Chapter 5 Forms of Business Ownership and Organization

5.10 (Multiple Choice)

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5.2 (True of False)

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5.3 (Fill-In)

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5.4 (Multiple Choice)

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5.5 (Short Answer)

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5.6 (True or False)

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5.7 (Multiple Choice)

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5.8 (Multiple Choice)

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5.9 (True or False)

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5.1 (Multiple Choice)

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ESSAY

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1. Smaller firms spend more than __________ percent more per employee than larger firms on government paperwork.

45%

2. After five years, __________ percent of new businesses survive.

50%

3. By the tenth year, _________ percent of new businesses have closed.

82%

1. The most widely used form of business ownership is: a. sole proprietorship. c. general partnership. b. corporation. d. limited partnership.

A

5. ______ Less than a fourth of the nation's private workforce are employed by small businesses.

FALSE

2. If the city of Los Angeles owns a parking garage on Main Street, the garage is said to be: a. privately owned. c. cooperatively owned. b. publicly owned. d. collectively owned.

A

2. The federal government agency that is set up to work with small businesses is the: a. SBA. c. BBC. b. SBC. d. FTC.

A

5. If this sporting goods manufacturer combines with a manufacturer of tennis nets, this would be an example of: a. a divestiture. c. a vertical merger. b. a horizontal merger. d. a conglomerate merger.

A

6. These types of organizations are commonly found in sectors such as museums, libraries, and hospitals: a. not-for-profits. c. sole proprietorship. b. general partnership. d. corporations.

A

2. What is a joint venture? Discuss the trend of establishing joint ventures between for-profit companies and not-for-profit organizations. How can this type of joint venture be beneficial? Provide an example.

A joint venture is a partnership between companies formed for a specific undertaking. Sometimes a company enters into a joint venture with a local firm, sharing the operation's costs, risks, management, and profits with its local partner. This is particularly common when a firm wants to enter into business in a foreign market. DreamWorks Animation recently entered a joint venture with three Chinese firms. The four companies will invest $330 million in a new company, Oriental DreamWorks. Based in Shanghai, the new venture will specialize in family films. 67 Joint ventures between for-profit firms and not-for- profit organizations are becoming more and more common. These partnerships provide great benefits for both parties. Not-for- profit organizations receive the funding, marketing exposure, and sometimes manpower they might not otherwise generate. City Year, mentioned earlier, enjoys these benefits from partnerships with Timberland, Pepsi, and Comcast along with other firms such as Starbucks and Sears. Recently, Starbucks partnered with City Year Miami and Rebuilding Together Miami Dade to repair a veteran's home in appreciation for his military service. The effort was made possible as part of Sears' Operation Rebuild for Heroes at Home program.

1. When a group of wheat farmers collectively purchases a grain elevator, this is an example of: a. public ownership. c. private ownership. b. cooperative ownership. d. employee ownership.

B

1. When two or more firms combine to form one company, we say that the firms have: a. been taken private. c. become a cooperative. b. merged. d. practiced divestiture.

B

2. A description of why the company was founded and what it intends to do accomplish its goals is known as: a. plan and intent. c. goals and values. b. mission and vision. d. objectives and ideas.

B

3. Limited financial liability is the most important advantage of which form of ownership? a. general partnership. c. general partnership. b. corporation. d. all of these answers are correct.

B

4. The who, what, where, when, why, and how are answered in: a. the company's mission. c. the financial and marketing section. b. the executive summary d. the assessment of risks section.

B

5. These types of firms are known as the backbone of American business: a. general partnership c. corporations b. family-owned business d. none of these answers are correct.

B

2. Discuss the difference between business incubators and venture capital.

Business incubators are programs provided by community agencies that provide low-cost, shares facilities to small start-up ventures. Venture capital is money invested in the small business by another business firm or group of individuals in exchange for an ownership share.

5. ______A corporation that operates outside the state of incorporation is know as a domestic corporation

FALSE

2. Additional capital is most easily obtained if the form of ownership is a: a. general partnership. c. corporation. b. sole proprietorship. d. limited partnership.

C

2. When one firm purchases the property and assumes the liabilities of another firm, there has been a(n): a. vertical merger. c. acquisition. b. horizontal merger. d. divestiture.

C

3. The section of the business plan that acknowledges and outlines a strategy for dealing with uncertainty is known as: a. danger signs. c. assessment of risks. b. mission and vision. d. business assessment.

C

4. If this sporting goods manufacturer combined with a food company, this would be an example of: a. a vertical merger. c. a conglomerate merger. b. a horizontal merger. d. public ownership.

C

4. These types of firms are commonly found among agricultural businesses: a. employee-owned firms. c. cooperatives. b. not-for-profit corporations. d. all of these answers are correct.

