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Exam 5: How to Form a Business

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Question 61

Multiple Choice

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When investors successfully take a firm private,the firm's stock is:

A) Converted into bonds.
B) Converted into cash.
C) No longer sold to investors on the open market.
D) Pledged as collateral to its bondholders.

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

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Question 62

Multiple Choice

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Any debts or damages incurred by a firm organized as a sole proprietorship are:

A) The responsibility of the owner.
B) Limited to the amount the owner has invested in the firm.
C) Paid for out of a reserve contingency fund that sole proprietors are required by law to set up.
D) Normally covered by liability insurance.

E) B) and D)
F) All of the above

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Question 63

Multiple Choice

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Maria recently purchased 100 shares of stock in Idle Time Gaming,Inc.Maria is a(n) ______________ of this company.

If the business is designated a sole proprietorship,profits are passed along to the owner.For tax purposes,these profits are accounted for with any other personal income the owner may have accumulated and taxed at the owner's personal income tax rate.

One reason that a firm may choose to merge or acquire another company would be diversity of products or services.

Twenty-six years ago,several small vineyard owners in California joined voluntarily to market their grapes and wine in an attempt to get better prices.Over the years they expanded the organization to include other services such as buying and selling farm supplies and equipment and providing financial and technical services.The arrangement established by these vineyard owners is an example of a(n) :

A conventional corporation is a state-chartered legal entity,with authority to act and have liability separate from its owners.

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

The owners of Idle Time Gaming Company would like to switch to an S corporation.Unfortunately,their lawyer advised them that they do not meet some of the requirements necessary to qualify as an S corporation.An alternative form of business that would give them similar advantages is a limited liability company.

Many franchisors have rules that prohibit franchisees from sponsoring their own websites.

One drawback of franchises is that they have a higher failure rate than other types of business ventures.

The stockholders in a corporation elect a board of directors to oversee the company's major policy issues.

Franchising is popular in the United States,but legal barriers have limited its popularity in foreign countries.

Marco is a limited partner in an e-commerce company.As a limited partner,Marco can be involved with the company for a maximum of five years.

It is usually easy to start and end a sole proprietorship.

In a partnership,a(n) __________ partner (owner) actively manages the company and has unlimited liability for claims against the firm.

In a limited liability partnership,each partner's risk of losing personal assets is:

A horizontal merger refers to a merger between two companies that serve entirely different markets.

Two of Diana's friends have approached her about starting a new business.Diana is willing to invest money in the business and share in its profits,but she has no desire to be involved in the day-to-day management of the company,nor is she willing to risk any amount beyond her initial investment.Diana's preferences suggest that she prefers a general partnership form of business ownership.

Which of the following is an attractive benefit of a corporation?