Exam 2

The position a firm takes on issues that affect the corporation as well as society is known as its

corporate policy.

Successful small business owners are

valuable sources for information since you can learn from their experiences.

Determining what is involved for a firm to be socially responsible

varies, and has several dimensions.

Small businesses create about __________ percent of the new jobs in the United States.

65

Which statement about the operation of a corporation is correct?

A corporation receives its charter from a state government.

A firm's carbon footprint is

A firm's carbon footprint is

Which statement is the most accurate?

A foreign corporation does business in one or more states, but is chartered in another state.

According to the Uniform Partnership Act, the three key elements of any general partnership are

common ownership, shared profits and losses, and right to participate in managing the operations.

A(n) __________-based ethics code emphasizes the prevention of unlawful behavior by increasing control and penalizing wrongdoers.

compliance

While speaking with your sales team, your manager explains, "Anyone caught breaking a sales law will be fired." After reading about business ethics, you quickly identify this remark as a reference to the firm's __________ ethics.

compliance-based

A __________ is an organization that is owned and controlled by the people who use it—producers, consumers, and workers with similar needs pool their resources for mutual gain.

cooperative

In rural areas, electrical power is often sold by __________ that take advantage of the government's policy to sell them electricity at wholesale rates.

cooperatives

A good business plan will

describe all aspects of the business, including product, the target market, the nature of the competition, any financial resources, and the owner's qualifications.

The goal of an intrapreneur is to

develop new products and generate new profits for the corporation.

The first and most basic step when facing an ethical dilemma is to ask

"Is it legal?"

Tomasz, a prospective franchise owner, is looking to keep his monthly costs as low as possible. The franchisor he is checking out is advertising that royalty payments of 8% of sales could be as high as $300,000 per month. The franchisor is claiming that a franchisee can expect monthly sales to be as high as

$3,750,000.

Which statement about partnerships is most accurate?

A major drawback of a partnership is that it is difficult to terminate.

Which statement accurately depicts an advantage that small business has over big business?

A small business can maneuver and change quicker than most large businesses can. It can react to market conditions and customer concerns much faster.

__________ are private individuals who invest their own money in potentially hot new companies before these firms become larger, publicly traded companies.

Angel investors

Employees at a start-up software company noticed that the owner overlooked certain questionable actions of a few high-billing associates. Other employees, who worked hard but only brought in an average number of new clients each month, were highly scrutinized. After you read this chapter about the ethical behavior of many Americans, which observation applies here?

As is often the case today, some leaders will look at each situation individually when making value judgments.

Travis benefited from his experience working for an established private company that provided state-of-the-art lighting for music venues around town. Although confident that he could start his own lighting business, he had limited capital to buy the necessary equipment needed to successfully compete with established companies. Which strategy would best help Travis achieve his goal of business ownership?

Begin by offering to take over management of his employer's business, allowing the owner to enjoy some leisure time.

Which statement best summarizes the experience of U.S. franchisors in foreign countries?

Both large and small franchises have found success in foreign countries by providing convenience and a predictable level of service and quality.

Charlie remembers his grandfather telling him, "If you can find something you like to do, and somebody is willing to pay you to do it, that's the secret to a great life." The way Charlie saw it, this was his chance. For the past five years, he's been splitting his time between school and working at a local tree farm. The owner recently announced he was ready to retire. As Charlie began creating a business plan, he contemplated what the business might be worth. How much will he need to buy this business? What step should Charlie take next?

Charlie should speak with the current owner and determine the total value of assets (what the business owns), its earning potential, and its unique advantage.

What is the best strategy to improve U.S. business ethics?

Company leaders should adopt and support a corporate code of ethics.

According to the "Reaching Beyond Our Borders" box, which statement is true?

Corporate ethics can clash with cultural ethics.

What is an attractive benefit of a corporation?

Corporations can attract employees by offering stock options.

According to the box "Outline of a Comprehensive Business Plan," what section of your business plan should include a short description of the proposed business, and a recap of your major goals and objectives?

Executive Summary

The SBA's __________ program provides export-financing opportunities for small businesses.

Export Express loan

Which statement best describes a firm's commitment to its customers?

Firms must offer real value to gain customer trust.

Oleg's four employees have been with him since he opened Ready Recruitment Services nearly a decade ago. As he anticipates staffing his new branch office, he decides none of these four long-time employees are ready to manage the office. Faced with this difficult situation, what should Oleg do?

He should hire a new qualified employee to manage the office since utilizing his unready employees could be detrimental to the business.

Cody is an intrapreneur for a multinational wearable electronics company. Which statement best describes Cody's duty?

He will use the firm's existing resources to develop new products.

Which question can help us avoid a decision that would injure our self-esteem?

How will it make me feel about myself?

Jayleen, a talented photography student, started her own photography business. She planned to solicit jobs from large corporations, which need headshots and other pictures for their annual reports and websites. Although filling a unique niche, Jayleen needed the security that the business would thrive and that she would earn enough to support herself and her family. She also hoped she would spend less time each day calling on potential clients and more time doing the actual shoots. As her small business consultant, which suggestion would you have for Jayleen?

In the beginning, it's doubtful that Jayleen will realize ease of entry, security, and good profits. She needs to make plans in the event that one or more of these does not materialize quickly.

The "Outline of a Comprehensive Business Plan" box describes the plan's major sections, and suggests general strategies. What should you keep in mind regarding cover letters?

