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Exam 5: How to Form a Business

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Question 61

True/False

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In a general partnership, all partners are entitled to an equal share of the firm's profits.

A) True
B) False

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Question 62

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

A) True
B) False

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Question 63

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According to the Uniform Partnership Act, the three key elements of any general partnership are:

Eric wants to start a business. He is attracted to the idea of being his own boss, and wants to get started with a minimum of expense and hassle. He is confident in his abilities, and the market he can draw from, so he is not particularly worried about financial risks. All of these factors suggest that Eric may favor starting his business as a sole proprietorship.

The board of directors for a corporation is elected by its:

Franchisors may send reverse royalties to franchisees who:

A separation between ownership and management is most likely to occur in a:

People who form cooperatives:

Franchisors sometimes pay reverse royalties to franchisees if it is evident that the franchisor's Internet sales have negatively impacted the profits of traditional bricks and mortar franchisee businesses.

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

A is two firms combining to form one company.

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

Sandy Beech, a talented fashion designer who wants to start her own women's swimwear and beach towel line is trying to decide which form of business ownership is right for her. As a young mother who aspires to send her children to college some day, she does not want to jeopardize her savings account in any way. In order to overcome these risks, Sandy should start her business as a sole proprietorship.

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.

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.

Recent figures indicate that franchising has declined in importance over the last ten years.

One advantage of corporations is that the initial cost of organization is usually lower than for other forms of business ownership.

The owners of Idle Time Gaming Company would like to switch to an S corporation. Unfortunately, their lawyer advised them that they do not meet some of the requirements necessary to qualify as an S corporation. An alternative form of business that would give them similar advantages is a limited liability company.

Unlike partnerships, if sole proprietorships find themselves in bankruptcy, they need not worry about a court of law requiring them to sell-off personal assets to pay for the debts of the firm.

Zach and Mac own an auto repair business which they operate as co-owners. Both take an active role in the management of the business, and each accepts unlimited liability. Zach and Mac operate as a .