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Exam 5: How to Form a Business

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Question 131

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

A) True
B) False

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Question 132

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The difference between a merger and an acquisition is:

A) a merger does not combine the assets and liabilities of firms, whereas an acquisition combines assets and liabilities.
B) a merger combines the assets of the two firms, but each company continues to assume its own liabilities, whereas an acquisition is a total buyout of one firm by another.
C) a merger is the joining of resources of two companies, whereas an acquisition is a buyout of one firm by the other. The new company concerns itself with merging of resources.
D) a merger is always something smaller tagging onto something larger, like a merging lane onto an interstate, whereas an acquisition is two firms that are relatively the same size agreeing to continue as one, more like two major interstates that come together and travel as one for several miles.

E) All of the above
F) C) and D)

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Question 133

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By filling out the correct paperwork annually, any corporation can qualify to be classified as an S corporation.

Javier is the sole proprietor of a golf shop. Because he is a sole proprietor, any profit Javier's business earns is:

A limited liability company is similar to an S corporation, but without the special eligibility requirements.

Being your own boss means:

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

Franchisees are not always pleased with management regulations handed down from the franchisor. In some cases, franchisees have been known to band together to express concern over marketing and management direction.

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

Midas Muffler sells franchises to prospective businesspersons who want to use the Midas name and offer Midas products. In a franchise arrangement, Midas would be the __________, and the buyer of the franchise is the __________.

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.

If the business is designated a sole proprietorship, profits are passed along to the owner. For tax purposes, these profits are accounted for with any other personal income the owner may have accumulated and taxed at the owner's personal income tax rate.

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.

Compared to a sole proprietorship, which of the following is considered an advantage of a general partnership?

____________ comprise about 20% of all businesses but account for about 81% of U.S. business receipts.

Corporations represent 20 percent of all the businesses in the U.S. and earn 81 percent of the total U.S. business receipts.

Khalid is a 39-year-old married business owner who runs a dry cleaning service with three locations. His personal obligations are the home that he owns with his wife who works for a well-known insurance company; the health needs of his family; and his commitment toward saving for the future higher education needs of his three children. Khalid knows that two of his locations require a large infusion of cash to pay for new and expensive dry cleaning equipment. Although his wife's job provides the family with health insurance, it also places the family in a higher income tax bracket. Khalid would certainly like to minimize his taxes. Which of the following forms of business ownership would you suggest for Khalid? Khalid should consider:

When two or more people legally agree to become co-owners of a business, the form of business is called a partnership.

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

To qualify as an S corporation, a company must: