Reference no: EM132283441

1. When choosing an organizational type, what important factors should you consider?

Starting capital and hours you have available to work

Control versus responsibility, and risk tolerance

Supplier capabilities and retail outlets

2. Sanjay has three children and is starting a new company. He is looking down the road to a future time when his children are grown and could take over the business. Given his future wishes, what question is most important for him to consider when establishing his new business?

How can I spend the least amount of money to form my business entity?

If I am more of a risk taker, what business entity suits me best?

What is the best business entity and structure setup for continuity and transferability?

3. Ernesto is the only owner of an accounting business. He makes all of the decisions and takes all of the risk for it. What type of business entity is Ernesto’s business?

A sole proprietorship

A limited liability partnership

An S corporation

4. Nikki wants to start her own greeting card and postcard business. After looking at the costs associated with starting this business, she decided on using the least expensive form of ownership to set it up. Which of the following choices and reasons would be the least expensive form of ownership for Nikki’s new business?

A sole proprietorship, because she doesn’t need to draft corporate charters, articles of incorporation and agreements with an attorney’s help.

An S Corp, which would mean Nikki is not paying double taxation.

A partnership, because Nikki could have a business partner with which to share expenses.

5. What is the correct definition of a partnership? When one business buys another complimentary business and the relationship benefits both companies. A business entity consisting of shared ownership between two or more people. A corporate owner provides support to a business in the form of training and marketing materials, and a business owner runs a local “branch” and pays dues to the corporate owner.

6. What are the characteristics of a Limited Liability Partnership (LLP)? One partner IS NOT liable or responsible for another partner’s negligence or misconduct. One partner is responsible or liable for another partner’s negligence but not responsible for their misconduct. Each partner IS liable or responsible for another partner’s negligence or misconduct.

7. You are looking at setting up a partnership as your business structure. Which of the following could be considered a disadvantage in a partnership?

Decision making needs to be shared across the partners.

The variety of diverse perspectives and skills brought by each partner.

A partnership has limitations of the highly-restrictive, legal partnership requirements.

8. Carol and her friends are creating a new company that ships monthly subscription boxes filled with beauty products to customers. Carol has multiple partners and she wants to avoid both double taxation and personal liability at the same time. In addition, she wants to pay the partners based on their company ownership percentage. Carol can accomplish her goals by forming what type of business entity?

An S corporation.

A partnership.

A C corporation.

9. The main characteristic of a B corporation is that it seeks to provide:

a return to shareholders while pursuing other goals that benefit community or society.

a maximum return to shareholders while pursuing its focused financial goals.

regular shareholder meetings and annual stock distributions.

10. Maria is considering various business entity types in order to set up her new business. She wants to know which entities are subject to double taxation. You tell her that the entities subject to double taxation are:

partnerships.

corporations.

sole proprietorships.

11. A business professor is trying to describe what makes an LLC different from a C Corporation. Which would be the correct statement for her to make about the difference?

The LLCs and C Corporations are taxed differently.

A C Corporation must have many employees. An LLC can have fewer employees.

Owners of an LLC face much greater liability than owners of a C Corporation.

12. Tina and her best friend Aaliyah want to start a medical transcriptionist company together. They grew up together and know each other well, but when it comes to business, neither of them want to be held responsible for any negligence or misconduct of the other should something happen. They also want to be certain to only be taxed once on company profits. Which type of organizational structure would be best for Tina and Aaliyah to establish?

Partnership

LLP

LLC

13. A group of friends are creating a new mobile paper shredding company that will go to businesses or organizations to shred their sensitive papers in bulk. You are advising them as to the type of business entity to choose. They have a number of partners, but their primary goals are to avoid personal liability and double taxation. They want to pay each of the partners based on their contribution to the success of the company, which is NOT equal to their percentage ownership. You advise them to accomplish this by forming a(n):

C corporation.

S corporation.

limited liability company.

14. Some states limit the creation of ________ or don’t recognize them as legal business structures. You need to check with your state before attempting to create one.

general partnership

S corporation

limited liability partnerships

15. Which of the following businesses are examples of a franchise?

Pizza Hut restaurants

Geller Group law firm

Kroger grocery stores

16. You have decided to become a franchisee for a proven business. What would be a disadvantage for you being a franchisee?

The name or brand might not be well known.

The limited number of franchise options that are available in the U.S.

The high cost to you of the start-up.

17. You have a franchised Planet Fitness gym. You began the business by paying your initial franchise fees and now you pay royalties on a regular basis. This typical fee structure for a franchise is:

an example of a disadvantage for the franchisor.

an example of an advantage for the franchisor.

neither

18. A merger usually creates:

one larger company and one of the original companies ceases to exist.

a company purchasing the assets of another company and then allows it to continue operating as before the purchase.

a brand new company where both old companies are dissolved and one new one is created.

19. An acquisition is when: one company agrees on a strategic partnership with another company and both companies continue to exist. a franchisee pays franchise costs plus royalties to a franchisor. one company purchases and absorbs another company.

20. Walgreens, one of the largest drugstore companies in the U.S., announced in October of 2015 that it would acquire all of Rite Aid’s drugstores and debts for a $17.2 billion all-cash transaction. This is an example of a:

horizontal acquisition.

horizontal merger.

vertical acquisition.

21. The “Dino Dig, Inc.” gas company has discovered large oil deposits in North Dakota over the last three years. With money from its company profits, it purchases controlling shares and equipment in a truck transportation company and a railroad transportation company. Both of the companies continue to operate under their original names, but now “Dino Dig, Inc.” uses its newly obtained assets to more efficiently and cheaply transport its crude oil around the country. Dino Dig, Inc. is great at ________.

Vertical Acquisitions

Horizontal integration

Horizontal merger