C

1. A description of the firm's target market and marketing plan, as well as detailed financial forecasts is known as: a. the company's financial mission. c. assessment of risks section. b. the marketing executive summary d. the financial and marketing section.

D

1. The Small Business Administration defines a small business as: a. independently owned and managed. b. a firm that is not dominant in its industry. c. a firm that meets industry-specific size standards for income or number of employees. d. all of these answers are correct.

D

3. If a sporting goods manufacturer combines with a firm that operates sporting goods retailers, this would be an example of: a. an employee ownership. c. a conglomerate merger. b. a horizontal merger. d. a vertical merger.

D

3. These types of firms result when private investors are unwilling to invest in a high-risk project: a. public ownership. c. a firm going private. b. employee ownership. d. cooperative ownership.

D

4. A corporation in which employees share in whatever profit their company earns is known as: a. closely-held corporations. c. worker-funded corporations. b. stock-ownership corporations. d. employee-owned corporations.

D

4. Home-based businesses: a. are illegal in most states. b. don't have to pay income taxes. c. account for fewer than 50% of firms with revenues of $25,000 or less. d. take advantage of the internet and the availability of communication devices.

D

3. Which of the following industries tends to attract small business? a. retailing d. construction b. agriculture e. all of these c. services answers are correct.

E

2. ______ Only 10% of today's large businesses were started by entrepreneurs.

FALSE

2. ______A well-established franchise is cheaper to open than an independent small business.

FALSE

2. ______Top managers are responsible for the day-to-day operational functions of the firm.

FALSE

3. ______ In the United States, the number of small businesses is declining.

FALSE

3. ______Franchisees often have little support offered to them by franchisors.

FALSE

3. ______States often require at least one incorporator.

FALSE

6. ______ Small businesses account for barely one-quarter of the nation's private GDP.

FALSE

7. ______Franchising offers entrepreneurs greater independence and flexibility than other types of small businesses.

FALSE

8. ______Corporations are the most common form of business ownership.

FALSE

9. ______Like sole proprietorships, partnerships are easy to form and dissolve.

FALSE

____________________ are companies that sell franchises to independent business people.

Franchisors

The ____________________ is the principal federal government agency that aids, counsels, and assists small businesses.

Small Business Administration (SBA)

A(n) _________________________ is a federally licensed investment group that makes loans to small firms.

Small Business Investment Company (SBIC)

1. What advantages do small businesses brings to the U.S. economy? What disadvantages must successful small businesses overcome?

Small business brings greater competition to the U.S. economy. It also creates new jobs, is a source of innovation, and fills isolated market nitches. Small businesses often operate at lower costs than larger businesses because of lower overhead and staffing costs. Lower overhead is often the benefit of opening a business from the home. Lower staffing costs can occur when entrepreneurs and their families work without insisting on being paid for every hour contributed. Small business is a major contributor to the success of the U.S. free enterprise system. Still, small business faces many difficulties which must be overcome. First, it is often difficult to raise adequate capital for a small business enterprise. Also, many small businesses suffer from lack of management skill. And government paperwork and red tape are a particular burden to small businesses with their small staffs.

3. Name and define the three legal structures of business ownership, citing their respective advantages and disadvantages.

Sole Proprietorship is a business owned and operated by one person. Advantages include flexibility, retention of all after-tax profits, and ease of formation and Solutions 5-6 Dissolution. Disadvantages include unlimited financial liability, lack of skill and financing, and lack of continuity. Partnership is a business owned by two or more people who each have unlimited financial liability. Joint ventures are partnerships that are formed for a specific business purpose and then disbanded. The advantages of partnerships include ease of formation, greater financial ability, and complimentary management skills. Disadvantages include unlimited financial liability, potential conflict with partners, difficulty of dissolution and lack of continuity. Corporation: a form of business ownership, created by statute, in which the firm acts and is liable separately from its owners. The advantages include limited financial liability, expanded financial ability, and in large corporations, the benefits of professional management and economies of scale. The disadvantages include cost and difficulty in formation and dissolution, legal restrictions, and double taxation. The last disadvantage can be avoided by small corporations, who meet the requirements to be treated as S corporations, and are thereby taxed as partnerships.

4. Describe a business incubator. How are they operated? Who generally establishes them? Provide an example of a successful business incubator.

Some community agencies interested in encouraging business development have implemented a concept called a business incubator to provide low-cost shared business facilities to small start-up ventures. A typical incubator might section off space in an abandoned plant and rent it to various small firms. Tenants often share clerical staff, computers, and other business services. The objective is that, after a few months or years, the fledgling business will be ready to move out and operate on its own. More than 1,400 business incubator programs operate in the United States, with about 7,000 worldwide. Ninety-four percent are run by not-for- profit organizations focused on economic development. Nearly half of all incubators focus on new technology businesses, and more than half operate in urban areas. Turning Technologies, founded in Youngstown, Ohio, has enjoyed breathtaking growth and brought dozens of new jobs to a city with 18 percent unemployment that is haunted by the decline of its old steel mills.