Include a cover letter which summarizes your project, and address the letter to the potential investor by name.

After checking the receipt after leaving the restaurant, you notice the server failed to charge your group for several drinks. Everyone else says it is not a big deal, but you worry that the server may have to reimburse the charges out of her own paycheck. Which ethics-based question would be most helpful in evaluating this situation?

Is it balanced?

A U.S. senator has just told you that for a generous contribution to her reelection fund, she would ignore your company's apparent violation of several antipollution laws. Which "ethics check questions" would you likely consider first?

Is it legal?

Which statement explains one of the reasons that people in the United States take the entrepreneurial challenge?

It's about independence and the opportunity to share in the American dream.

What is the most basic reason why a business should be managed ethically?

It's the right thing to do.

Serenity Communications Inc., located in a remote area of Oregon, made a special device that was used in LTE phones. After three years of local operations, the company that employed 1,000 people was planning to close its Oregon operation and move the assembly offshore. Under the direction of a financial services company that financed the deal, the employees agreed to become owners of the company and continue to operate the business. The business concept that describes this arrangement is

LBO (leveraged buyout).

Small business owners often struggle in attracting qualified workers. What contributes to this problem?

Many jobs in small firms have low pay and few benefits.

Given the ethical lapses that are prevalent today in our businesses, what can be done to restore trust in the free-market system and leaders in general?

New laws making accounting records transparent may help restore trust.

Oscar lives in Mexico City and is a Mexican citizen. He has several friends who are U.S. citizens and own shares in an S corporation. Oscar would like to invest in this company. Which statement is most accurate?

Oscar cannot become a shareholder since he is not a citizen or permanent resident of the United States.

In order to avoid insider trading, the Securities and Exchange Commission (SEC) has adopted a new rule called __________ that requires publicly traded companies to release information to everyone in a timely manner, rather than just to a few persons.

Regulation FD (Fair Disclosure)

Rachel is graduating from culinary school soon and she often imagines opening her own comfort food restaurant. Her other passion is skiing in Colorado, where she wants to continue vacationing several times a year. As her small business advisor, you believe it necessary to provide her with information that will help her make good business decisions. What would be helpful for Rachel to know?

Restaurants are relatively easy businesses to start, but are labor intensive and also have the greatest failure rate.

Mason is a CPA for a large company. Recently, he noticed that the company's accounting records significantly overstated the amount of inventory on hand, leading to an overstatement of assets the company holds. Initially, Mason brought it to the attention of his supervisor, but when nothing was done to correct the mistake, he decided to report it to the appropriate government official. Mason was counting on current law, under the __________, to protect him against company retaliation.

Sarbanes-Oxley Act

Dana hopes to start her own business after graduation this summer. In an effort to learn as much as she can about small business management, she talked to four friends who each offered their advice. Which suggestion is likely to help her the most?

Take courses related to small business management and then look for a job with a successful businessperson, preferably in your field of interest.

Although it is a small company, Delta Enterprises owns a large number of inexpensive rental housing units in Mississippi and Louisiana. Currently, the company is a chartered C corporation, but the owners are interested in switching to be an S corporation. After consulting a lawyer, they learned that Delta Enterprises does not qualify to be designated as an S corporation. Which characteristic of Delta Enterprises would prevent it from becoming an S corporation?

The firm receives more than 70% of its income from rents and other passive sources.

Which statement about S corporations is most accurate?

The major attraction of S corporations is that they avoid the problem of double taxation.

What usually happens to a business when its sole proprietor dies?

The sole proprietor's heirs have the option of taking over the business.

Which statement is characteristic of entrepreneurs?

They look at problems and see opportunities.

What statement is accurate about small business employees?

They often find more job satisfaction than their counterparts in big business.

What is the benefit of employing an ethics officer?

This individual's job is dedicated to objectively investigating ethics breaches. If necessary, employees feel comfortable with communicating confidentially to this professional.

Which statement best describes ethical behavior in the United States?

We can find common moral values that many Americans uphold, including respect for human life, self-control, honesty, integrity, and courage.

The social audit is

a company evaluation that measures the firm's social contributions inside and outside of the firm.

People need to make a living. Under this circumstance, one of the best social programs a firm can offer is

a job.

The difference between a merger and an acquisition is

a merger is the joining of resources of two companies which now become one company, whereas an acquisition is a buyout of one firm by the other.

According to the box, "How B Corps Help Society While Earning Profits," a benefit corporation is

a mission-based company judged by how well it meets its own set of socially or environmentally beneficial goals.

Last week, Citizens' Greener Evanston sent a formal letter to the city requesting that it measure its carbon footprint and publicly disclose the amount of fertilizer and other carbon-emitting substances it is using on its public parkways and community parks. Citizens' Greener Evanston is an example of

a watchdog group.

A good reason why partners should spell out the details of their partnership arrangements in writing is

a written agreement will help reduce misunderstandings and disagreements among the partners.

As a sole proprietor, being your own boss means

accepting accountability for the mistakes of the business.

Entrepreneurship is

accepting the risk of starting and running a business.

