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Exam 5: How to Form a Business

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Question 1

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A conventional corporation is a state-chartered legal entity,with authority to act and have liability separate from its owners.

A) True
B) False

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Question 2

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The three major forms of business ownership in the U.S.are sole proprietorships,partnerships,and corporations.

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B) False

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Question 3

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Global franchising offers:

Limited liability companies have both flexibility in tax treatment of earnings and limited liability protection for owners.

Adam is a major stockholder in Precision Transmission Services (PTS) ,a nationwide network of transmission repair shops founded by his father.Currently,PTS stock is sold on the open market,but Adam has talked to several relatives about his desire to get all of the PTS stock back in his family's hands.Adam is interested in ______________________________.

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

Which of the following is an advantage of the corporate form of business when compared to sole proprietorships and partnerships?

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

Jane has always disliked the notion that the customers,managers and workers of a business are separate individuals with competing goals.She has joined with many other people in her community who share this view to become a member,and part owner,of a child care center.Jane and the other members operate the center for their own benefit,and each is expected to work at the center at least 12 hours each month.The type of organization Jane belongs to is known as a joint venture.

Franchising is popular in the United States,but legal barriers have limited its popularity in foreign countries.

A distinguishing feature of a cooperative is that it:

Twenty-six years ago,several small vineyard owners in California joined voluntarily to market their grapes and wine in an attempt to get better prices.Over the years they expanded the organization to include other services such as buying and selling farm supplies and equipment and providing financial and technical services.The arrangement established by these vineyard owners is an example of a(n) :

The three major types of mergers are acquisition,joint,and connective.

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

A horizontal merger refers to a merger between two companies that serve entirely different markets.

Mini-Case For as long as she could remember,Jenna Raiter's passion was cars.As a teenager,she spent hours with her dad tinkering with the family car,learning to change the oil and making minor repairs.She got a job at a local garage while still in high school.A few years after graduating from high school and completing the auto mechanics degree at a local community college,Jenna decided she wanted to be her own boss.She quit her job,borrowed some money from her dad,and began her own repair shop,the AutoMotion Garage.Jenna's hard work gradually attracted a loyal clientele of satisfied customers.Her success has her thinking about opening garages in two other locations,but she lacks the financial resources needed for expansion.Furthermore,the success of her business is forcing Jenna to spend more time managing the business and less time doing the actual technical work she still enjoys.She wants to find business partners who can help her with management and provide additional financial resources.She has approached a couple of friends she met in high school: Al Ternator and Lew Banfilter,to see if they would like to join the business. -When Jenna confided in Lew and Al that she,too was concerned about adding additional risk,Lew suggested that they explore the possibility of one of the newest forms of business ownership,a(n) ___________,which has very flexible ownership rules and would give them more choices in how the company's earnings are taxed while still protecting all owners from high levels of risk.

Franchising in global markets has demonstrated that high operating costs are counterbalanced by high profit opportunities.

Stockholders in a corporation exert a significant degree of control over the company's daily operations.

Mojo Motors is a small conventional corporation with only 212 stockholders.Eleven of the stockholders are citizens of Mexico,and eight others are citizens of Canada.Due to its size and diversity in ownership,you would recommend that Mojo Motors change to an S-Corporation.

The limited liability provided to limited partners means that they are not responsible for the debts of the business beyond: