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Exam 5: How to Form a Business

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Question 121

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

A) Vertical merger.
B) Joint venture.
C) Conglomerate merger.
D) Horizontal merger.

E) B) and C)
F) A) and B)

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Question 122

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Although most new firms start out as sole proprietorships,few large firms are organized this way.Why is the sole proprietorship such a popular form of ownership for new firms? What features of the sole proprietorship make it unattractive to growing firms?

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Sole proprietorships have many features ...

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Question 123

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Selma owns a roofing business.She enjoys being her own boss,but her satisfaction comes at a price.Her days are filled with organizing the activities of her employees and soliciting new customers.She often misses activities with friends and family because of the obligations of running her own business.She also knows that she has unlimited personal liability for any of her firm's debts.Selma's business is organized as a(n) :

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 choices,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:

In today's economy,only large business enterprises should operate as corporations.

Jim is one of several general partners who own Beef 'N Beer,a small chain of restaurants located in Missouri and Illinois.Jim is interested in converting the partnership into a master limited partnership.If he convinces other partners to go along with his idea,Beef 'N Beer will:

A franchise can be formed:

A type of partnership called a ___________ acts much like a corporation and is traded on stock exchanges,but it is taxed like a partnership with profits passing through to the owners and taxed as the owner's personal income.

A ___________ is a form of business that is owned,and usually managed,by one person.

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) :

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.

People who form cooperatives:

According to the Spotlight on Small Business box,titled,"Pick Your Partners Wisely",attributes such as trust and integrity are not something you should get overly concerned about when selecting partners,due to the fact that this is a business decision,not a friendly game of golf.

In a sole proprietorship,the profits earned by the business are:

The owners of California Canines,a firm that designs and manufactures coats,sweaters,jackets,and rainwear for dogs want to organize as an LLC.Two members are college students and two others are thirty something couples with young children.This is good strategy because each member can choose to commit to limited or unlimited liability.

To many businesspeople,one of the major attractions of a sole proprietorship is:

Maya plans to open a shop specializing in foods and cultural items from the Middle East.She wants to be the firm's only general partner,but she is trying to get several friends to participate as limited partners.Apparently Maya wants to:

A cooperative consists of people with similar needs who pool their resources for mutual gain.

The __________ is the most common form of business ownership.

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.