Business 1301 Unit 2 cards

Which of the following is NOT an advantage of a sole proprietorship?

It has unlimited liability. Response Feedback: The owner has unlimited liability for all the debts of the business.

Which of the following is NOT an advantage of franchising?

Potential contract disputes

Which of the following is an advantage of a sole proprietorship?

Profits are taxed as individual income. Response Feedback: Sole proprietorships do not pay special state and federal taxes that corporations pay.

Limited management skills are a disadvantage in which form of business ownership?

Sole proprietorship

Many large businesses began as which most popular form of business ownership?

Sole proprietorship

Susan owns and operates a large restaurant in Dallas that employs about fifty people. She delegates some of the decision-making to two managers, but she remains the only owner. What form of business ownership does Susan have?

Sole proprietorship

Retention of all profits

Sole proprietorships

Who owns a corporation?

Stockholders

Under a franchise setup, who grants the buyer the right to use a brand name and to sell its goods or services?

The franchisor

Which one is NOT the legal rights of a corporation?

The right to plead the 5th so as not to incriminate itself

Although this form of business ownership does not guarantee success, it does reduce some of the burdens of being a small business owner. This is which type of business?

Franchise

Who agrees to abide by the provisions of the franchise agreement including payment of royalties and the purchase of goods from designated suppliers?

Franchisee Response Feedback: The franchisee is responsible for making royalty payments and for purchasing products or goods from the suppliers designated by the franchisor.

Who pays for the building and hires the workers?

Franchisee Response Feedback: The franchisee is responsible for providing the labor and the capital for the business.

Who grants the license for the franchise?

Franchisor Response Feedback: The franchisor is the individual or organization granting the franchise.

Who provides the training and method of doing business?

Franchisor Response Feedback: The franchisor provides the required training on the main aspects of running the business.

Who supplies the known and advertised business name?

Franchisor Response Feedback: The franchisor supplies the known and advertised business name. Nationally-known and advertised names include McDonald's, Hampton Inn, and 7-Eleven.

Which of the following is NOT a benefit of a franchise?

Guaranteed success

What does a well-planned partnership agreement NOT specify?

How stock dividends will be distributed

Where can a business incorporate?

In any state

The simplest form of business owned and operated by one person is called a(n) ____________.

sole proprietorship Ease of formation is an advantage of a sole proprietorship.

The form of business organization most heavily regulated by the government is the _____________.

corporation Response Feedback: Having to follow many government regulations is a disadvantage of a corporation.

A corporation incorporated in Oklahoma doing business in Texas is known in Texas as a(n) ____________.

foreign corporation Response Feedback: In this situation, a corporation incorporated in Oklahoma is a domestic corporation in Oklahoma and a foreign corporation in Texas.

Greg has a license to operate an individually owned business as though it were part of a chain of stores. Greg has a __________.

franchise

Who purchases the license from McDonald's or Burger King to do business?

franchisee Response Feedback: The franchisee is the individual or organization purchasing the franchise.

The actual granting of a franchise is called __________.

franchising

An individual or organization granting a franchise is called __________.

franchisor

The person who assumes full co-ownership of a partnership, including unlimited liability, is a ____________.

general partner Response Feedback: General partners are active in day-to-day business operations, can enter into contracts on behalf of the other partners, and have unlimited liability.

Two or more business partners who are liable for all business activities are called __________.

general partners

John contributed capital to the partnership but has no management responsibility or liability for losses. John is a(n) __________ partner.

limited

Sole proprietorships bring in approximately __________ percent of total sales receipts in the United States.

5

Sole proprietorships account for approximately __________ percent of all businesses in the United States.

70

Ownership

Advantage Pride of ownership is often a reason why entrepreneurs choose to start a sole proprietorship.

Absence of special taxes

Advantage Since the profits of a sole proprietorship are taxed only as personal income to the owner, they are not subject to special state and federal income taxes that corporations pay.

Ease of start-up and closure

Advantage Sole proprietorships are easy to start-up and to close.

Making decisions about the firm's operations

Advantage The owner makes all decisions and so can make changes immediately to profit from market conditions.

Retention of profits

Advantage The owner retains all the profits, since those profits are his or her personal earnings.

Receives advice and guidance in order to be successful.

Advantage to the franchisee Response Feedback: If problems arise in the business, the franchisee has access to the accumulated business experience and technical know-how of the franchisor.

Can start a business while making use of the experience of others.

Advantage to the franchisee Response Feedback: Using the experience of others, the franchisee can avoid the unnecessary trial and error period in starting and operating a new business.

More capital available to use for advertising and promotion.

