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Exam 5: How to Form a Business

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Question 91

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The stockholders in a corporation elect a board of directors to oversee the company's major policy issues.

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Question 92

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One reason many companies do not organize themselves as an S corporation is that this form of business:

A) is subject to a higher tax rate than a general partnership.
B) does not provide owners with limited liability.
C) has a special eligibility restriction, which many businesses are unable to meet.
D) is much more difficult to set up than C corporations.

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Question 93

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Which of the following is an advantage of franchises?

A franchise can be formed:

Global franchising offers:

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

Most states have legal restrictions that prevent individuals from incorporating.

Modern Screen Entertainment, Inc., recently bought Star Power Pictures, Inc., for an undisclosed amount of money. It now owns all of Star Power Picture's properties and obligations. This is an example of a(n) :

Double taxation means:

Maria is already a successful franchisee with Nite Lite, a chain of "no frills" motels that provide clean rooms and good service at affordable rates. The motel she currently operates is located in Texas, but she is considering an opportunity to open another Nite Lite motel in Canada. Although her costs of operating in a foreign nation may be higher, she has the benefit of an expanding market and less competition.

An alien corporation does business abroad but is chartered in the U.S.

Three types of corporate mergers are:

Marco is a limited partner in an e-commerce company. As a limited partner, Marco can be involved with the company for a maximum of five years.

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.

In a partnership, a(n) __________ partner (owner) actively manages the company and has unlimited liability for claims against the firm.

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).

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

Maria has a lot of self-confidence and business knowledge. She recently opened a bakery as a sole proprietor. She is expecting a high level of profits and is looking forward to:

The coattail effect refers to inevitable repercussions on your business if a fellow franchisee should fail.

Because of the growth of minority-owned businesses in the U.S., franchisors are becoming more focused on recruiting minority franchisees.