Foreign investment in U.S. companies continues to be strong. When Belgian-based In-Bev purchased the largest beer company in the United States, Anheuser-Busch, this action constituted a(n) __________ with a negotiated selling price of $52 billion.

acquisition

Metro Productions Inc. recently bought Entertainment World for an undisclosed amount of money. It now owns all of Entertainment World's properties and obligations. This is an example of a(n)

acquisition

Your three friends inherited an old dude ranch, and plan to turn it into a pasture for retired racehorses. Shady Rest wants to open its doors by next summer. After going to several small business seminars, your friends are certain they need limited liability. The high-risk, labor-intensive business will require a sizeable investment including an air-conditioned barn, several fenced-in pastures, and loads of animal feed. You explain to them that LLC ownership requires owners to pay self-employment taxes on the entire amount of earnings. You are fairly certain this is one tax liability your friends would like to avoid. You instead recommend

an S corporation.

Small businesses must seek advice from outside experts. In order to put together official documents such as leases, contracts, and partnership agreements, it is important to seek the advice of

an attorney.

With respect to business ethics, it can be said "it takes two to tango." This indicates that

an individual's behavior is influenced by the behavior of others.

The faculty and administration staff at your local community college are trained to ask about your career preferences, instead of suggesting courses that may not benefit your future goals. Even though it would be tempting to advise students to take extra courses just to increase the college's enrollment, employees know that it is more important to serve each student well, even if it means suggesting courses and/or degrees offered at other institutions. This approach is consistent with

an integrity-based ethics code.

An evaluation of franchising would conclude that this type of arrangement

appeals to people who want to own a business, but are not comfortable starting a company from scratch.

Limited liability companies are companies that are similar to S corporations but they

are not restricted with similar eligibility requirements.

Enterprise zones are specific geographic areas that

attract business investment by offering lower taxes and government support for development.

Successful entrepreneurs are self-nurturing. This means they

believe in themselves and their ideas.

In a leveraged buyout, the managers of a firm, its employees, or other investors

borrow funds to buy out the firm's stockholders.

Apple's legendary smart team is an example of a company that succeeded by

bringing together a group of talented and experienced managers to conceive, develop, and market products.

A __________ is a written document that details the business idea, the target market and the business's competitive advantage, financial resources available for the business, and the qualification of the management.

business plan

A detailed written statement that describes the nature of the business, the target market, the firm's competitive advantages, as well as the owner's resources and qualifications is a

business plan.

In order to secure financing for Quik Cuts, a mobile hair salon to serve several large Silicon Valley firms, Willow demonstrated her unwavering aspiration to get her business started by visiting several bankers with her

business plan.

A review of small business successes and failures indicates that the

businesses with the potential for high profit levels tend to be difficult to start and hard to keep going.

For prospective entrepreneurs, enrolling in an introduction to business or small business management course offered through their community college

can be helpful by offering them an opportunity to meet experienced small business owners.

One reason limited liability companies have become so popular is that they

can be taxed either as a corporation or as a partnership, so owners can choose the tax treatment that is most advantageous for their situation.

Creating intense competition between employees within the corporation

can encourage employees to deceive customers.

What is a characteristic of an effective ethics officer?

capacity to serve as a counselor and an investigator

Dave and Isabella own all Bella Corporation's stock. The stock of this corporation is not sold to the general public. Dave and Isabella own a(n)

closed corporation.

Compliance-based ethics codes

conform to U.S. laws and regulations.

A merger involving a software producer and a clothing manufacturer is an example of a __________ merger.

conglomerate

When two firms which do not participate in the same industries, for example, a software company and a fast food restaurant company, decide to merge, the result is called a __________ merger.

conglomerate

A recent Supreme Court ruling made it easier to prosecute insider trading cases by

considering even those who share insider information without profiting guilty.

In recent years, progressive firms have embarked upon __________, where they will commit company resources and expertise toward helping in broad-based humanitarian situations.

corporate social initiatives

Bryant and Chase have considered creating their own company but are concerned about the possibility of losing all their personal assets if the business fails. One way for Bryant and Chase to avoid this risk would be to organize their firm as a

corporation

A separation between ownership and management is most likely to occur in a

corporation.

The form of business ownership that usually requires the most detailed record keeping is the

corporation.

Entrepreneurs seeking financial support from bankers and potential investors should

create a detailed business plan to help the bankers and investors understand why this business will succeed.

When it comes to management issues, small businesses

deal with similar issues that large companies face.

In a cooperative, members/customers

democratically control their businesses by electing a board of directors.

Alec came to the United States on a swimming scholarship. After a few months of frustration with trying to find the swim goggles he prefers from home, he created a website that sells specialty goggles for swimming, skiing, and snowboarding. Before launching the website and filling orders, Alec spent a few months going to swim meets and gathering preferences about goggles from other international swimmers. Alec's actions

demonstrated his need to better understand the market.

International issues of social responsibility and ethical behavior are

difficult and not as clear-cut as U.S. firms would like them to be.

Green Earth Foods, a specialty grocery store, is considering a conglomerate merger with a company that makes storage solutions.

diversification.

A conglomerate merger will

diversify business operations and investments.

If a business fails to meet its responsibilities to its employees, what is likely to occur?

employees do the minimum needed to get by

As a small business owner, Darya can't afford to provide her employees with the high wages and benefits offered by big corporations. One way to keep her employees and create a high level of motivation would be to

empower her employees to develop their own ideas.

In order to improve his chances of small business success, Miles worked hard to prepare his business plan. Most often, a positive outcome of this exercise is that the plan

enables Miles to think carefully about all aspects of his business idea.

The U.S. government's Immigration Act of 1990

encouraged entrepreneurs to come to the United States through "investor visas."

