Understanding business Ch.5

Rank the order in which members of a corporation are chosen in order to separate ownership from management. Start at the top of the managerial hierarchy.

1. Owners/stockholders elect board of directors 2. Board of directors hire officers of the corporation 3. Officers hire managers of the corporation 4. Managers hire employees

One company's purchase of the property and obligations of another is called a(n):

Acquisition

Many people do not like working for someone, so being your own _______ is an advantage of sole proprietorships.

Boss

Bruce is meeting with his accountant to choose whether his LLC is to be taxed as a partnership or a corporation. The advantage of forming an LLC is called:

Choice taxation

Franchisees can begin to feel burdened if the ________ creates too many managerial orders, directive or limitations.

Company

The _________ of a member can cause LLCs to dissolve automatically.

Death

Among the reasons that disagreements can ruin a partnership are:

Disagreement over workload Arguments over dividing profits Opposing management styles

What are some of the disadvantages of a corporation?

Double taxation Cost of forming a corporation

Which of these are considered an advantage of corporations?

Ease of transfer of ownership

There is little room for advancement with a sole proprietorship, so the owner may have difficulty attracting and retaining qualified __________.

Employees

The rights to use a specific business' name and sell its products or services in a given territory is a(n) _______ agreement

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 all the business debts. They are most likely forming a(n) _______ partnership.

General

A merger of two firms in the same industry that allows the companies to diversify or expand their products is a(n):

Horizontal merger

An advantage of a sole proprietorship is

Independent decision making

One advantage of a partnership is that:

It is easier to raise money

An entrepreneur could choose to buy a franchise because:

It is less stressful than starting a business from scratch It's a business brand with a proven track record It can be started as a sole proprietorship, partnership, or corporation

A sole proprietorship has a limited lifespan unless:

It is sold to someone else It is taken over by an heir

When a sole proprietor leaves an ongoing business to future generations, it is said that the owner is leaving a _________

Legacy

Attributes of a Corporation

Legal entity State chartered Liability separate from owners

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

Leveraged buyout

A key advantage of LLCs is _________ liability where personal assets are protected.

Limited

Taryn and Eilysh have decided to form a partnership. Taryn will not have management responsibility, but will invest money in the business. Taryn will be considered a(n) _________ partner

Limited

Don wanted to incorporate his business and liked the attributes of an S-corporation, however, he did not feel the eligibility requirements would work for his purposes. He is likely to choose to form a(n) ___________ __________ company.

Limited liability

Stockholders' liability for losses only up to the amount they invest is called _______

Limited liability

What are some of the advantages of a corporation?

Limited liability Ability to raise more money for investors

The limited partners' risk of losing their personal assets in an LLP is:

Limited to the outcomes of their own acts of omissions

Advantages of home-based work include:

Low overhead expenses Relief from commuting stress

Conflicts may occur between stockholder elected board of directors and the_______about how the company is being run.

Managers

In order to qualify to become an S corporation, a company must have:

No more than 100 shareholders Shareholders who are individuals or states

Select those items considered fringe benefits that people working for a company are likely to receive, but a sole proprietor has to develop on his own:

Paid health insurance A pension plan Paid sick or vacation leave time

An LLC submits a written opening agreement, similar to a(n) __________ agreement, describing how the company is to be operated.

Partnership

Through flexible distribution of profits and losses, LLC members agree on the_______of profit/losses to be distributed to each member.

Percentage

All profit of a sole proprietorship are taxed as ______ income of the business owner

Personal

In a general partnership, no matter who creates the debt, all are liable for losses, lawsuits, or bankruptcy. All partners may lose their investments as well as:

Personal assets

Corporations shield they are stockholders from unlimited liability and allowing them to share in the:

Profits generated by the firm

A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships is:

S corporation

In developing a partnership agreement, it is recommended that you:

Seek legal advice

What are some of the disadvantages of an LLC?

Self-employment taxes More paperwork than sole proprietorship

What are some of the disadvantages of operating a franchise?

Shared profit Management regulations Large start-up costs

A business that is owned and managed by one person is a(n) __________ __________

Sole proprietorship

What is the easiest form of business to start up?

Sole proprietorship

Rank the forms of business ownership based on ease of starting. Put the easiest form at the top.

Sole proprietorship Partnership Corporation

The three major forms of business most common in the United States are

Sole proprietorship Partnership Corporations

A corporation can sell ________ to anyone who is interested to raise more money for investment.

Stock

Rather than merge assets or sell to another company, a firm is taken private with management, or a group of stockholders, obtain all the firm's ______

Stock

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

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

Select all attributes that make the initial cost of incorporating a disadvantage.

The high cost of hiring lawyers and accountants for the complex filings needed High start-up costs associated with documentation

A sole proprietorship often grows slowly because the owner is:

The main source of know-how The main source of creativity The major source of funding

Franchises are attractive to minority population because:

They provide personal ownership of a business. Some offer financial support to aspiring business owners.

The responsibility of the owner of a sole proprietorship for all of the debts of a business is _________ liability.

Unlimited

A key disadvantage of operating a sole proprietorship is:

Unlimited liability

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

Disadvantages of Partnership

Unlimited liability Division of profits Partner disagreement

Disadvantages of Sole Proprietorship

Unlimited liability Limited financial resources

A merger between a soft drink company and an artificial sweetener maker could be considered a(n) __________ merger

Vertical

the joining of firms in completely unrelated industries is a(n) _______ merger.

conglomerate

a legal entity with authority to act and have liability apart from its owners is a:

corporation

The result of two firms (usually corporations) combining to form one company is called a:

merger

a legal form of business with two or more owners is a(n)

partnership

Ending a partnership can be difficult because of problems deciding:

the worth of a retiring partner's share how a partner can retire how to distribute assets

Many brick and mortar franchisees are using _______ to expand their businesses online to lower costs and better meet the needs of their customers.

websites technology e-commerce