1. Discuss reasons why women often become owners of small businesses.

Some have a unique business idea that they want to bring to life. Others decide to strike out on their own when they lose their jobs or become frustrated with the bureaucracies in large companies. In other cases, women leave large corporations when they feel blocked from opportunities for advancement. Sometimes this occurs because they hit the so-called glass ceiling. Because women are more likely than men to be the primary caregivers in their families, some may seek self- employment as a way to achieve flexible working hours so they can spend more time with their families.

1. ______Top managers include job titles like CEO, CFO, COO, and CIO.

TRUE

1.______Franchising is a contractual business arrangement between a manufacturer or supplier and a dealer.

TRUE

10. ______Major advantages that can be achieved through the partnership form of ownership include complimentary management skills and expanded financial capability.

TRUE

11. ______Corporations face double taxation.

TRUE

4. ______ Almost three-fourths of all new jobs are created by small businesses.

TRUE

4. ______Major advantages of franchises include a tested management system, name recognition, and a proven business model.

TRUE

4. ______The board of directors is elected by the corporation's common stockholders and appoints top management.

TRUE

5. ______The buyer of a franchise is known as the franchisee.

TRUE

6. ______A corporation that operates outside the country of incorporation is know as an alien corporation.

TRUE

6. ______One franchise unit can suffer from the actions or poor performance of other units of the same franchise.

TRUE

7. ______ Small businesses are more likely to hire women returning to the workforce and former welfare recipients than are larger businesses.

TRUE

7. ______Sole proprietorships give owners ease of formation and dissolution, maximum flexibility, and the owner retains all the after tax profits.

TRUE

1. ______ It is fair to say that a strong small business sector is the backbone of the private enterprise system.

TURE

A corporation incorporated in another country that does business in the United States is called a(n) __________________________

alien corporation

A(n) ____________________ occurs when one company buys the assets and assumes the liabilities of another firm.

aquisition

The governing authority of a corporation, elected by the common stockholders, is called the __________________________.

board of directors

A(n) _________________________ is an organization that provides low-cost common facilities and services to small, start-up businesses.

business incubator

Two or more persons who operate a business as co-owners form a(n) _______________.

partnership

A(n) _________________________ is a written document that provides an orderly statement of a company's goals, the methods by which it intends to achieve those goals, and the standards by which it will measure achievements.

business plan

____________________ are shares that give the owners voting rights but only residual claims on the firm's assets and income distribution.

common stockholders

A(n) ____________________ is merger between firms whose businesses are unrelated.

conglomerate merger

A(n) ____________________________ is an organization in which the owners operate collectively.

cooperative

A(n) ____________________ is a legal organization whose assets and liabilities are separate from those of its owner(s).

corporation

A corporation that operates in the state in which it was chartered is considered a ____________________ in that state.

domestic corporation

____________________ is a type of business ownership in which workers buy shares of stock in the company that employs them.

employee ownership

32. A corporation that has been incorporated in a state other than the one in which it is operating in is known as a(n) _________________________.

foreign corporation

The purchaser of a franchise is known as the ____________________.

franchisee

__________________________ is a contractual business agreement between a manufacturer or supplier and a dealer.

franchising

In a(n) ____________________, one firm combines with another firm in the same industry.

horizontal merger

The ____________________, operated from the residence of the business owner, is a widely used and low cost option for new firms.

house-based business

A partnership between companies formed for a specific undertaking is called a(n) _________________________.

joint venture

Under the company form known as a(n) ____________________, the firm is governed under an operating agreement resembling a partnership, except that each partner's liability for the actions of the other owners is limited.

limited liability company (LLC)

When two or more firms combine to make one company, a _______________________ has occurred.

merger

____________________ are small-business loans often used to buy equipment or operate a business.

microloans

An organization whose goals do not include pursuing a profit is known as a(n) __________________________.

not for profits

____________________ are shares that give the owners limited voting rights, and the right to receive dividends or assets before the owners of common stock.

preferred stockholders

__________________________ means an organization is owned and operated by a government unit.

public ownership

__________________________ can elect to be taxed as partnership while maintaining the advantages of corporations.

s corporations

____________________ is generally defined as any firm that is independently owned and operated, that is not dominant in its market, and that meets a variety of size standards for income and number of employees.

small business

A business that is owned by one person is a(n) ____________________.

sole proprietorship

Owners of a corporation due to their purchase of stock in the corporation are known as _______________________.

stockholders

__________________________ is money invested in a business by another business firm or group of individuals in exchange for an ownership share

venture capital

When firms at different levels in the production and/or marketing process decide to combine into one company, a __________________________ has occurred.

vertical merger