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Exam 5: How to Form a Business

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Question 101

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According to the Spotlight on Small Business box, restaurants aren't the only franchises attractive to potential franchisees. Some prefer a low-cost and easily reproducible business model.

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Question 102

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One reason individuals incorporate is to obtain the advantage of limited liability.

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Question 103

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People who form cooperatives:

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.

Jocelyn 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.

Describe and differentiate between the three types of corporate mergers. Give an example of each type.

The fairest way to handle profits in any partnership arrangement is to divide things evenly. If there are two owners in the business, each gets 50%. If there are three owners (even if one is a limited partner), each gets 33.333% of any accumulated profits.

Sierra is interested in becoming a franchise owner, by opening and operating one of 50 Cactus Katie's Grills, a very successful fast food chain specializing in food dishes from the American southwest. Which of the following problems is Sierra most likely to encounter if she agrees to become a franchisee?

The financial advantage to the parent company (the franchisor) in a franchise arrangement is the upfront franchise fee and the collection of royalties if franchisees are successful.

The coattail effect refers to the burden of corporate rules and regulations on franchisees.

Stockholders in a corporation accept unlimited liability for the corporation's debts.

If a partner in a limited partnership dies, the partnership ceases to exist.

Franchising has certainly become a key component of the U.S. economy. What are the major advantages and disadvantages of franchising?

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

Ramon lives in Mexico City and is a Mexican citizen. He has several friends in the United States who own shares in an S corporation. Ramon would like to invest in this company. Ramon:

A major objective of a leveraged buyout is to enable investors to gain control of a company by issuing new shares of ownership, thus minimizing the use of debt.

Alex's uncle recently passed away and left him an American Dream Real Estate franchise business. Alex is not a licensed agent or broker, nor does he know anything about the real estate business. He plans to sell his American Dream franchise to his friend Derek, who recently got his real estate license. One of the advantages of owning a franchise is that you can decide to sell out to anyone you believe is suitable for the business.

A significant disadvantage of owning a sole proprietorship is the:

The three major types of mergers are acquisition, joint, and connective.

One reason limited liability companies have become so popular is that they: