Finance Quiz (Chapter 7)

Corporations

Although not the most common form of business ownership, They account for the majority of the revenue from business in the U.S. They are also the most complex type of organization to start and maintain. Types of corporations include C corporations, S corporations, and B corporations.

What would be the advantages of choosing a sole proprietorship over other legal structures of business? ~The sole proprietorship pays no taxes, it can live long after its founder moves on, and can have unlimited number of employees. ~The sole proprietorship would be cheaper to set up, the owner would have full control, the owner would be taxed as an individual, and the owner keeps all the profits. ~The sole proprietorship is much more expensive to start and maintain, the profits must be shared equally with employees, and it is allowed to operate in any state. ~The sole proprietorship is protected from all liability, the owner would have full control, and the owner keeps all profits.

The sole proprietorship would be cheaper to set up, the owner would have full control, the owner would be taxed as an individual, and the owner keeps all the profit~

Caitlin is invited to join a business as a partner due to her expertise in the field. She is asked to sign a partnership agreement that gives her 40% of the profits, full control of the marketing activities, but final say on all other decisions goes to the original owner. She is joining: ~A general partnership. ~A limited partnership. ~A dual partnership. ~An S Corporation.

A limited partnership

Which of the below would illustrate the advantages of vertical mergers and acquisition? ~A media company merging with a cable company. ~An accounting software developer acquiring a smaller accounting software company. ~A large national supermarket chain purchasing a popular regional market ~A large computer company buying a smaller laptop company.

A media company merging with a cable company.

This one feature of an LLP could be considered both an advantage and/or a disadvantage: ~Taxes and credits are allocated to the partners based on their share of the ownership ~A partner can make a decision affecting the entire business without consulting the other partners. ~Most states require the term "LLP" at the end of your business name. ~LLPs are not necessarily recognized in each and every state

A partner can make a decision affecting the entire business without consulting the other partners.

Partnerships

A single business in which two or more people share ownership. There are two general types of partnership arrangements: general partnerships and limited partnerships.

ABC Corporation is the second-largest company in a competitive market with three other major players. ABC wants to expand their market share quickly and become the leader in their space. One of the options their board considers is to purchase the property, plants, and equipment of the fourth-largest company, XYZ Inc. This action would be classified as a/an: ~Merger ~Poison Pill ~Acquisition ~Limited Partnership

Acquisition

Define the business structure commonly known as a "sole proprietorship." ~An incorporated business that is run solely by one person. ~An unincorporated business owned and run by one individual in which there is no distinction between the business and the owner. ~A simple, single location "mom and pop" operation that specializes in product line. ~An organized business in which the owner is legally separate from the business.

An Unincorporated business owned and run by one individual in which there is no distinction between the business and the owner

What is the biggest benefit to businesses of horizontal mergers and acquisitions? ~Market valuation decreases ~Employee career paths lengthen ~Competition is reduced ~Customer feedback improves

Competition is reduced

Four friends are discussing franchises as a form of business but have different opinions about how they are defined. Who is correct? ~Aminata thinks that a franchise can be defined as a business owned by a business owner (Franchisor) that owns and operates all units for continuity. ~Daniel believes that franchises are businesses where the Franchisor licenses a business model, trademarks and methods to independent entrepreneurs (Franchisees) who own and operate the individual units. ~Rafaela thinks a franchise business is owned by the Franchisor and operated by the Franchisee for a percentage of profits. ~Justin believes that a franchise can be defined as a business model where the Franchisor recruits Franchisees with the promise of payments in return for recruiting additional Franchisees.

Daniel believes that franchises are businesses where the Franchisor licenses a business model, trademarks and methods to independent entrepreneurs (Franchisees) who own and operate the individual units.

The following business integration illustrates the definition of a "merger": ~Disney and ESPN ~Microsoft and Linkedin ~Exxon and Mobil ~Coca-Cola and Vitamin Water

Exxon and Mobil

Franchising

For aspiring business owners who do not have the time, vision, or resources to "start from scratch," This is a viable alternative for business ownership. Everyone is familiar with franchises—many industries such as fast food are almost wholly comprised of franchises. As appealing as this may seem, there are still risks to franchising for both the franchisor and franchisee.