Advantage to the franchisor Response Feedback: Because the franchisor does not have to incur the high cost of constructing and operating its own outlets, there is more capital available to for advertising and promotion.

Gains fast and well-controlled distribution of products and services.

Advantage to the franchisor Response Feedback: The franchisor gains fast and well-controlled distribution of its products without incurring the high cost of constructing and operating its own outlets.

Which article states the location of the business?

Article 1 Response Feedback: Article 1 of the agreement states the physical address of the business.

Which article contains the name of the business?

Article 1 Response Feedback: The name of the business, Floral Creations, can be found in Article 1 of the agreement.

Which article describes the duration of the partnership?

Article 2 Response Feedback: The duration of the partnership, ten years, can be found in Article 2 of the agreement.

Which article outlines the duties of the partners?

Article 4 Response Feedback: The duties of the partners can be found in Article 4 of the agreement.

Which article outlines how profits and losses are distributed to each partner?

Article 5 Response Feedback: Profits and losses are distributed according to the terms outlined in Article 5 of the agreement.

Which article designates the salaries of the partners?

Article 5 Response Feedback: The salaries of the partners can be found in Article 5 of the agreement.

Which article describes what happens if one of the partners wants to dissolve the partnership or if one of the partners dies?

Article 6 Response Feedback: Article 6 of the agreement describes the terms for dissolving the partnership.

Which article describes what happens if the partners decide not to renew the agreement once the contract expires?

Article 7 Response Feedback: Article 7 of the agreement outlines the distribution of assets and liabilities if the agreement is not renewed.

What does double taxation mean?

Companies must pay taxes on their earnings, and then stockholders pay taxes on their dividends. Response Feedback: Double taxation is a disadvantage of the corporate form of business ownership.

Ease of raising capital

Corporations

Limited liability

Corporations

Reduced ability to borrow

Disadvantage Banks, suppliers, and other lenders are often unwilling to lend large amounts to sole proprietorships.

Absence of continuity

Disadvantage Lack of continuity means if the owner dies or is declared legally incompetent, the business no longer exists.

Limited or narrow management skills

Disadvantage Most businesspeople possess limited management skills. Even an experienced business owner is unlikely to have all the skills necessary to run a successful business.

Attracting employees

Disadvantage Owners have difficulty attracting and keeping competent employees, since there is rarely room for advancement and a limit on the salary that can be offered.

Unlimited liability

Disadvantage Unlimited liability is a legal concept that holds a business owner personally responsible for all the debts of the business. This means that if the business fails or is involved in a lawsuit and loses, the owner's personal property can be sold to pay creditors.

Incurs costs of operating outlets.

Disadvantage to the franchisee Response Feedback: The franchisee is responsible for all labor and capital costs associated with a franchise business.

Contract can dictate many aspects of doing business including décor, employee uniforms, hours of operation, and signage.

Disadvantage to the franchisee Response Feedback: The franchisee must abide by the franchisor's operating systems, standards, policies, and procedures.

Face lawsuits stemming from direct competition.

Disadvantage to the franchisor Response Feedback: Sometimes a franchise is so successful that the franchisor opens its own outlet near an existing franchisee. This can result in a lawsuit to prevent the franchisor from directly competing with the franchisee.

Which form of business ownership is least common?

Partnership

Combined business skills and knowledge

Partnerships

Frozen investment

Partnerships

Ease of startup

Partnerships Sole proprietorships

Unlimited liability

Partnerships Sole proprietorships

How many owners are required to form a partnership?

Two or more

Which of the following is a benefit to the franchisor rather than the franchisee?

Well controlled distribution

Wade Comer and Tom Busby decide to start a partnership and offer accounting services. Which of the following is the best way to start this partnership?

With the help of an attorney, they should draft a partnership agreement that states each partner's duties and investments. Response Feedback: Although owners can draft their own agreement, experts recommend consulting an attorney.

A corporation, chartered by a foreign government doing business in the United States, is called a(n) __________.

alien corporation

Thomas wants to make money, so he starts his own business as a sole proprietor. He likes this form of business because _____________.

he will get to keep all of the profits the business makes Response Feedback: Retention of all profits is one benefit of a sole proprietorship.

As a limited partner in a construction business, Joe ____________.

only risks his initial investment Response Feedback: A limited partner invests money, but has no management responsibility.

A voluntary association of two or more people acting as co-owners of a business is known as a ____________.

partnership Response Feedback: When it comes to business, the decisions made by two or more people may be better than the decisions made by a sole proprietor.

All of the following are disadvantages of corporations EXCEPT ____________.

perpetual life Response Feedback: Perpetual life is one advantage of the corporate form of business ownership.