The box "Connecting Through Social Media" describes the launch of Generopolis, an online garage sale site. In developing her company, the site's founder was most concerned with

encouraging personal ethical behavior.

A very critical last step in the process of establishing an ethics code is

enforcement

Sienna recently left her job at a large corporation to start her own business. She knows that her decision comes with risk, but she is excited to be her own boss and to tackle the challenges that running her own company will bring. Sienna is an example of a(n)

entrepreneur.

After developing a code of ethics, it should be communicated to

everyone with whom the business has dealings.

One reason that companies participate in mergers and acquisitions is to

expand within their own field or enter new markets.

When seeking financial backing from a venture capitalist, a small business owner should realize that the venture capitalist will

expect an ownership stake in the company in exchange for financial backing.

When working with international firms, U.S. businesses

expect socially responsible behavior from their business partners.

Entrepreneurs applying for a bank loan should realize that bankers will

expect the entrepreneur to provide a business plan.

An entrepreneurial team consists of

experienced professionals from different areas of business.

A corporate policy should never make a value statement about the environment or other social and political issues because it is doubtful the company can live up to the proclamation.

false

A foreign corporation is chartered in a country outside the United States.

false

A general partner has unlimited liability for the debts of the partnership only if he or she personally approved the decisions that resulted in those debts.

false

All U.S. companies practice the same ethical standards when dealing with suppliers and contract manufacturers abroad.

false

Although the green movement is a social trend, it is difficult to predict its future importance.

false

An advantage of forming a sole proprietorship is that it allows the owner to have more time for leisure activities.

false

An ethical manager's decisions are based only on the following questions: "Is it legal?" and "Is it profitable?"

false

An important step in improving U.S. business ethics is for companies to hire whistleblowers.

false

Because college students realize the importance of nursing homes for our aging population, students comprise an attractive market for nursing home insurance policies.

false

Because of their greater financial resources and expert staffs, big corporations can almost always outperform small businesses.

false

Behavior that is in conflict with your values and sense of right and wrong can damage your self-esteem.

false

Business plans are necessarily a bit vague since these are prepared prior to the beginning of business operations.

false

By filling out the correct paperwork annually, any corporation can qualify to be classified as an S corporation.

false

Corporate philanthropy refers to the position a firm takes on issues that affect society, such as environmental sustainability.

false

Corporate philanthropy refers to the position a firm takes on social and political issues.

false

Corporations are easy to start and easy to terminate.

false

Due to government support and few restrictions, the majority of U.S. small businesses are involved in exporting.

false

Due to their significant economic power, large multinational firms can ignore the ethical standards of a society without consequences.

false

Emilee owns a boutique and is ordering jewelry made using semiprecious stones from a supplier in Mexico. Due to low wages in Mexico, her supplier promised an excellent wholesale price for these goods. You agree with Emilee when she explains that international business law is very clear-cut with these dealings. As long as the supplier is not breaking any labor laws in his or her country, her social responsibility is covered.

false

Entrepreneurial spirit is unique to a small business environment.

false

Entrepreneurship is another name for management.

false

Few people today start their own business.

false

From a competitive standpoint, small businesses cannot expect to successfully compete with large corporations in international markets.

false

If a firm is advertising that it is selling franchise opportunities, the prospective franchisee can be assured that the government has performed due diligence on this company, and has deemed it a safe investment.

false

In a famous speech, former President John F. Kennedy proposed that businesses had four basic rights, and in his own words, he proclaimed that "each one of them leads us back to the right to keep the profits from one's business."

false

In a franchise arrangement, ownership remains in the hands of the franchisor.

false

In a general partnership, all partners are entitled to an equal share of the firm's profits.

false

In a limited partnership, the general partners should encourage the limited partners to take a more active role in the operations of the business. After all, the limited partner has comparable liability in the business, even though they may not be a partner for as long a period of time as the general partners.

false

In the "Reaching Beyond Our Borders" box, the story demonstrates the many ethical similarities between North and South American businesses. This is fortunate for large firms that do business south of the U.S. border. They can depend on their subsidiary firms to have no problems when implementing U.S. company employee policies.

false

In today's economy, only large business enterprises should operate as corporations.

false

Legal behavior and ethical behavior are basically the same.

false

Making ethical choices is always easy.

false

Miller hopes to start his own business someday. He should not talk to other small business owners about his plans because they might steal his ideas.

false

Most states have legal restrictions that prevent individuals from incorporating.

false

One advantage of a partnership is that there is a simple process for partners to terminate their business.

false

Questions about how much authority to delegate and to whom, are easier issues for family-run businesses since they can't fire family.

false

Since entrepreneurs are starting new businesses, experience gained from working for an established business is not particularly helpful.

false

Small businesses lack the resources to compete directly with big businesses.

false

Social responsibility investing is now on the decline, after a brief surge during the Enron era.

false

Taking a company private means turning a profit-seeking corporation into a nonprofit corporation in order to avoid a hostile takeover.

false

The S corporation form of business would be particularly attractive to fast-growing companies that want to attract thousands of new stockholders.

false

The box feature "Small Businesses Struggle to Fight Fakes on Amazon" discusses challenges of the online marketplace. It is evident that offering goods for sale on Amazon is a mistake for small businesses.

false

The green movement has impacted few firms.

false

The question "Is it legal?" is the defining criteria for establishing ethical behavior.

