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Exam 5: How to Form a Business

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Question 111

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Mini-Case For as long as she could remember, Jenna Raiter's passion was cars. As a teenager, she spent hours with her dad tinkering with the family car, learning to change the oil and making minor repairs. She got a job at a local garage while still in high school. A few years after graduating from high school and completing the auto mechanics degree at a local community college, Jenna decided she wanted to be her own boss. She quit her job, borrowed some money from her dad, and began her own repair shop, the AutoMotion Garage. Jenna's hard work gradually attracted a loyal clientele of satisfied customers. Her success has her thinking about opening garages in two other locations, but she lacks the financial resources needed for expansion. Furthermore, the success of her business is forcing Jenna to spend more time managing the business and less time doing the actual technical work she still enjoys. She wants to find business partners who can help her with management and provide additional financial resources. She has approached a couple of friends she met in high school: Al Ternator and Lew Banfilter, to see if they would like to join the business. -Currently, AutoMotion Garage is operated as a(n): A. limited liability company. B. cooperative. C. sole proprietorship. D. solitary subsidiary.

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Question 112

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An owner of a corporation is known as a(n) :

A) general partner.
B) limited partner.
C) director.
D) stockholder.

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

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Question 113

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A master limited partnership (MLP) is:

Liam owns a Far Horizons Travel Agency franchise. As a franchisee, Liam is guaranteed the right to retain all of his franchise's revenues and profits.

Mini-Case For as long as she could remember, Jenna Raiter's passion was cars. As a teenager, she spent hours with her dad tinkering with the family car, learning to change the oil and making minor repairs. She got a job at a local garage while still in high school. A few years after graduating from high school and completing the auto mechanics degree at a local community college, Jenna decided she wanted to be her own boss. She quit her job, borrowed some money from her dad, and began her own repair shop, the AutoMotion Garage. Jenna's hard work gradually attracted a loyal clientele of satisfied customers. Her success has her thinking about opening garages in two other locations, but she lacks the financial resources needed for expansion. Furthermore, the success of her business is forcing Jenna to spend more time managing the business and less time doing the actual technical work she still enjoys. She wants to find business partners who can help her with management and provide additional financial resources. She has approached a couple of friends she met in high school: Al Ternator and Lew Banfilter, to see if they would like to join the business. -With all these choice, Jenna's head is swirling with ideas. She knows that Al and Lew have expertise in business and management, but she also knows that she will need to read on her own for more information. Referring back to a textbook she had in her Introduction to Business class in college, she comes upon the following statement:

A(n) _____________ is a company that has a proven business model and is willing to sell the rights to use the business model to others so that they can sell the same product or service within a given territory.

The profits of a sole proprietorship are taxed as the personal income of the owner.

A merger involving a commercial bakery and a grocery retailer would be an example of a:

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.

Travis has agreed to invest $16,000 in a partnership with his sister and brother-in-law. He does not intend to actively work in the partnership, nor does he wish to risk any of his own assets other than the $16,000 he initially invests. The partnership has agreed to permit him to share in the profits. As an expert on forms of business ownership, you know that Travis is a ______________ in this partnership.

Which of the following statements about farm cooperatives is most accurate? Farm cooperatives have:

Earnings of C corporations can be:

Franchised businesses are successful (both domestically and internationally) because:

After a successful five years, Peaceful Pastures, LLC (a retirement ranch for race horses), thinks it may be able to attract donations from animal activist 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.

When two companies in completely unrelated industries agree to become one firm, the result is called a:

Franchising is popular in the United States, but legal barriers have limited its popularity in foreign countries.

A person who buys the right to use a business name and sell a product within a given territory is called a:

If a firm is advertising that it is selling franchise opportunities, the prospective franchisee can be assured that the government has performed due diligence on this company, and has deemed it a safe investment.

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

Stockholders in a corporation normally exert a significant degree of control over the company's daily operations.