The potential for diminished managerial incentives. Legal requirements and red tape. The potential loss of control.

The potential loss of control.

Question 13 The "Das Spelunker" corporation, formed in Germany and conducting business in the U.S., is considered to be a(n) ________ corporation. alien distant domestic foreign

alien

Question 15 Which of the following statement(s) is/are true? Most closely held corporations require shareholders interested in selling their stock to offer it first to the corporation. This is known as the right of first refusal. Shares of stock the corporation itself owns are called treasury stock. All of the above Closely held corporations are owned by only a few shareholders — often family members.

all of the above

Question 29 The first step an entrepreneur should take when buying an existing business is to ________. explore financing options analyze his or her skills, abilities, and interests in an honest self-audit prepare a list of potential candidates contact existing business owners in the area and ask if their companies are for sale

analyze his or her skills, abilities, and interests in an honest self-audit

Question 10 The most common reasons owners of small- and medium-sized businesses give for selling their businesses are ________. boredom and burnout need for money and low return on investment greater opportunities working for someone else and low return on investment low return on investment and burnout

boredom and burnout

Question 14 C corporations, S corporations, and LLCs can be ________ to establish. cheap easy costly quick

costly

Question 8 Acme Corporation is chartered in Delaware, but its primary area of operation is in South Carolina. In South Carolina, Acme would be considered a(n) ________ corporation. foreign alien local domestic

foreign

Question 18 Skip to question text. During the acquisition process, the potential buyer usually must sign a ________, which is an agreement to keep all conversations and information secret and legally binds the buyer from telling anyone any information the seller shares with her/him. purchase agreement covenant not to compete letter of intent nondisclosure document

covenant not to compete

Question 38 In a general partnership, ________. partners can be held responsible only for decisions they make personally no partner can be held legally responsible for decisions since the partnership itself is a legal entity no decision is binding unless all partners agree to it in writing each partner is held responsible for an agreement/decision made by any one of the partners

each partner is held responsible for an agreement/decision made by any one of the partners

Question 11 Advantages to buying an existing business that you do not have with a startup include ________. inventory is in place and trade credit is established easy implementation of innovations and changes from past policies the opportunity to participate in a national advertising campaign greater access to venture capital

inventory is in place and trade credit is established

Question 20 A limited liability company ________. is similar to an S corporation in that it is a cross between a partnership and a corporation All of the above prevents owners who want to maintain their limited liability status from actively managing the company can have a maximum of 50 owners

is similar to an S corporation in that it is a cross between a partnership and a corporation

Question 27 Probably the most important reason to have a partnership agreement is that ________. it states the location and the purpose of the business it resolves potential sources of conflict that, if not addressed in advance, could later result in partnership battles and dissolution of an otherwise successful business it determines how the partnership and the partners will pay taxes it identifies the name of the partnership and protects that name from infringement by others

it resolves potential sources of conflict that, if not addressed in advance, could later result in partnership battles and dissolution of an otherwise successful business

Question 33 A ________ partnership is composed of at least one general partner and at lease one limited partner. limited general passive silent

limited

Question 34 Skip to question text. A ________ partner is a person who makes financial investments in a partnership, does not take an active role in managing the business, and whose liability for the partnerships' debts is limited to the amount they have invested. dormant silent master limited

limited

Question 35 The most critical disadvantage of the sole proprietorship is ________. limited skills and abilities of the owner lack of continuity the owner's unlimited personal liability limited access to capital

the owner's unlimited personal liability

Question 17 Perhaps the ideal source of financing the purchase of an existing business is ________. an insurance company the seller of the business a venture capitalist the Small Business Administration

the seller of the business

Question 9 The key to choosing the right form of ownership is ________. understanding the characteristics of each form and knowing how they affect your business and personal circumstances forming either an S corporation or a limited liability company since they are the only forms that offer owners liability protection irrelevant since choosing a form of ownership is merely a technicality and has little impact on the business and its owner(s) envisioning where your business will be in 10 years

understanding the characteristics of each form and knowing how they affect your business and personal circumstances