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Exam 5: How to Form a Business

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Question 131

True/False

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After a successful five years, Peaceful Pastures, LLC (a retirement ranch for race horses) thinks it may be able to attract donations from animal activist groups and even the federal government if it becomes a non-profit corporation. As its business advisor, you explain that as a non-profit corporation, the owner(s) may earn a salary but the business should not seek after-tax profits.

A) True
B) False

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Question 132

True/False

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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.

A) True
B) False

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Question 133

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A(n) occurs when one company buys the property and obligations of another company.

In order to establish a C-Corporation, it is a requirement that investors run the company, whereas in an S-Corporation, this is not the case.

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

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.

Maria has a lot of self-confidence and business knowledge. She recently opened a bakery as a sole proprietor. She is expecting a high level of profits and is looking forward to:

Although franchise arrangements are a good source of income for the franchisee, these businesses do not contribute significantly toward job creation.

Global franchising is unlikely to experience major growth due to the high costs of operations in global markets.

Sergio has agreed to become a partner in his brother's horse breeding business. Since he provided 30 percent of the money to start the firm and build an air-conditioned barn, he is entitled to 30 percent of any profits the firm earns during its first year of operation.

The organization structure of a corporation allows for stockholders to exert a significant degree of control over the company's daily operations.

An acquisition is when one company buys the property and obligations of another company.

Mini-Case For as long as she could remember, Jenna Raiter's passion was cars. As a teenager, she spent hours with her dad tinkering with the family car, learning to change the oil and making minor repairs. She got a job at a local garage while still in high school. A few years after graduating from high school and completing the auto mechanics degree at a local community college, Jenna decided she wanted to be her own boss. She quit her job, borrowed some money from her dad, and began her own repair shop, the AutoMotion Garage. Jenna's hard work gradually attracted a loyal clientele of satisfied customers. Her success has her thinking about opening garages in two other locations, but she lacks the financial resources needed for expansion. Furthermore, the success of her business is forcing Jenna to spend more time managing the business and less time doing the actual technical work she still enjoys. She wants to find business partners who can help her with management and provide additional financial resources. She has approached a couple of friends she met in high school: Al Ternator and Lew Banfilter, to see if they would like to join the business. -Although Lew Banfilter, now a young attorney is impressed with AutoMotion and believes it could be a place to invest money, he informed Jenna that his professional position at a law firm prevents him from taking an active role in the business. He is also concerned about accepting more risk since he has a young family. He mentioned a preference for unlimited liability. If Lew joined Jenna and Al, the three might consider forming a:

A difficulty that sole proprietors try to overcome is the fact that they have trouble competing with large firms for expert talent. Large firms can usually pay better and offer fringe benefits that are unaffordable to the sole proprietor.

A is an organization that is owned and controlled by the people who use it-producers, consumers and workers with similar needs pool their resources for mutual gain.

Earnings of C (conventional) corporations can be:

A quasi-public corporation is a corporation chartered by the government as an approved monopoly to perform services to the general public.

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.

Chad recently invented Wave-Aerobics, a next generation watercraft that can safely perform water stunts similar to an amusement park ride. As the founder of a fast growing business, you think his goal of incorporating, "to remain in steadfast control of the firm's operations for an indefinite number of years" is good strategy.

Opening and operating a franchise in a different country: