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Exam 5: How to Form a Business

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Question 111

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One of the major reasons for the wave of mergers in the late 1990s and early 2000s was the desire of firms to expand within their own markets.

A) True
B) False

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Question 112

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In a typical franchise agreement,the franchisor pays the franchisee a fee to manage its company,and the two of them split the profits based on the percentages established in the agreement.

A) True
B) False

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Question 113

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A foreign corporation is chartered in a country outside the U.S.

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

When a group of investors take a firm private,they purchase all the company's outstanding stock.

Ramon lives in Mexico City and is a Mexican citizen.He has several friends in the United States who own shares in an S corporation.Ramon would like to invest in this company.Ramon:

When comparing general partnerships to sole proprietorships,an advantage of partnerships is that they:

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

Being your own boss means:

One difference between partnerships and sole proprietorships is that partnerships:

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.

One advantage of an S Corporation is that the profits are distributed to the owners and taxed as each owner's personal income,thus avoiding the problem of double taxation.

With respect to taxes,the sole proprietorship:

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.

When two or more people legally agree to become co-owners of a business,the form of business is called a partnership.

Emily wants to open a chain of hair styling salons and hopes to attract investors to help finance growth.She considered forming a C corporation,but wants to have more flexibility about how the new business will be taxed.She also wants to offer investors/owners limited liability.Emily can satisfy her objectives by setting up a(n) :

Corporations represent 20 percent of all the businesses in the U.S.and earn 81 percent of the total U.S.business receipts.

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

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

Adam is a major stockholder in Precision Transmission Services (PTS) ,a nationwide network of transmission repair shops founded by his father.Currently,PTS stock is sold on the open market,but Adam has talked to several relatives about his desire to get all of the PTS stock back in his family's hands.Adam is interested in ______________________________.