false

The vast majority of U.S. firms are unconcerned about their dealings with corrupt foreign suppliers.

false

Three physicians want to incorporate their practice. There is no advantage due to the costs involved.

false

Timber Homestead is a conventional corporation with 516 stockholders. A number of the stockholders are citizens of Canada and others are citizens of Mexico, though most are U.S. citizens. Due to its size and diversity in ownership, you would recommend that Timber Homestead change to an S corporation.

false

To be effective, an organization's code of ethics should be kept in-house and not communicated to outsiders such as suppliers, subcontractors, and customers.

false

Trying to make decisions that will benefit all parties involved is consistent with the question "How will it make me feel about myself?"

false

U.S. business ethics can improve simply by requiring written contracts with employees, customers, and owners. This alone will do the job!

false

Unlike partnerships, if sole proprietorships find themselves in bankruptcy, they don't need to worry about a court requiring them to sell off personal assets to pay for the debts of the firm.

false

When two of Claudine's friends approach her about starting a business, she indicates she does not want to risk any amount beyond her initial investment or be involved with the day-to-day management. However, she wants to invest in the business. Claudine's preferences suggest that she prefers a general partnership form of business ownership.

false

When writing a business plan, prospective entrepreneurs should remember to omit details regarding their experience and education since investors are only interested in the proposed business.

false

While entrepreneurs frequently earn significant profits for themselves, their impact on society is quite small.

false

While the Small Business Administration provides management advice to new business owners, it is not empowered to provide financial assistance.

false

Your friend Drew called to tell you he attended a pitch for a new franchise in website development. Drew says, "We can get in for a few thousand dollars." He wants to know if you are ready to invest too. Although both of you lack expertise in graphic design or programming, this should be a safe investment since it is already advertised as a franchise system. It's probably too good to pass up.

false

One factor causing businesses to vigorously enforce ethical standards is the

fear of negative publicity.

Franchisors may send reverse royalties to franchisees who

feel their sales have been hurt by the franchisor's online sales.

A recent study revealed that most Americans have

few moral absolutes.

One of the hurdles small businesses face when deciding to export is

financing is often difficult to find.

After Malin graduated from college last year, her uncle created an accounting position for her in his business. His son is in charge of purchasing inventory for the store, yet often the store runs out of popular items or is overstocked with products that must be marked down to be sold. Malin is confident that her cousin is more suited for handling accounting and finance, while she has a sense of what sells and how much sells. Although she has spoken with her uncle about it a couple of times, he seems reluctant to change. As the founder of the business, he may

find it difficult to remove family members from positions, even if it is not good for the business.

Employees of small businesses often have greater job satisfaction than do employees of larger firms. One reason for this difference in job satisfaction is that employees of small businesses often

find their jobs more challenging.

A(n) __________ is an arrangement whereby someone with a proven idea for a business sells the rights to use the business model, to sell a product or service to others in a given territory.

franchise agreement

A person who buys the right to use a business name and sell a product within a given territory is called a

franchisee

The "Spotlight on Small Business" box explains how four friends came up with the idea for Stumpy's Hatchet House axe-throwing entertainment venues. Their initial success led to more than 30 Stumpy's operating across the country. Each additional venue pays a fee to Stumpy's for using its name and business ideas. Stumpy's is using __________to grow its business.

franchising

Lakeview Auto Experts Inc. sells franchises to prospective businesspersons who want to use the Lakeview Auto Experts name and offer its products. In a franchise arrangement, Lakeview Auto Experts would be the __________, and the buyer of the franchise is the __________.

franchisor; franchisee

In a partnership, a(n) __________ partner (owner) actively manages the company and has unlimited liability for claims against the firm.

general

The purpose of a farm cooperative is to

give members more economic power as a group than they would have as individuals.

A new business that sets up a(n) __________ from the start is saving itself time and grief later.

good accounting system

One reason many companies do not organize themselves as an S corporation is that this form of business

has a special eligibility restriction, which many businesses are unable to meet.

It's accurate to say that the green movement

has created jobs.

Compared to partnerships and sole proprietorships, a major advantage of the conventional C corporation as a form of business ownership is that it

has the ability to raise more money.

To be considered part of a market, an individual must

have both a willingness to buy and the financial resources needed to buy.

To qualify as an S corporation, a company must

have shareholders who are individuals or estates and qualify as citizens or permanent residents of the United States.

Top leaders in government and business today are

held to higher ethical standards than in the past.

Kiara is ready to become a franchise owner by opening a new Fire Bowl, a very successful fast food chain of 75 restaurants specializing in Thai cuisine. Which problem is Kiara most likely to encounter if she agrees to become a franchisee?

high initial costs and fees

Jeremy was called by one of his regular customers asking if he had time to repair some broken sprinkler heads on that customer's underground sprinkling system. Although it was already 6:00 p.m. and he already put in a full day of work, he turned his car around and headed for the customer's house. As a small business owner, Jeremy demonstrates

his ability to easily adapt and respond to his customer's needs.

When two companies in the same industry agree to become one firm, the result is called a

horizontal merger.

Charlie's Cookies Corporation purchased the Tasty Treats Cookie Company. Although this was initially an acquisition, the merging of these two businesses was a __________ merger. Charlie's Cookies went on to purchase several baking product companies. Joining forces with some of its suppliers would represent a __________ merger.

horizontal; vertical

One problem with conducting a social audit is

how to determine what should be measured and how to calculate the effect on society.

