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Exam 5: How to Form a Business

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Question 111

True/False

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Stock options are the right to purchase shares of the corporation for a fixed price.

A) True
B) False

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Question 112

Multiple Choice

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

A) even though it is a little more expensive to form, it has a longer life than the C corporation.
B) a limited liability company permits one owner to own all the stock of the company, whereas a C corporation requires several owners.
C) once formed, the limited liability company is a legal form of business ownership, worldwide, whereas the C corporation must file for corporate status in each nation it elects to do business.
D) once formed, the limited liability company does not require the firm to hold annual meetings, and has the option to avoid double taxation.

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

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Question 113

Multiple Choice

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A type of partnership called a ________ acts much like a corporation and is traded on stock exchanges, but it is taxed like a partnership with profits passing through to the owners and taxed as the owner's personal income.

Compared to sole proprietorships, an advantage of partnerships is their ability to obtain more financial resources.

In a limited partnership, the general partners should encourage the limited partners to take a more active role in the operations of the business. After all, the limited partner has comparable liability in the business, even though he/she may not be a partner for as long a period of time as the general partners.

One of the major advantages for the franchisee is instant business name recognition and important management assistance from the franchisor.

After a fruitful first five years, Serenity Stables, LLC (a retirement ranch for racehorses), thinks it may be able to attract donations from animal advocate groups and even the federal government if it becomes a nonprofit corporation. As its business advisor, you explain that as a nonprofit corporation, the owner(s) may earn a salary but the business should not seek after-tax profits.

Which of the following is an advantage of franchises?

According to the Uniform Partnership Act, the three key elements of any general partnership are (1) common ownership, (2) shared profits and losses, and (3) the right to participate in managing the operations of the business.

The most popular businesses for franchising are restaurants.

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

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

The financial advantage to the parent company (the franchisor) in a franchise arrangement is the upfront franchise fee and the collection of royalties if franchisees are successful.

Katie and her siblings created a design company called Homeward Bound LLP. Although key business functions are centralized, each sibling is a licensed architect that designs, builds, and installs residential and commercial buildings for his/her own clients. Unfortunately, a recent design of Katie's that was ultimately created and installed for one of their clients resulted in water damage to the basement of the client's new home. The limited liability partnership

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

What is a C corporation? What are the major advantages and disadvantages of this form of business ownership?

Declan plans to open up three Pizza Pals franchises in the greater Phoenix area. He tells you that he plans to negotiate with the franchisor to get rid of the giant Preston the Pizza that sits on the roof of all Pizza Pal restaurants. Declan is likely to learn that

Although sole proprietors do not pay any special taxes, as the owner of the business you are also an employee of the business, which requires you to

Which of the following is normally considered a disadvantage of the corporate form of business?

At one time there were many farm cooperatives, but more recently other forms of business ownership have replaced them.