Warren is starting a business. His biggest concerns are losing everything he owns if something goes wrong and being mired in strict taxation and administrative regulations. For those reasons, he decides to start a(n): ~S Corporation ~C Corporation ~LLC ~Sole Proprietorship

LLC

This business legal structure can be defined as having single taxation, limited liability, and the flexibility to let each individual in the business decide how much responsibility and participation they want. This is a(n): ~LLP ~LLC ~C Corp ~B Corp

LLP

These are the primary disadvantages for the Franchisor in a franchise business model. ~Vulnerability of trade secrets, high cost of entry, and lack of control. ~Increased investment risk, lack of control, and overexposure of the brand. ~Lack of control, vulnerability of trade secrets, and overexposure of the brand. ~Increased tax rate, lack of control and overexposure of the brand

Lack of control, vulnerability of trade secrets, and overexposure of the brand

Some of the major advantages of incorporating your business are: ~Limiting your personal liability, raising capital through the sale of stock, and alleviating disagreements among partners. ~Double taxation, limiting personal liability, and raising capital through the sale of stock. ~Limiting your personal liability, raising capital through the sale of stock, and inexpensive administration. ~Limiting your personal liability, having a celebrity spokesperson, and raising capital through the sale of stock.

Limiting your personal liability, raising capital through the sale of stock, and alleviating disagreements among partners

What is the purpose of a B Corp and what are the general requirements for operation? ~Make a commitment to creating general public benefit; prepare an annual benefit report, pay an annual fee and adopt a third-party standard. ~Make a commitment to creating general public benefit; prepare an annual benefit report, pay an annual fee and submit a quarterly compliance post-mortem. ~Make a commitment to creating general public benefit; prepare an annual benefit report, publish progress quarterly on social media and adopt a third-party standard. ~Make commitment to creating general public benefit; hire only volunteer employees, pay an annual fee and adopt a third party standard.

Make a commitment to creating general public benefit; prepare an annual benefit report, pay an annual fee and adopt a third-party standard.

Mergers and Acquisitions

One of the quickest ways for a business to expand into other markets or products lines is either to merge or acquire/purchase another company. Although this is common in today's business environment, there are still many complex factors to consider before deciding whether a merger or acquisition is the optimal solution.

The following are all advantages of business partnerships EXCEPT: ~Partnerships can take advantage of the various skills, strengths, and experience of each of the partners. ~Partnerships pool the resources of the partners to obtain capital. ~Partnerships shield the individual partners from debt and liability. ~Partnerships are relatively easy and inexpensive to set up.

Partnerships shield the individual partners from debt and liability.

The two major drawbacks of an LLC legal structure are: ~Self-employment tax and a full-time general counsel ~Business expense tax credits and board of directors ~Potential limited life span and self-employment tax ~Double taxation and no liability protection for members

Potential limited life span and self-employment tax

The advantages of being a franchisee are: ~Access to expertise, relative autonomy, and startup funds. ~Brand recognition, no initial investment, and access to expertise. ~Risk reduction, brand recognition, and no royalty payments. ~Risk reduction, brand recognition, and relative autonomy.

Risk reduction, brand recognition, and relative autonomy.

What are the most important factors to consider when choosing an organizational type for your business? ~Taxation, control, payroll costs ~Start-up costs, liability, and business model ~Start-up costs, taxation, and control ~Control, taxation, and business name

Start up costs, taxation, and control

The most significant differences between C and S corporations have to do with: ~Administration, employee benefits, and taxation ~Taxation, operations, and incorporations ~Taxation, administration, and shareholder compensation ~Supply chain structure, compliance standards, and taxation

Taxation, administration, and shareholder compensation

Aamer is preparing to interview for a job opening he saw on an employment board. He does a little research and discovers that the business is run by three individuals. How could he tell if the business is a sole proprietorship with two employees or a partnership of three persons? ~The distinction would be who is transporting the cash to the bank. ~The distinction would be who is working the most hours amongst the three. ~The distinction would be who is giving the orders. ~The distinction would be if the three persons share legal ownership

The distinction would be if the three persons share legal ownership.

Which of the following is a downside of choosing a business structure where the owner has full control? ~The owner must work all hours the business is open. ~The owner cannot use their real name when obtaining a business license. ~The owner has full responsibility and liability for the business. ~The owner must hire a CPA for the business.

The owner has full responsibility and liability for the business

Sole Proprietorship

The simplest and most common legal structure for a business. These businesses are owned and run by one person.