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Exam 5: How to Form a Business

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Question 71

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A drawback of sole proprietorships is that they usually have limited access to additional financial resources.

A) True
B) False

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Question 72

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

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B) False

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Question 73

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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.

One important consideration when prospecting for a good franchise business is:

Sandy Beech,a talented fashion designer who wants to start her own women's swimwear and beach towel line,is trying to decide which form of business ownership is right for her.As a young mother who aspires to send her children to college some day,she does not want to jeopardize her savings account in any way.In order to overcome these risks,Sandy should start her business as a sole proprietorship.

Three types of corporate mergers are:

One of the strengths of the sole proprietorship is its ability to sustain rapid growth by raising large amounts of financial resources.

Farm cooperatives were originally established to help farmers increase their economic power by acting as a group rather than as individuals.

One of the major advantages for the franchisee is instant business name recognition and important management assistance from the franchisor.

A cooperative is simply another name for a corporation.

Although most new firms start out as sole proprietorships,few large firms are organized this way.Why is the sole proprietorship such a popular form of ownership for new firms? What features of the sole proprietorship make it unattractive to growing firms?

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

Jane has always disliked the notion that the customers,managers and workers of a business are separate individuals with competing goals.She has joined with many other people in her community who share this view to become a member,and part owner,of a child care center.Jane and the other members operate the center for their own benefit,and each is expected to work at the center at least 12 hours each month.The type of organization Jane belongs to is known as a joint venture.

One advantage of a partnership is that there is a simple process for partners to terminate their business.

A general partner has unlimited liability for the debts of the partnership only if he or she personally approved the decisions that resulted in those debts.

Jenna plans to invest in a cleaning service franchise called "Spare Time".At her first interview with the franchisor's selling agent,she learned that the parent company expects royalties of 5%.These are:

Kristen and her brothers and sisters set up a design firm called Houses by Design LLP.Although key business functions are centralized,each sibling is a licensed architect that designs,builds,and installs residential and commercial buildings for his/her own clients.Unfortunately,a design created and installed for one of their clients resulted in water damage to the basement of the client's new home.The limited liability partnership:

In today's economy,only large business enterprises should operate as corporations.

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

Two competitors: Stanley's Food Mart and Bluejay Groceries recently issued a joint announcement stating their decision to merge.The announcement claimed that the new firm would have more financial resources,which would enable it to expand services and broaden offerings to consumers.This proposed merger is an example of a horizontal merger.