Chapter IV: How to Form a Business
True or false: If producers, consumers, or workers with similar needs pool their resources for mutual gain, they have created a franchise.
False
True or false: If you and a friend start a business together, you have started a sole proprietorship.
False
What are some of the advantages of franchising?
Lower failure rate Recognized name Financial advice
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
Many people do not like working for someone, so being your own ___ is an advantage of sole proprietorships.
boss, manager, employer
A state-chartered legal entity with authority to act and have liability separate from its owners is a:
corporation
Many brick and mortar franchisees are using ______ to expand their businesses online to lower costs and better meet the needs of their customers.
e-commerce technology websites
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
Financial advice and a nationally recognized name are both benefits of owning a(n) ___
franchise
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
Low overhead costs are an advantage of which type of business?
home-bases businesses
The attributes of a conventional corporation include that:
it is state chartered corporate liability is separate from owners it is a legal entity
An S corporation has the liability protections of a corporation but is taxed:
like a partnership or sole proprietorship
Home-based franchises have many advantages, such as:
low overhead expenses relief from the stress of commuting
The result of two firms (usually corporations) combining to form one company is called a ___.
merger
Studies have indicated that partnerships are four times more likely to succeed than:
sole proprietorships
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
What two items are delineated in a franchise agreement?
the right to use a specific business' name the right to sell a business' products in a given territory
True or false: Partnerships are less likely to survive than sole proprietorships.
False
Which are considered disadvantages of incorporating?
Initial Cost Extensive paperwork Double Taxation
Which of the following are true regarding the process of forming a corporation.
The articles of incorporation are usually filed in the state in which the company will be incorporated The bylaws of the corporation describe how the firm is to be operated
When producers, consumers, or workers with similar needs pool their resources for mutual gain, they start a(n):
cooperative
A major disadvantage of the corporate form deals with the tax situation called ___ taxation.
double
Many minority business owners prefer the ______ form of business ownership because it offers business connections and support.
franchise
In terms of operating flexibility, what are three things that LLCs are not required to do?
keep minutes hold annual meetings file written resolutions
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
Unlimited liability as it relates to sole proprietorships is the risk of loss of assets ___ beyond the assets of the business.
personal
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
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.
An advantage of starting an online franchise is that:
franchisees pay only a set monthly fee online franchisees can compete in world markets no upfront fee may be required
A partnership where all owners share in operating the business and in assuming unlimited liability for the business's debts is a:
general partnership
When two or more people legally agree to become co-owners of a business, the organization is called a(n) ___
partnership
What two features characterize a general partnership?
all partners assume liability for the business's debts all partners share the responsibility for operating the business
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
Franchises are expanding internationally to access additional profits ___ that have new customers and to increase their profit potential.
markets
About 30 percent of franchises are owned by African Americans, Latinos, Asians, and Native Americans. Franchisors are becoming more focused on recruiting ___ franchisees.
minority
A legal form of business with two or more owners is a(n):
partnership
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
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