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Exam 5: How to Form a Business

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Question 71

True/False

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If a corporation distributes after-tax profits to its stockholders in the form of dividends,the government considers these distributions as part of each stockholder's personal income.Stockholders pay taxes on these distributions.

A) True
B) False

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Question 72

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Although shares of master limited partnerships can be purchased on one of the national stock exchanges,these companies are taxed like partnerships.

A) True
B) False

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Question 73

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Due to several years of poor performance,Scrappy's Metal Fabrication,Inc. ,is closing.Through the use of debt financing,workers plan to purchase the company's stock from current shareholders,in order to buy the firm,improve company performance,and save jobs.

Global franchising is unlikely to experience major growth due to the high costs of operations in global markets.

A ____________ is two firms combining to form one company.

Liam owns a Far Horizons Travel Agency franchise.As a franchisee,Liam is guaranteed the right to retain all of his franchise's revenues and profits.

Randy and Mandy plan to pool their money and musical talents to form a general partnership and begin booking weekend gigs.One of the first things Randy and Mandy should do is:

The purpose of corporate by-laws is to maintain a legal structure and also to stipulate how the firm will be managed.

Marco is a franchisee with Daggies,a chain of sandwich shops.His business was doing well until several Daggies franchisees got in trouble and were forced to close their shops.Soon afterward,Marco's business deteriorated and he too was forced to close.This is an example of:

The debts of a business operated as a sole proprietorship are considered to be the personal debts of the owner of the business.

Two of Diana's friends have approached her about starting a new business.Diana is willing to invest money in the business and share in its profits,but she has no desire to be involved in the day-to-day management of the company,nor is she willing to risk any amount beyond her initial investment.Diana's preferences suggest that she prefers a general partnership form of business ownership.

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. -Al also suggested another way Jenna could finance her expansion.He described setting-up a chain of AutoMotion Garages by selling the rights to use AutoMotion's name,business model,garage design and service ideas to others who would like to own a similar shop.These individuals would pay AutoMotion an initial fee and monthly royalties based on earnings.Al is suggesting that Jenna set up a:

When investors successfully take a firm private,the firm's stock is:

When one of the owners of a corporation dies,the corporation legally ceases to exist.

Two competitors: Stanley's Food Mart and Bluejay Groceries recently issued a joint announcement stating their decision to merge.The announcement claimed that the new firm would have more financial resources,which would enable it to expand services and broaden offerings to consumers.This proposed merger is an example of a horizontal merger.

Dane is a stockholder in SmallWorld,Inc. ,a C-corporation that manufactures amusement park rides.The company recently lost a major court decision and will probably be forced into bankruptcy.In fact,the damages awarded are so great that,even if all company assets are sold and the proceeds are used to pay its debts,SmallWorld is likely to still owe money to its creditors.If SmallWorld go bankrupt,Dane and the other stockholders will:

Which of the following statements is the most accurate? Sole proprietorships:

In a typical franchise agreement,the franchisor pays the franchisee a fee to manage its company,and the two of them split the profits based on the percentages established in the agreement.

The organizational structure of a corporation permits:

According to recent data,80% of all franchises are restaurants.