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Exam 5: How to Form a Business

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Question 161

Multiple Choice

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Your three friends from Wyoming inherited an old dude ranch. They now plan to turn it into a pasture for retired racehorses. Serenity Stables wants to open its doors by spring of 2020. After going to several small business seminars, your friends are certain they need limited liability. The high-risk, labor-intensive business will require a sizeable investment including an air-conditioned barn, several fenced-in pastures, and loads of animal feed. You explain to them that LLC ownership requires owners to pay self-employment taxes on the entire amount of earnings. You are fairly certain this is one tax liability your friends would like to avoid. You instead recommend

A) sole proprietorship.
B) general partnership.
C) limited liability company.
D) S corporation.

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

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Question 162

True/False

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Josie belongs to a food cooperative in her community. As a member, she can expect to have a vote in the election of the cooperative's board of directors.

A) True
B) False

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Question 163

Multiple Choice

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One important consideration when prospecting for a good franchise business is

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

A general partner has unlimited liability for the debts of the partnership only if he or she personally approved the decisions that resulted in those debts.

Mackenzie's dream is to open a chain of salons. She hopes to attract investors to help finance growth. Having once considered forming a C corporation, Mackenzie wants to have more flexibility about how the new business will be taxed. She also wants to offer investors/owners limited liability. Mackenzie can satisfy her objectives by setting up a(n)

Foreign investment in U.S. companies continues to be strong. When Belgian-based In-Bev purchased the largest beer company in the U.S., Anheuser-Busch, this action constituted a(n) ________ with a negotiated selling price of $52 billion.

Franchisors may send reverse royalties to franchisees who

An owner of a corporation is known as a

What is a C corporation? What are the major advantages and disadvantages of this form of business ownership?

Hidden Valley Communications, Inc., located in a remote area of Utah, made a special device that was used in LTE phones. After three years of local operations, the company that employed 4,000 people was planning to close its Utah operation and move the assembly offshore. Under the direction of a financial services company that financed the deal, the employees agreed to become owners of the company and continue to operate the business. The business concept that describes this arrangement is

An advantage of forming a sole proprietorship is that it allows the owner to have more time for leisure activities.

Partnerships are the most common form of business ownership.

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

Franchising in global markets has demonstrated that high operating costs are counterbalanced by high profit opportunities.

The Sandwich Emporium, Inc. sells the rights to use its name and sell its signature sandwiches in a given market area to those willing to pay agreed-upon fees and meet specific contractual terms. The Sandwich Emporium is

Mini-Case Genna Raiter's passion has always been cars, cars, cars! As a teen, she would spend hours with her dad fixing the family car, and he taught her how to change the oil and make minor repairs. While still in high school, Genna got a job at a local garage. After high school graduation, she completed the auto mechanics degree at a local community college and quickly decided she wanted to be her own boss. She quit her job at her first garage, borrowed some money from her dad, and created her own repair shop, the Car Keepers Garage. Genna's hard work gradually attracted a loyal clientele of satisfied customers. Her success has her thinking about expanding and opening garages in two other locations, but she lacks the financial resources needed for development. Furthermore, the success of her business is forcing Genna 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 Lou Banfilter, to see if they would like to join the business. -Al also suggested another way Genna could finance her expansion. He described setting up a chain of Car Keepers Garages by selling the rights to use the Car Keepers' name, business model, garage design, and service ideas to others who would like to own a similar shop. These individuals would pay Car Keepers an initial fee and monthly royalties based on earnings. Al is suggesting that Genna set up a

A limited partnership consists of one or more general partners and one or more limited partners.

In a franchise arrangement, ownership remains in the hands of the franchisor.

Beau has agreed to invest $19,000 in a partnership with his brother and sister-in-law. Not being in the same line of work as them, Beau does not intend to actively work in the partnership. He also does not want to risk any of his own assets other than the $19,000 investment. The partnership has agreed to permit him to share in the profits. As an expert on forms of business ownership, you know that Beau is a ________ in this partnership.