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Exam 5: How to Form a Business

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Question 21

Multiple Choice

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A good reason why partners should spell-out the details of their partnership arrangements in writing is:

A) The partnership is not a legally recognized business unless they do so.
B) A written agreement will help reduce misunderstandings and disagreements among the partners.
C) Putting the agreement in writing will limit the liability of each partner to a specified level.
D) Doing so will make it easier to convert the business to a corporation at a later date.

E) All of the above
F) None of the above

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Question 22

Multiple Choice

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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) :

A) Merger.
B) Combination.
C) Expropriation.
D) Acquisition.

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

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Question 23

Multiple Choice

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The S corporation is likely to be less popular in the future because:

A disadvantage of corporations is that an owner must get the approval of all other owners before selling his or her interest in the firm to another investor.

Joshua wants to run his own business. A friend suggested that an inexpensive way to get started is to buy a franchise, where he will have the freedom to run it exactly as he sees fit. As a recent student of business, you concur with this advice.

In the Spotlight on Small Business box, titled, "Pick Your Partners Wisely", the writer suggests that potential partners discuss the types of skills that each brings to the business. Partners with complimentary skills may enhance the business.

One way to eliminate some of the risk of your partners making costly mistakes that could jeopardize your personal assets is to set- up a:

The income generated by S-Corporations:

Stockholders in a corporation entrust control over the company's daily operations to managers selected by the board of directors to run the company.

are companies that are similar to S Corporations but are not restricted with similar eligibility requirements.

If a corporation distributes after-tax profits to its stockholders in the form of dividends, the government considers these distributions as part of each stockholder's personal income. Stockholders pay taxes on these distributions.

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.

A horizontal merger refers to a merger between two companies in the same industry, and serving the same markets.

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.

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

Which of the following is an advantage of a partnership?

One result of taking a firm private is:

Which of the following statements is the most accurate? A foreign corporation:

When one of the owners of a corporation dies, the corporation legally ceases to exist.

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