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Exam 5: Business Formation: Choosing the Form That Fits

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Question 51

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The sole proprietorship is subject to double taxation in that any earnings are taxed both as income to the business and as income to the owner of the business.

A) True
B) False

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Question 52

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A sole proprietorship is a business that is owned,and usually managed,by a single individual.

A) True
B) False

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Question 53

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Most provincial governments grant corporations the right to operate under a corporate charter for no more than 100 years,after which the corporation must be dissolved.

Under a business format franchise,the franchisees pay royalties for the right to sell the product of the franchisor,but otherwise they have complete freedom as to how they manage their businesses.

A key goal of horizontal mergers is to achieve tighter integration of production and increased control over supply of crucial inputs.

Sole proprietorships generally have a distinct advantage over other forms of business ownership when it comes to raising large sums of financial resources.

Which of the following is a key advantage of a sole proprietorship?

How does a merger differ from an acquisition? What are the three basic types of mergers,and how do they differ? Identify a reason why firms might pursue each type of merger.

Most shareholders in large corporations take an active role in managing their companies.

What is franchising? What is the relationship between a franchisor and franchisee? Describe at least one advantage and one disadvantage of franchising for the franchisor,and at least one advantage and disadvantage for the franchisee.

Families may be able to protect their personal assets from lawsuits and creditors by forming limited partnerships,with the parents as general partners and the children as limited partners.

As business entities,corporations may engage in virtually any business activity a natural person can,including buying and selling property and entering into binding contracts.

Elaine and several friends want to start a business.Each member of the group wants to actively participate in managing the business and share in any profits.Which of the following forms of business ownership would best satisfy the goals of Elaine and her friends?

What is the name of the document that must be filed to form a corporation in most provinces?

Which of the following is a key reason most sole proprietorships remain relatively small?

Sue has a great idea for a business but has limited financial assets.She wants to retain control over the management of the company,but she needs someone to provide additional financing.Her friend Tom has some money to invest and likes Sue's idea.He would like to share in any profits,but he doesn't have the time for or interest in managing the company and is nervous about the liability involved in running a business.What type of ownership structure would best suit both Sue and Tom?

A disadvantage of a sole proprietorship is that it is relatively expensive and complex to form.

What type of merger is the combination of two or more firms in unrelated industries?

In an acquisition,what is the firm being purchased known as?

A limited partnership is a partnership that includes at least one general partner and one limited partner.