Purposefully understating your firm's income to avoid paying higher taxes is an example of

illegal behavior.

Ethical behavior will typically result in

improved self-esteem, making us feel good about our decision.

Going green means

increasing one's initiatives toward a concern for the environment.

State and city governments have promoted facilities where new businesses can open up shop and share common services such as secretarial, accounting, and legal services. Due to their remarkable success rate, these __________ continue to grow in popularity.

incubators

A(n) __________ is a valuable source of information regarding techniques to reduce a firm's exposure to risk.

insurance agent

The Small Business Administration's microloan program awards loans to entrepreneurs based primarily on their

integrity and sound business idea.

After spending several months developing a good relationship with a business client, Arjun's client is now purchasing substantial amounts of products from Arjun's company, resulting in high commissions for him. Noticing his success, a colleague of Arjun's started visiting the same client to try to capture some of this business. Although this colleague considers it "legal and fair game," other sales reps now avoid him because they consider it a violation of

integrity-based ethics.

A creative person working within a corporation to launch new products and generate new profits is known as a(n)

intrapreneur

Insider trading involves

investors using private company information to further their own fortunes.

When it comes to social responsibility, some people feel that "before you can do good, you must do well." This reflects a firm's primary responsibility to its

investors.

Otto is an angel investor. This means that he

invests his money in new businesses with potential for growth, hoping for a good return on his investment if they go public.

The Small Business Administration defines a small business as a firm that

is independently owned but not dominant in its industry.

A distinguishing feature of a cooperative is that it

is owned and operated by the people who use it.

Starting a new business as a sole proprietorship

is usually simpler and less expensive than starting other forms of ownership.

Sawyer plans to open three Primo Pizza franchises in the greater Phoenix area. He tells you that he plans to negotiate with the franchisor to get rid of the giant chef-hat mascot that sits on the roof of all Primo Pizza restaurants. Sawyer is likely to learn that

it is nonnegotiable due to company rules.

Many Americans define ethical behavior according to the situation in which they find themselves. This way of thinking suggests that there may be situations where

it might be okay to cheat, steal, or lie.

One of the challenges of running a home-based business is

keeping work and family tasks separate.

What is an unresolved ethical issue that surrounds global trade?

labor standards

Studies have found a strong relationship between academic dishonesty and

later dishonesty at work.

An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing is called a(n)

leveraged buyout.

A partner (owner) who invests money in a business does not take an active role in managing the operation, and is only subject to losing the funds they invested is known as a(n) __________ partner.

limited

Bailey's dream is to open a chain of salons. She hopes to attract investors to help finance growth. Having once considered forming a C corporation, Bailey wants to have more flexibility about how the new business will be taxed. She also wants to offer investors/owners limited liability. Bailey can satisfy her objectives by setting up a(n)

limited liability company.

One way to eliminate some of the risk of your partners making costly mistakes that could jeopardize your personal assets is to set up a

limited liability partnership.

When a firm undertakes corporate social initiatives, it is

making donations that are directly related to a company's competency.

What is an advantage of franchises?

management and marketing assistance

One reason why many U.S. small businesses are not involved in exporting is

many of these firms do not know how to get started.

Conversations with people who start their own business often reveal that

many small business owners got their entrepreneurial idea from a previous job.

According to SBA guidelines, a manufacturing firm with 1,000 employees

may be classified as a small business depending upon the size of others in the same industry.

A small business management course at a community college may offer entrepreneurs an opportunity to

meet with experienced entrepreneurs and learn from their advice.

With respect to taxes, the sole proprietorship

pays taxes on the profits of the business, at the owner's personal tax rate.

Henley inherited a successful dry-cleaning business from his parents. Just as his parents did, he offered high-quality service to all the customers he served. As the surrounding towns grew, several customers recommended that Henley expand the business to offer service in new locations. He chose to maintain only one operation, so as not to lose control and to keep his work life and home life balanced. Henley is a good example of a(n)

micropreneur.

The difference between an organization's positive social contributions and its negative social impacts is called their

net social contribution.

A payoff for socially conscious behavior is

new and loyal customers.

Midtown Community College received a government grant to create a business incubator. Once completed, Midtown Community College's facility will offer

new businesses low-cost office space with basic business services.

Ethical behavior at work is learned by

observing the actions of others.

Shaya is opening an international food store. Though her products will span the globe, she wants to focus on items from the Middle East. She wants to be the firm's only general partner, but she is trying to get several friends to participate as limited partners. It's apparent Shaya wants to

obtain a strong financial base for the firm while maintaining personal control over the firm's management.

Business incubators are usually government-funded facilities intended to

offer start-up firms low-cost office space and basic business services.

It is accurate to state that ethical dilemmas in business

often force us to choose between equally unsatisfactory alternatives.

Compared to the C corporation, the limited liability company is an attractive form of business ownership because

once formed, the limited liability company has fewer requirements, and has the option to avoid double taxation.

Global franchising offers

opportunities for both large and small franchises.

Which situation would most likely involve ethical concerns?

overstating an expense report

A significant disadvantage of owning a sole proprietorship is the

overwhelming time commitment often required of the owner.

Robin recently purchased 100 shares of stock in Champs Tennis Gear Inc. Robin is a(n)________ of this company.

owner

Before it was publicly known that IBM was going to take over Lotus Development, an IBM secretary told her husband, who told two co-workers, who told friends, relatives, business associates, and even a pizza delivery man. A total of 25 people received the information and traded on this tip to make a profit. These people were

participating in insider trading.

