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Exam 5: How to Form a Business

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Question 61

Multiple Choice

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To many businesspeople,one of the major attractions of a sole proprietorship is:

A) The ability to obtain additional financial resources.
B) The protection of limited liability.
C) An unlimited lifespan.
D) The chance to be their own boss.

E) A) and B)
F) B) and D)

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Question 62

Multiple Choice

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If a group of stockholders or management obtain all the stock of a previously publicly traded firm for themselves,this is referred to as:

A) Capitalizing.
B) Stock turning.
C) Turning the equity.
D) Taking the firm private.

E) All of the above
F) B) and C)

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Question 63

Multiple Choice

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To qualify as an S corporation,a company must:

Franchisors give franchisees the right to use their name and product,with the understanding that franchisees obtain all financing and develop all marketing strategies on their own.

A recent study showed that partnerships are more likely to fail than sole proprietorships.

Cory Raider is leading a group of stockholders who wants to take the Bigbux Corporation private.If Cory's group succeeds,Bigbux's stock will no longer be available to investors on the open market.

One advantage of a partnership is that there is a simple process for partners to terminate their business.

One of the strengths of the sole proprietorship is its ability to sustain rapid growth by raising large amounts of financial resources.

Chipper's Golf Resort has the opportunity to buy 1000 acres of property adjacent to its 18-hole golf course.After talking with her banker,the owner is encouraged to begin the paperwork to change from a Limited Liability Company form of business ownership to a corporation.You applaud this strategy because she will eliminate the problem of double taxation.

Compared to partnerships and sole proprietorships,a major advantage of the C conventional) corporation as a form of business ownership is that it:

Compared to the C-corporation,the limited liability company is an attractive form of business ownership because:

Which of the following statements about partnerships is most accurate?

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

After spending a summer down-under,two Oregon friends,Rick and Mick created a general partnership to import emu from Australia to the U.S.After a year,Rick found himself at the mercy of Mick who seemed to keep the books and seldom share the financial results,even though Rick was out selling the emu idea to farmers and ecologically conscious consumers;and,shipments were increasing.As their consultant,one of the first things that you inquire about is whether they are familiar with the UPA Uniform Partnership Act),specifically the right to participate in managing the operations of the business.

According to the Thinking Green box,"Play Ball but Play Green",high profile sports franchises are serious about the environment.The new Washington Nationals stadium is LEED Leadership in Energy and Environmental Design)certified.

A major objective of a leveraged buyout is to enable investors to gain control of a company by issuing new shares of ownership,thus minimizing the use of debt.

If a corporation has after-tax profits of $360,000,and elects to distribute this amount in the form of dividends to its stockholders,these distributions are free and clear of taxes because the corporation paid taxes on this amount prior to distribution.

Khalid is a 39-year-old,married business owner who runs a dry cleaning service with three locations.His personal obligations are the home that he owns with his wife who works for a well-known insurance company;the health needs of his family;and his commitment toward saving for the future higher education needs of his three children.Khalid knows that two of his locations require a large infusion of cash to pay for new and expensive dry cleaning equipment.Although his wife's job provides the family with health insurance,it also places the family in a higher income tax bracket.Khalid would certainly like to minimize his taxes.Which of the following forms of business ownership would you suggest for Khalid? Khalid should consider:

_____________ are companies that are similar to S Corporations but are not restricted with similar eligibility requirements.

The difference between a merger and an acquisition is: