Question 1

Tadashi's uncle passed away and left him a Realty Experts franchise. Tadashi is not a licensed agent or broker, nor does he know the first thing about the real estate business. He plans to sell his Realty Experts franchise to his friend Devonte, 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 think is suitable for the business.

Accepted Answer

A) True 
 B)False

Question 2

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

Accepted Answer

A) True 
 B)False

Question 3

Your friend Bainbridge called to tell you he attended a pitch for a new franchise in website development. Bainbridge says, "We can get in for a few thousand dollars." He wants to know if you are ready to invest too. Although both of 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.

Accepted Answer

A) True 
 B)False

Question 4

Compared to partnerships and sole proprietorships, a major advantage of the conventional (C) corporation as a form of business ownership is that it

Accepted Answer

A)  has the ability to raise more money. 
B)  is easier and less expensive to form. 
C)  qualifies for simplified tax treatment. 
D)  creates unlimited liability for its owners.

Question 5

Which of the following is an advantage of franchises?

Accepted Answer

A)  Shared profit 
B)  Management regulation 
C)  Management and marketing assistance 
D)  Coattail effects

Question 6

Public utilities, like electricity and water, are examples of quasi-public corporations.

Accepted Answer

A) True 
 B)False

Question 7

Enok, a prospective franchise owner, is looking to keep his monthly costs as low as possible. The franchisor he is checking out is advertising that royalty payments of 8% of sales could be as high as $300,000 per month. The franchisor is claiming that a franchisee can expect monthly sales to be as high as

Accepted Answer

A)  $3,125,000. 
B)  $3,000,000. 
C)  $3,750,000. 
D)  $300,000.

Question 8

If a corporation distributes after-tax profits to its stockholders in the form of dividends, the government considers these distributions as part of each stockholder's personal income. Stockholders pay taxes on these distributions.

Accepted Answer

A) True 
 B)False

Question 9

________ is by far the most popular target for American franchisors seeking to establish franchises in other countries.

Accepted Answer

A)  Canada 
B)  Mexico 
C)  Great Britain 
D)  Japan

Question 10

One advantage of an S Corporation is that the profits are distributed to the owners and taxed as each owner's personal income, thus avoiding the problem of double taxation.

Accepted Answer

A) True 
 B)False

Question 11

Autumn wants to start a business. She has two goals. First, she doesn't have much money but she's ready to get business up and running with the least possible hassle and expense. Second, she wants to minimize her personal risk in the event that her company experiences difficulties. If Autumn chooses a sole proprietorship, she would

Accepted Answer

A)  achieve both goals since this form of ownership is both the easiest to form and the least risky. 
B)  meet her first goal since sole proprietorships are easy and inexpensive to form. However, she would expose herself to personal risk because owners of sole proprietorships have unlimited liability. 
C)  not achieve either goal since proprietorships are both costly to set up and subject to unlimited liability. 
D)  achieve her second goal, since the owners of sole proprietorships are legally protected from losing more than the amount they invest in their company. However, she would find that the start-up costs would be higher than if she had incorporated her business.

Question 12

Which of the following is an attractive benefit of a corporation?

Accepted Answer

A)  Corporations can enjoy double taxation. 
B)  Unlike limited partnerships, all owners of corporations are passive investors. 
C)  Corporations can protect their owners with unlimited liability. 
D)  Corporations can attract employees by offering stock options.

Question 13

Double taxation means that a corporation pays twice the amount of taxes as a sole proprietorship or partnership.

Accepted Answer

A) True 
 B)False

Question 14

A good reason why partners should spell out the details of their partnership arrangements in writing is

Accepted Answer

A)  the partnership is not a legally recognized business unless they do so. 
B)  a written agreement will help reduce misunderstandings and disagreements among the partners. 
C)  putting the agreement in writing will limit the liability of each partner to a specified level. 
D)  doing so will make it easier to convert the business to a corporation at a later date.

Question 15

Alani and Jeremy have considered creating their own company but are concerned about the possibility of losing all of their personal assets if the business fails. One way for Alani and Jeremy to avoid this risk would be to organize their firm as a

Accepted Answer

A)  general partnership. 
B)  limited partnership. 
C)  corporation. 
D)  sole proprietorship.

Question 16

Kiersten and her four siblings are starting their own home design business. One of their primary goals is keeping the loving relationship they currently enjoy, so they are following the Model Business Corporation Act recommendations as they write their partnership agreement. Which of the following is an accurate recommendation of the Act?

Accepted Answer

A)  The business should be actively operating for an extended period before the partners decide who is responsible for what business functions. 
B)  Family businesses never take on outside partners, so no discussion of this need take place. 
C)  There should be discussion and well-understood ways that the partners will handle disagreements. 
D)  Due to the fact that they are all under 40 years old and expect to work until they are 65, there is no need to decide what will happen to the partnership if one decides to leave the business or retire, or dies.

Question 17

If a firm is advertising that it is selling franchise opportunities, the prospective franchisee can be assured that the government has performed due diligence on this company, and has deemed it a safe investment.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Rhonda is convinced she has the best idea for a new business. Unfortunately, her business would require a fairly high initial investment and Rhonda has poor credit and very little personal wealth. She would be unlikely to find success if she organized her business as a sole proprietorship.

Accepted Answer

A) True 
 B)False

Question 20

The purpose of a conglomerate merger is to diversify operations and investments.

Accepted Answer

A) True 
 B)False

Exam 5: How to Form a Business

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

Compared to partnerships and sole proprietorships, a major advantage of the conventional (C) corporation as a form of business ownership is that it

Which of the following is an advantage of franchises?

Public utilities, like electricity and water, are examples of quasi-public corporations.

If a corporation distributes after-tax profits to its stockholders in the form of dividends, the government considers these distributions as part of each stockholder's personal income. Stockholders pay taxes on these distributions.

________ is by far the most popular target for American franchisors seeking to establish franchises in other countries.

One advantage of an S Corporation is that the profits are distributed to the owners and taxed as each owner's personal income, thus avoiding the problem of double taxation.

Which of the following is an attractive benefit of a corporation?

Double taxation means that a corporation pays twice the amount of taxes as a sole proprietorship or partnership.

A good reason why partners should spell out the details of their partnership arrangements in writing is

Alani and Jeremy have considered creating their own company but are concerned about the possibility of losing all of their personal assets if the business fails. One way for Alani and Jeremy to avoid this risk would be to organize their firm as a

If a firm is advertising that it is selling franchise opportunities, the prospective franchisee can be assured that the government has performed due diligence on this company, and has deemed it a safe investment.

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

Rhonda is convinced she has the best idea for a new business. Unfortunately, her business would require a fairly high initial investment and Rhonda has poor credit and very little personal wealth. She would be unlikely to find success if she organized her business as a sole proprietorship.

The purpose of a conglomerate merger is to diversify operations and investments.