MGMT 421: Chapter 2

23. An advantage of selling a family-owned business to outsiders is that: A. the former owner receives an assured income. B. it provides a constant source of income to all the family and nonfamily members. C. the stature of the family is maintained. D. a stronger family identification is developed.

A. the former owner receives an assured income.

28. In the context of family-owned businesses, which of the following can be used to minimize estate taxes? A. Buy-sell agreements B. Family limited partnerships C. Formal succession planning D. Selling stock to outsiders

B. Family limited partnerships

6. _____ refer to family-owned businesses run by husband-and-wife teams. A. Appreneurs B. Intrapreneurs C. Copreneurs D. Ecopreneurs

C. Copreneurs

4. In order to cope with the daily challenges of a family-owned business, the family should: A. hire all relatives regardless of their ability. B. keep children out of the decision-making process. C. reduce time spent on home activities. D. develop an appropriate family mission statement.

D. develop an appropriate family mission statement.

2. _____ businesses are considered the backbone of the American business industry. A. Family-owned B. Nonfamily C. Public sector D. Professionally run

A. Family-owned

8. How can copreneurs efficiently manage their family-owned business? A. By talking to a marriage counselor about how the business will affect their relationship B. By letting one spouse work for the other as an employee C. By making major decisions independently, without consulting the other D. By spending most of their time tending to the business and less time in personal matters

A. By talking to a marriage counselor about how the business will affect their relationship

29. A(n) _____ resembles a will, but, in addition to providing for distributing personal assets on the maker's death, it also contains instructions for managing those assets should a person become disabled. A. living trust B. promissory note C. estoppel D. attestation

A. living trust

7. Which of the following situations should copreneurs avoid? A. Agreeing to disagree on several business issues B. Ignoring business conflicts in an attempt to save the relationship C. Setting aside time for the family and sticking to it D. Defining each person's role and accentuating each other's talents

B. Ignoring business conflicts in an attempt to save the relationship

3. Which of the following statements is true of family-owned businesses in the United States? A. They have less potential financial risks. B. They can be a source of unresolved family conflicts. C. They can remove all obstacles to achieving the basic business goals. D. They rarely have family members with differing value systems.

B. They can be a source of unresolved family conflicts.

12. A limitation of a small family-owned business is that a family manager may: A. refuse to hire family members who want to enter the business. B. lack general management skills in spite of specializing in a specific activity. C. ignore top family members when a matter needs to be cleared. D. give more importance to a family member's ability rather than his or her age.

B. lack general management skills in spite of specializing in a specific activity.

15. A home-based business is an attractive option for working mothers because: A. most corporations encourage telecommuting. B. there has been a decrease in job sharing in many businesses. C. many companies are adopting flextime. D. daycare services are relatively inexpensive.

B. there has been a decrease in job sharing in many businesses.

20. A(n) _____ is a document that contains instructions about what should be done with a family-owned business if the owner suddenly dies or becomes incapacitated. A. bequest B. will C. estoppel D. claim

B. will

11. Which of the following steps should a family-owned business take to compensate family members? A. Every relative who wishes to work for the business should be hired. B. Family members should be financially rewarded on the basis of their position in the family. C. A managerial title should be offered to motivate a productive family member. D. Relatives should be offered positions according to their status in the family.

C. A managerial title should be offered to motivate a productive family member.

13. Which of the following is an advantage of hiring professional managers to run family-owned businesses? A. More employment opportunities for family members B. Retained "personal touch" C. Fair treatment of employees D. Concentration of power in small cliques

C. Fair treatment of employees

17. How can children be prepared to enter a family-owned business? A. By allowing them to work in senior management positions and make important decisions B. By giving them a permanent leadership position in the business C. By promoting them rapidly in the business out of turn D. By letting them work for another company to gain suitable work experience

D. By letting them work for another company to gain suitable work experience

30. In the context of a family-owned business, which of the following is a disadvantage of a living trust? A. The business goes to the designated heirs without going through probate court. B. Property can be put into the trust while the owner is alive. C. The ownership still remains with the owner after transferring the title to the trust. D. The title on real estate and securities must be changed to the name of the trust.

