Chapter 6 quiz

Charles wants to start a decor business and takes a loan of $35,000 from the bank to setup the business. Once the business is up and running Charles will have full control of the business and its profits. However, he will also be responsible for any losses that he business incurs. In this scenario, which of the following forms of business ownership is Charles planning to start?

A sole proprietorship

Fabotels is a hotel aggregator that buys budget hotels that succumb to financial losses and then refurbishes them under the company's brand name. Fabotels recently purchased Ravine Comforts, a small lodge that was running into huge debts. The Business deal between Fabotels and Ravine Comforts exemplifies a(n)

Acquisition

Lovey and Julie sign a contract with the owner of little Tinkerbell, a preschool chain, to start a preschool in their hometown. They receive permission from the owner to use the name and products of little Tinkerbell. They also decorate their preschool in little Tinkerbell's trademark style. In this scenario, lovey and Julie are starting a ____.

Franchise

Clara and Sandra collaborate to open a cafe. They come to an arrangement wherein Sandra manages the cafe from Monday to Wednesday, Clara manages it from Thursday to Saturday, and both jointly manage it to Sunday. Both Clara and Sandra share the profits of the business equally while facing a personal liability for any debts or losses that the cafe may incur. In this scenario. Clara and Sandra most likely____.

Have a general partnership

Which of the following statements is true of a typical franchise agreement?

It requires the franchisee to pay an initial fee.

Three brothers of a family own a furniture showroom. Each of them is actively involved in handling they day-to-day business activities. However, when the business suffered huge losses at the end of last fiscal year, the personal wealth and assets of the brothers did not get affected. This is most likely because of the brothers have a:

Limited liability partnership

Taxmen owns a retail business along with four other people. Like the other owners, Tasmeen is not personally responsible for the debts of the company. Her personal assets are thus protected in case the company incurs losses. Given this information, it can be assumed that Tasmeen____.

Owns a corporation

Albert is the owner of a car service center. As a sole proprietor, any profit that he earns is:

Treated as Albert's personal income

Since sole proprietorships are extensions of their owners, they:

lack of permanence

Chloe and Tamara start a vintage fashion boutique. While both invest equally in the store and are entitled to equal profits, it is Tamara who looks after the day-to-day business transactions and manages the store. Chloe does not actively participate in managing the store, and her personal wealth is not at risk in case the business suffers losses. In this scenario, Chloe is a _____.

limited partner