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Exam 5: How to Form a Business

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Question 21

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Mel,Tim,and Bill agreed to partner in a small rehab business.Initially,they were enthusiastic contributors until their first project took more work than Mel initially estimated;Tim wanted morning meetings and long lunch hours;and,Bill decided to go on vacation even though the project was not complete and ready to sell.As Figure 5.2 indicates,

A) It's smart to begin the partnership with honest communication of what each partner expects to give and get from the partnership.
B) Organize the business as a limited liability company to reduce the financial risks that put pressure on members of the partnership.
C) Designate one of the partners as the primary partner with final authority to call all the shots.
D) Enter into partnerships with people who have similar educational and cultural backgrounds and similar personalities.

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Question 22

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Finley is a limited partner in Gettout & Associates.Heywood U.Gettout,one of the general partners in the company,must temporarily leave the company to attend to some personal matters.Heywood has asked Finley to perform his managerial duties while he is gone.As a limited partner,Finley:

A) Can fill in as a manager whenever necessary,as long as it is for only a limited time.
B) Can make managerial decisions as long as they do not involve the payment of money.
C) Cannot participate in the management of the partnership.
D) Can manage the firm as long as he gets approval from the company's other general partners.

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Question 23

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Jim is one of several general partners who own Beef 'N Beer,a small chain of restaurants located in Missouri and Illinois.Jim is interested in converting the partnership into a master limited partnership.If he convinces other partners to go along with his idea,Beef 'N Beer will:

A merger involving a software producer and a clothing manufacturer is an example of a:

A ____________ is two firms combining to form one company.

A company that loses its status as an S corporation may not reelect this status for at least 5 years.

Which of the following is normally considered a disadvantage of the corporate form of business?

If a corporation has after-tax profits of $360,000,and elects to distribute this amount in the form of dividends to its stockholders,these distributions are free and clear of taxes because the corporation paid taxes on this amount prior to distribution.

One reason that a firm would choose to merge or acquire another company would be to gain market share.

A group of medical doctors are interested in incorporating their business.There is no advantage due to the costs involved.

Unlimited liability means:

Foreign investment in U.S.companies continues to be strong.When Belgian-based,In-Bev purchased the largest beer company in the U.S. ,Anheuser-Busch,this action constituted a(n) _________________ with a negotiated selling price of $52 billion.

Mojo Motors is a small conventional corporation with only 212 stockholders.Eleven of the stockholders are citizens of Mexico,and eight others are citizens of Canada.Due to its size and diversity in ownership,you would recommend that Mojo Motors change to an S-Corporation.

In a sole proprietorship,the profits earned by the business are:

The reason a professional such as a lawyer or doctor would incorporate his/her business is

Emma Pebble and Chase Stone formed a partnership in a landscape business.Under their arrangement,Emma actively manages the company and assumes unlimited liability for the firm's debts.Chase has invested several thousand dollars of his money with plans to share in the profits,but does not actively make management decisions,nor will he assume liability beyond his initial investment.Emma and Chase participate in a limited partnership.

Tess and Tijuana have considered starting their own business but are concerned about the possibility of losing their personal assets if the business fails.One way for Tess and Tijuana to avoid this risk would be to organize their firm as a(n) :

A prospective franchise owner wants to keep his monthly costs at a minimum.The franchisor he is reviewing is advertising that royalty payments of 8% of sales could be as high as $250,000 per month.The franchisor is claiming that a franchisee can expect monthly sales to be as high as:

A legal entity with authority to act and have liability separate from its owners is called a partnership.

Your friend,Brett called to tell you he just left a sales pitch for a new web site development franchise where "he can get in for a few thousand dollars." He wants to know if you are ready to invest too.Although you lack expertise in graphic design or html programming,this should be a safe investment since it is already advertised as a franchise system.It's probably too good to pass up.