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Exam 5: How to Form a Business

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Question 81

Multiple Choice

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An evaluation of franchising would conclude that this type of arrangement:

A) Has become the dominant form of business organization in the United States because it has many advantages and almost no disadvantages.
B) Appeals to people who want to own a business,but are not comfortable starting a company from scratch.
C) Has a much higher risk of failure than independent companies.
D) Has little chance of success outside the United States because many foreign countries do not allow such arrangements.

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

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Question 82

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Setting up a partnership under the terms of a written agreement is a bad idea,because written agreements tend to be too inflexible and impersonal.

A) True
B) False

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Question 83

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The corporation is the most common form of business ownership.

The board of directors for a corporation is elected by its:

Maria is already a successful franchisee with Nite Lite,a chain of "no frills" motels that provide clean rooms and good service at affordable rates.The motel she currently operates is located in Texas,but she is considering an opportunity to open another Nite Lite motel in Canada.Although her costs of operating in a foreign nation may be higher,she has the benefit of an expanding market and less competition.

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.

At one time there were many farm cooperatives,but more recently,they have been replaced by other forms of business ownership.

A major objective of limited liability partnerships (LLPs)is to limit each partner's personal liability to the consequences of their own acts and those of people under their supervision.

Midas Muffler sells franchises to prospective businesspersons who want to use the Midas name and offer Midas products.In a franchise arrangement,Midas would be the _________,and the buyer of the franchise is the _________.

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

A major advantage of S corporations is that they:

Even though you may elect to enter into a franchise arrangement,your company will still have a designation as a sole proprietorship,partnership,or a form of incorporation.

A partner (owner) who invests money in a business,does not take an active role in managing the operation,and is only subject to losing the funds he/she invested.

Tech Solutions,Inc. ,a manufacturer of laptops,is considering a merger with Outtel,a leading producer of microprocessors and other computer chips.Tech Solutions believes such a merger would give them a guaranteed source of needed components,and enable them to have better control over quality.If this merger occurs,it would be an example of a horizontal merger.

Leanne,a franchisee runs a chain of small restaurants with a well-known name.Due to her hard work and people skills,her locations are doing quite well.She has noticed that several other franchisees in the same franchise system have let their restaurants deteriorate,especially in terms of lack of upgrades.Leanne should be concerned about this trend,since it eventually could affect her own business.

An S corporation has fewer ownership rules than a limited liability company.

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

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.

Limited partnerships are just like general partnerships,except that they are partners for a limited time period.

If firms wish to gain market share in their current market,they would consider a conglomerate merger.