The income generated by S corporations

passes through to its owners, and each is taxed individually for this income.

Although sole proprietors do not pay any special taxes, as the owner of the business you are also an employee of the business, which requires you to

pay self-employment taxes.

A market consists of potential buyers of a good or service. However, for a market to exist

people must have unsatisfied wants and needs as well as a willingness and ability to buy.

Two key management functions that need particular attention when starting a business are

planning and financing.

A Small Business Investment Company (SBIC) is a(n)

private investment company that is licensed by the SBA to make loans to small businesses.

The reason professionals such as lawyers or doctors would incorporate their business is to

protect their other assets with limited liability.

When entering into a new partnership, a good strategy is to

put the partnership agreement in writing.

In 2010, with the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a provision permits whistleblowers to

receive up to 30% of the penalty funds that exceed $1 million that the courts recover from companies proven to be in violation.

Compliance-based ethics codes typically

rely on laws and regulations outside the firm for guidance.

A whistleblower is a person who

reports illegal or unethical behavior in the corporation.

One disadvantage of a limited liability company is that it

requires members' approval to transfer ownership.

Corporate __________ covers issues such as treating employees fairly and ethically.

responsibility

When Carrie's Chicken Shack uses in-store recycling and composting, and cleans with nontoxic detergents, it is participating in corporate

responsibility

The most popular types of business for franchising are gas stations with convenience stores and

restaurants

A __________ is the share of profits or percentage of sales a franchisee pays to a franchisor.

royalty

What is an advantage of a partnership?

shared management and pooled skills

Relationships between businesses and among nations

should be based on fairness, honesty, openness, and moral integrity.

Many individuals today believe that ethical behavior is determined by what is best for them at the time. This is an example of

situational ethics.

When comparing small businesses to their larger competitors, it is clear that

small firms often can offer more personalized customer services than big firms.

The purpose of a(n) __________ is to evaluate an organization's progress toward implementing programs that are socially responsible and responsive.

social audit

Blake's Bookshop is interested in keeping employees, customers, and the general public aware of the activities and programs it has accomplished within the community this past year. The company might consider performing a

social audit.

An important source of public scrutiny is watchdogs. These are

socially conscious groups that monitor how well companies enforce their ethical and social responsibility policies.

A __________ is a form of business that is owned, and usually managed, by one person.

sole proprietorship

Grace owns a dog-walking business that she started in high school. Her first goal was to earn money after school and supplement her allowance. Now that she has finished college and maintains a long client list, she plans to run the business full time. She keeps all the profits and has kept things simple by relying on word-of-mouth to obtain new clients. Grace's business is a(n)

sole proprietorship.

Jack, Jane, and Jarvis want to open a local cafe that serves a unique offering of coffee, weekend entertainment, and a limited menu of desserts. In one of the preliminary meetings, Jarvis presented a list of reasons that small businesses fail. Although many of the ideas on this list were applicable to many types of business, one challenge pertained specifically to the restaurant and bar business. The challenge he referred to was

some of the easiest businesses to start have the least growth prospects and greatest failure rates.

Enterprise zones are

specific locations across the United States where entrepreneurs can set up shop and receive tax breaks for operating in these areas.

Historically, entrepreneurs in the United States

started many small firms that later became major corporations employing thousands of workers.

As a result of recent downsizing at his firm, Emerson lost his job as an IT manager for a large telecommunications company. A true, self-confirmed computer nerd, Emerson knew that several of his past contacts often outsourced their computer problems. He decided it was a good time to test the waters and see if he could secure enough computer clients to be in business for himself. His success demonstrated that

successful big businesses often create profitable opportunities for small businesses.

Earnings of C corporations can be

taxed twice if they are distributed as dividends to stockholders.

Increased participation in small business exporting owes credit to

technological advances such as the Internet and PayPal for safely fulfilling orders.

The Small Business Administration sponsors volunteers from industry, trade associations, and education who offer advice to small business owners. These volunteers are called

the Service Corps of Retired Executives (SCORE).

Which U.S. issue does entrepreneurship most directly affect?

the ability to create jobs for others

What best indicates that U.S. businesses are demanding socially responsible behavior from their international suppliers?

the decision of Nike to monitor labor conditions in its foreign contract factories

Bankers and potential investors are likely to read __________ first in a business plan.

the executive summary

One result of taking a firm private is

the firm's stock is no longer available for purchase on the open market.

Obeying the law is __________ ethical behavior.

the first step toward

Dr. Desai just graduated from dental school. She is hoping to acquire the necessary funding to start her own dental practice. One advantage of this type of business is

the service is individualized and not easily mass-produced.

