Survey of Business Exam 2

Question 1

Single owner who manages the company

Answer 1

Sole Proprietorship

Question 2

Voluntary agreement between two or more co-owners of a business or profit

Answer 2

Partnership

Question 3

Advantages of Sole Proprietorship

Answer 3

-ease of formation
-retention of control
-pride of ownership
-retention of profits
-possible tax advantage

Question 4

Disadvantages of Sole Proprietorship

Answer 4

-limited financial resources
-unlimited liability
-limited ability to attract and maintain talented employees
-heavy workload and responsibilities
-lack of performance

Question 5

Advantages of Partnership

Answer 5

-ability to pool financial resources
-ability to share responsibilities and capitalize on complimentary skills
-ease of formation
-possible tax advantages

Question 6

Disadvantages of Partnership

Answer 6

unlimited liability
-potential for disagreements
-lack of continuity
-difficulty in withdrawing form a partnership

Question 7

Business is considered a legal entity that is separate & distinct from its owners

Answer 7

Corporation

Question 8

Offers limited liability to owners & flexible tax treatment

Answer 8

Limited Liability Company (LLC)

Question 9

Advantages of Limited Liability Company (LLC)

Answer 9

-limited liability
-tax pass-through
-simple & flexible management
-flexible ownership

Question 10

Disadvantages of Limited Liability Company (LLC)

Answer 10

-complexity of formation
-annual franchise tax
-foreign status in other states
-limits on firms that can form LLCs
-differences in state law

Question 11

All partners take an active role in managing the business; have unlimited liability for claims against the firm

Answer 11

General Partnership

Question 12

Partnership agreement should entail details regarding

Answer 12

-initial financial contributions
-specific duties & responsibilities
-sharing profits and losses
-settling disagreements
-death or withdrawal of a partner

Question 13

Includes at least one general partner who actively manages the company and accepts unlimited liability; while other partner gives up the right to actively manage the company in exchange for limited liability

Answer 13

Limited Partnership

Question 14

All partners have the right to participate in the management and have limited liability for company debt

Answer 14

Limited Liability Partnership (LLP)

Question 15

Offers limited liability to all stockholders (requires filing articles of incorporation, paying filing fees, and adopting corporate bylaws)

Answer 15

C Corporation

Question 16

Elected by stockholders to represent their interests

Answer 16

Board of Directors

Question 17

Organization that pools contributions from investors, clients, or depositors

Answer 17

Institutional Investor

Question 18

Advantages of C Corporations

Answer 18

-limited liability
-permanence
-ease of transfer of ownership
-ability to raise financial capital
-ability to make use of specialized management

Question 19

Disadvantages of C Corporations

Answer 19

-expense and complexity of formation and operation
-complications when operating in multiple states
-double taxation of earnings and additional taxes
-more paperwork and regulation & less secrecy
-possible conflicts of interest

Question 20

Advantages of S Corporations

Answer 20

-internal revenue service doesn’t tax earnings of S Corporations separately
-stockholders have limited liability

Question 21

Disadvantages of S Corporations

Answer 21

-can only have 100 stockholders
-w/ only rare exceptions, each stockholder must be a U.S. citizen or permanent resident of the U.S.

Question 22

Advantages of Statutory Close (Closed) Corporation

Answer 22

-operates under simple arrangements than conventional corporations
-owners can participate in management while still having limited liability

Question 23

Disadvantages of Statutory Close (Closed) Corporation

Answer 23

-limited number of stockholders
-not all states allow formation of this type of corporation
-stockholders normally can’t sell their shares to the public w/out first offering the shares to existing owners

Question 24

Advantages of Nonprofit Corporation

Answer 24

-earnings are exempt from federal and state income taxes
-members and directors have limited liability
-individuals who contribute money or property to the nonprofit can take a tax deduction

Question 25

Disadvantages of Nonprofit Corporation

Answer 25

-cannot have stockholders -cannot distribute dividends to members -cannot contribute funds to a political campaign -must keep accurate records and file paperwork to document tax-exempt status

Question 26

One firm buys another firm

Answer 26

Acquisition

Question 27

Two formerly independent business entities combine to form a new organization (horizontal, vertical, conglomerate)

Answer 27

Merger

Question 28

Transfer of total or partial ownership of some of a firm's operations to investors or to another company

Answer 28

Divestiture

Question 29

A combination of two firms that are in the same industry

Answer 29

Horizontal Merger

Question 30

A combination of firms at different stages in the production of a good or service

Answer 30

Vertical Merger

Question 31

A combination of two firms that are in unrelated industries

Answer 31

Conglomerate Merger

Question 32

Licensing arrangement under which a franchisor allows franchisees to use its name, trademark, products, and business methods

Answer 32

Franchise

Question 33

Business entity in a franchise relationship that allows others to operate its business using resources it supplies in exchange for money and other considerations

Answer 33

Franchisor

Question 34

Party in a franchise relationship that pays for the right to use resources supplied by the franchisor

Answer 34

Franchisee

Question 35

Type of franchising arrangement in which the franchisor makes a product and licenses the franchisee to sell it

Answer 35

Distributorship

Question 36

Broad franchise agreement in which the franchisee pays for the right to use the name, trademark, and business and production methods of the franchisor

Answer 36

Business Format Franchise

Question 37

Advantages of Franchising

Answer 37

-less risk -training and support -brand recognition -easier access to funding

Question 38

Disadvantages of Franchising

Answer 38

-costs -lack of control -negative halo effect -growth challenges -restrictions on sale -poor execution

Question 39

Contractual arrangement between a franchisor and franchisee that spells out the duties and responsibilities of both parties

Answer 39

Franchise Agreement

Question 40

Detailed description of all aspects of a franchise that the franchisor must provide to the franchisee at least 14 calendar days before the franchise agreement is signed

Answer 40

Franchise Disclosure Document (FDD)

Question 41

Rights to use a franchisor's trademarks, patents, and signage, and any restrictions on those rights

Answer 41

Terms and Conditions

Question 42

Fees that a franchisee must pay for the right to use a franchisor's products and methods

Answer 42

Fees and Other Payments

Question 43

Training that should be provided by the franchisor to the franchisee

Answer 43

Training and Support

Question 44

Methods and standards that a franchisee is required to follow

Answer 44

Specific Operational Requirements

Question 45

Manner in which a franchisor and franchisee handle their disputes

Answer 45

Conflict Resolution

Question 46

Assigned Territory

Answer 46

Geographic area in which a franchisee will operate and exclusivity of the rights to the area