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Exam 5: How to Form a Business

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Question 91

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Kristen and her brothers and sisters decided to form a partnership that specializes in home design of all types.One their goals is to maintain the loving relationship they currently enjoy so they are following the Model Business Corporation Act recommendations as they write the partnership agreement.Which of the following is an accurate recommendation of the Act?

A) The business should be actively operating for an extended period before the partners decide who is responsible for what business functions.
B) Family businesses never take on outside partners,so no discussion of this need take place.
C) There should be discussion and well-understood ways that the partners will handle disagreements.
D) Due to the fact that they are all under 40 years old and expect to work until they are 65 there is no need to decide what will happen to the partnership if one decides to leave the business,retire,or die.

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

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Question 92

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An advantage of corporations is their ability to attract good talent by offering stock options and other employee benefits.

A) True
B) False

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Question 93

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In order to protect all parties and minimize misunderstandings among partners,all terms of the partnership should be spelled out in writing.

A ____________ is the share of profits or percentage of sales a franchisee pays to a franchisor.

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).

Marilyn paid a sizeable franchise fee to obtain a Fontmaster Printers franchise in Cleveland,Ohio.With the franchise fee behind her,she can look forward to using her creative talents to make her print shop different and more attractive than other Fontmaster shops in the Cleveland area.

Trevor and Tyler own all the stock in the Double T Corporation.The stock of this corporation is not sold to the general public.Trevor and Tyler own a:

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

When an owner of a franchise wants to pass ownership on to their heirs:

A franchise agreement is an arrangement where a franchisor sells the rights to a business name and the right to sell a product or service within a given territory to a franchisee.

A non-profit corporation does not seek personal profit for its owners.

Which of the following statements about the operation of a corporation is correct?

It is impossible to run a franchise completely from home.

One result of taking a firm private is:

The sole proprietorship form of ownership tends to be attractive to people who want to invest in a company without taking an active role in management.

One of the drawbacks of a limited liability company is that most states do not yet recognize this form of ownership.

A leveraged buyout is an attempt by top management to gain control of a company by issuing a large amount of new stock.

The __________ is usually the easiest form of business to start and end.

A limited partner is an owner who assumes no management responsibility and has no liability for losses beyond the amount invested.

If a sole proprietorship fails,the owner may lose whatever was invested in the business,however,the owner's personal assets are not at risk.