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Exam 5: How to Form a Business

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Question 161

True/False

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In order to establish a C-Corporation,it is a requirement that investors run the company,whereas in an S-Corporation,this is not the case.

A) True
B) False

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Question 162

Multiple Choice

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Any debts or damages incurred by a firm organized as a sole proprietorship are:

A) The responsibility of the owner.
B) Limited to the amount the owner has invested in the firm.
C) Paid for out of a reserve contingency fund that sole proprietors are required by law to set up.
D) Normally covered by liability insurance.

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

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Question 163

Multiple Choice

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Some __________ ask members/customers to work at the organization for a number of hours a month as part of their duties.

"Double taxation" means:

It is usually easy to start and end a sole proprietorship.

One of the drawbacks of a limited liability company is that most states do not yet recognize this form of ownership.

Nick wants to start his own business.Nick should consider a sole proprietorship if he:

Rocky Rhodes is convinced that he has a great idea for a new business.Unfortunately,the type of business he wants to start would require a fairly high initial investment and Rocky has a poor credit rating and very little personal wealth.Rocky would be unlikely to find success if he organized his business as a sole proprietorship.

Last night as you scrolled through the TV channels to find an action flick,you came across an old movie with tough guy,James Cagney,called "Yankee Doodle Dandy".Although not particularly your kind of movie,you stayed on that channel for a few minutes because Cagney and another guy were in partnership together.They were arguing over who was the senior partner and who was the junior partner,even though,clearly,they started the business at the same time.If you were brought on board as their present-day business advisor,you would explain to them that all partnerships have at least one general partner (known as the senior partner)and one limited partner (known as the junior partner).

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

One reason limited liability companies have become so popular is that they:

A disadvantage of corporations is that they generally require extensive paperwork.

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

One method to avoid conflicts between partners is to solicit the services of a lawyer to create a well-written partnership agreement.

Cali owns Dog Trotters,a dog-walking business that she started to earn money after school and supplement her allowance.She planned to keep all the profits,and kept things simple,by putting a flier on the bulletin board at the local grocery store announcing that she was available to provide this service.Cali's business is a:

About 15 years ago,a well-known franchised food chain was brought to its knees when several customers got sick from tainted beef.Although the food chain recovered due to its quick and consistent action,several franchisees sued the parent company for loss of sales.The franchisees experienced the coattail effects of the bad publicity this event received.

In recent years,foreign firms were reluctant to merge with or acquire American corporations.

Stockholders in a corporation entrust control over the company's daily operations to managers selected by the board of directors to run the company.

A quasi-public corporation is a corporation chartered by the government as an approved monopoly to perform services to the general public.

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