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Exam 5: How to Form a Business

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Question 81

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One reason that a firm may choose to merge or acquire another company would be diversity of products or services.

A) True
B) False

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Question 82

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Which of the following statements about partnerships is most accurate?

A) A partnership is a corporation with fewer than 100 owners.
B) A major advantage of a partnership is that it offers all owners limited liability.
C) A major drawback of a partnership is that it is difficult to terminate.
D) Partnerships are taxed at the lowest corporate tax rate.

E) B) and D)
F) C) and D)

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Question 83

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Nutty Dough is a small chain of donut shops currently owned and operated by a group of seven partners. The owners think that their chain has the potential for rapid growth, but several of the partners are concerned about the growing financial risks that will accompany this growth. One way the partners could deal with this problem would be to incorporate their business.

The strategy of a leveraged buyout is used when employee talent is at a minimum.

If you want to sell your ownership in a publicly traded corporation, you find someone willing to buy your shares.

It is correct to say that if a franchisor expects a 6% royalty fee on revenue, the franchisor earns 6 cents on each dollar of revenue the franchisee generates.

Delaware is a popular state in which to seek incorporation due to its reduced costs and other perks.

An evaluation of franchising would conclude that this type of arrangement:

The sole proprietorship form of ownership tends to be attractive to people who want to invest in a company without taking an active role in management.

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.

In rural areas electrical power is often sold by ____________ that take advantage of the government's policy to sell them electricity at wholesale rates.

The most popular type of business for franchising is:

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

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

A disadvantage of corporations is that an owner must get the approval of all other owners before selling his or her interest in the firm to another investor.

Limited partnerships are just like general partnerships, except that they are partners for a limited time period.

Compared to sole proprietorships, partnerships offer the advantage of shared management and pooled knowledge.

If a franchisee decides he wants out of the business, he is free to close up shop or sell the business, just as if he were a sole proprietor or partnership outside of a franchise arrangement.

Trevor and Tyler own all the stock in the Double T Corporation. The stock of this corporation is not sold to the general public. Trevor and Tyler own a:

One disadvantage of _________ is the initial cost of formation.