A National Business Incubator Association study indicates that over 85 percent of incubator graduates remain in business.

true

A closed corporation is one whose stock is held by a few people and is not available to the general public.

true

A domestic corporation does business in the state in which it is chartered.

true

A general partner takes an active role in the management of the business.

true

According to the "Reaching Beyond Our Borders" box, corporate ethics can clash with cultural ethics, especially in global business.

true

Although shares of master limited partnerships can be purchased on one of the national stock exchanges, these companies are taxed like partnerships.

true

An effective business plan analyzes the competition and identifies the resources required to profitably serve a target market.

true

Awareness of a company's CSR behaviors often influences the purchasing decisions of Generation Z.

true

Bankers and investors require entrepreneurs to present a well-conceived business plan.

true

Big businesses do not serve all the needs of a market.

true

Business issues such as treating employees fairly and ethically are part of corporate responsibility.

true

Businesses fulfill a social responsibility by creating jobs.

true

Compared to sole proprietorships, an advantage of partnerships is their ability to obtain more financial resources.

true

Corporate social responsibility refers to the concern businesses have for the welfare of society.

true

Customers learn to trust companies that consistently demonstrate good behavior. Those same companies can lose this position with one socially irresponsible activity.

true

Delaware is a popular state in which to seek incorporation because its business-oriented laws make the process easier than it is in other states.

true

Due to several years of poor performance, Bradley Manufacturers Inc. plans to close. By borrowing the necessary amount, Bradley's workers can purchase the company's stock from current shareholders in a leveraged buyout, thus saving their jobs and working toward profitability.

true

Entrepreneurs take calculated risks.

true

Ethical behavior focuses on treating others fairly.

true

Getting even is one of the most powerful incentives for good people to do bad things.

true

Identifying poor management as the cause of a small business failure likely covers a variety of problems.

true

If a sole proprietorship fails, the owner may lose whatever was invested in the business, and the owner's personal assets are also at risk.

true

If an established franchisor agrees to provide you the opportunity to become a franchisee in its franchise system, the franchisor may also be willing to serve as a source of financing for your operation.

true

In a general partnership, all partners share in management of the business and in the liability for the firm's debts.

true

In order to do the right thing for all stakeholders, a business should be managed ethically.

true

In order to maintain a good reputation, it is good strategy to manage your business ethically.

true

In order to protect all parties and minimize misunderstandings among partners, all terms of the partnership should be spelled out in writing.

true

Independence, challenge, and opportunity are among the key reasons given by those who assume the risks of entrepreneurship.

true

It is correct to say that if a franchisor expects an 8% royalty fee on revenue, the franchisor earns 8 cents on each dollar of revenue the franchisee generates.

true

It is not unusual for members of cooperatives to work for and help manage their cooperative.

true

Leo received an e-mail stating that HE COULD EARN THOUSANDS!!!! just working a few hours from home. Most likely Leo's e-mail was a work-at-home scam.

true

Management can create an environment in which unethical behavior can develop.

true

Many entrepreneurs got the idea for their own business from their experience of working for others.

true

Many micropreneurs are home-based business owners.

true

Of all nonfarm businesses in the United States, almost 96% are considered small by the Small Business Administration (SBA) standards.

true

Punishing business leaders who have broken the law may help restore trust in the free-market system and leaders in general.

true

Sharon is a stockbroker. A client just called to purchase thousands of shares of his company's stock. He reveals to her that the company is soon announcing the appointment of a new superstar CEO. Sharon asks her client if this information is public knowledge. The reason she asks is to make certain that her client, her company, and she remain in compliance with Regulation FD, the fair disclosure rule.

true

Small Business Administration microloans are based on the borrowers' integrity rather than collateral and credit history.

true

Small businesses can provide more personalized service than a large corporation to overseas customers.

true

Some investors believe it makes financial as well as moral sense to invest in companies whose practices promote sensitivity toward the environment.

true

Successful entrepreneurs accept the risk of failure.

true

Surveys show that a majority of Millennials are willing to agree to lower salaries if they know their employer is participating in socially responsible activities.

true

Teagan works for On the Move, a large corporation that designs and manufactures accessories for scooters, bicycles, and other children's motorized toys. She is a creative force within the company and has helped create and launch several new successful products. Teagan is an example of an intrapreneur.

true

The "Spotlight on Small Business" box is testimonial to the fact that entrepreneurs are problem solvers.

true

The business opportunities with the greatest growth potential tend to be in the high technology industries.

true

The major differences between an S corporation and a limited liability company are limits on the number of owners and the citizenship status of individuals who are owners.

true

The most common small business failures occur in businesses that are the easiest to start.

true

The owners of a limited liability company (LLC) must pay self-employment taxes on any profits they earn, even if they did not obtain a salary from the company.

true

The principles of management of a large business are similar to the principles of management of a small business.

true

The purpose of a conglomerate merger is to diversify operations and investments.

true

When two firms join together to form one company, it is called a merger.

true

When two or more people legally agree to become co-owners of a business, the form of business is called a partnership.

true

You can negotiate a win-win situation by offering to manage an established small business. You win from the experience; the owner wins with free time.

true

Following an ethics-based approach to decision making will normally lead to higher

trust and cooperation.

Many businesses have developed internal procedures to enforce their ethical policies. What is an example of an outside group urging ethical behavior in businesses?

union officials

One of the major disadvantages of a sole proprietorship is the

unlimited liability the owner has for the debts of the firm.

The strategy of investors who are attempting a leveraged buyout is to

use debt to finance the buyout of the firm's stockholders and gain control of the firm themselves.

As a high net worth individual, Samantha searches for developing companies in need of additional funding to achieve their goals. In return for this __________, she expects to give up some percentage of ownership in the business.

venture capital

A __________ merger unites firms at different stages of related businesses.

vertical

Griffin is focusing his attention on finding full-time employment now that he has graduated. He has decided to narrow his job search to jobs with a major corporation and ignore the possibility of working for a small business. His job search strategy

will likely limit his job prospects since most new jobs are with small businesses.