D. The title on real estate and securities must be changed to the name of the trust.

24. The transition of a family-owned business to a successor can be made easier for the former owner by: A. devoting less time to hobbies and other outside activities. B. keeping the owner engaged in a top management position. C. narrowing his or her skills to focus on a single task. D. handing over the business to the successor in phases.

D. handing over the business to the successor in phases.

10. A way to deal with incompetent family members in a family-owned business is to: A. allow them to take special privileges. B. allow them to avoid unpleasant tasks. C. place them in responsible positions to encourage them to work. D. assign jobs to them that allow minimal contact with other employees.

D. assign jobs to them that allow minimal contact with other employees.

18. Which of the following statements is true of the findings of a classic survey of owners of family-owned businesses with two or more children working for the company? A. One child is groomed from an early age to take over the business. B. Children are discouraged from choosing their own successor. C. Only one child is included in all future ownership and management decisions. D. There is a defined hierarchy for decision-making.

A. One child is groomed from an early age to take over the business.

1. Which agency is responsible for estimating the percentage of family-owned businesses in the North American business enterprise? A. The Conway Center for Family Business B. The American Family Business Institute C. Wendel International Center for Family Enterprise D. Vantage Business Center

A. The Conway Center for Family Business

14. A disadvantage of organizing a family business into a corporation and hiring professional managers is the: A. concentration of power in small cliques. B. unfair treatment of employees. C. loss of family time for other purposes. D. increasing sense of unwanted "personal touch."

A. concentration of power in small cliques.

22. Which of the following is an advantage of selling a family-owned business to family members? A. Fewer family members are hired in the business. B. There is relief from further responsibility attached to the business. C. Family bonds are strengthened, and additional friction is reduced. D. The family tension that was previously linked to owning the business is released.

C. Family bonds are strengthened, and additional friction is reduced.

25. What is estate planning? A. Planning for a new buyer of a family-owned business that is up for sale B. Compensating the owner of a family-owned business when the family wants to sell it C. Preparing for the orderly transfer of an owner's equity when death occurs D. Assessing the real-estate value of a family-owned business before it is sold

C. Preparing for the orderly transfer of an owner's equity when death occurs

19. Why are a number of entrepreneurs turning to formal succession plans for their family-owned businesses? A. To ensure that they get proper returns on their investment B. To allow themselves to go on a short leave C. To prevent endless disputes over ownership between their heirs D. To devote time to face-to-face teaching and training

C. To prevent endless disputes over ownership between their heirs

9. Conflicts are likely to arise in a small family-owned business when: A. each family member has a different perspective, leading to dissension. B. one family member is clearly in command, at least in a given area of management. C. the role of each family member is distinct, based on sound business practices. D. family members agree to disagree and set ground rules.

A. each family member has a different perspective, leading to dissension.

5. A developing trend in family businesses is that young people: A. offer an executive position to their parents in their company in return for funding. B. are not interested in continuing the work of their parents. C. show a great amount of enthusiasm in financing their own business enterprises. D. are not interested in gaining experience by working part-time.

A. offer an executive position to their parents in their company in return for funding.

27. A _____ provides for a corporation to repurchase a shareholder's stock when he/she leaves the company. A. nondisclosure agreement B. buy-sell agreement C. family limited partnership D. recovery fund

B. buy-sell agreement

16. Expansion of small family-owned businesses may be limited by: A. the size of the family. B. the low motivational level of employees. C. the amount of family assets available. D. the retirement age of the owner.

C. the amount of family assets available.

26. A family limited partnership allows business owners to: A. choose people who could be considered owners of the business in their absence. B. remain part of the ownership group when the business is sold to an outsider. C. pass assets to heirs with a minimum of income and estate tax costs while retaining control of assets during their lifetime. D. name a family member as the successor when their business is up for sale.

C. pass assets to heirs with a minimum of income and estate tax costs while retaining control of assets during their lifetime.

21. If a family-owned business is a corporation, replacement of ownership is decided by: A. the spouse of the former owner. B. a court-appointed attorney. C. the board of directors. D. the nonfamily employees.

C. the board of directors.