BUS 101 Ch. 5

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With respect to taxes, the sole proprietorship:

Pays taxes on the profits of the business, at the owner’s personal tax rate.

Sierra is interested in becoming a franchise owner, by opening and operating one of 50 Cactus Katie’s Grills, a very successful fast food chain specializing in food dishes from the American southwest. Which of the following problems is Sierra most likely to encounter if she agrees to become a franchisee?

High initial costs and fees.

A ______________ merger unites firms at different stages of related businesses.


Three types of corporate mergers are:

Vertical, horizontal, and conglomerate.

An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing is called a(n):

Leveraged buyout.

When entering into a new partnership, a good strategy is to:

Put the partnership agreement in writing.

An owner of a corporation is known as a(n):


One reason franchises have become so popular is that this arrangement provides the franchisee with:

A nationally recognized name and product.

One of the major disadvantages of a sole proprietorship is the:

Unlimited liability the owner has for the debts of the firm.

The form of business ownership that usually requires the most detailed record keeping is the:


Which of the following is an advantage of the corporate form of business when compared to sole proprietorships and partnerships?

Limited liability of owners

In a partnership, a(n) __________ partner (owner) actively manages the company and has unlimited liability for claims against the firm.


A(n) ___________________ is a state-chartered legal entity with authority to act and to have liability separate from its owners.

conventional corporation

One disadvantage of a limited liability company is that it:

has a limited life span.

A partner (owner) who invests money in a business, does not take an active role in managing the operation, and is only subject to losing the funds he/she invested.

Limited partner.

_____________ are companies that are similar to S Corporations but are not restricted with similar eligibility requirements.

Limited liability companies

A person who buys the right to use a business name and sell a product within a given territory is called a:


When two companies in the same industry agree to become one firm, the result is called a:

Horizontal merger.

A major advantage of S corporations is that they:

Avoid the problem of double taxation associated with conventional corporations.

In a cooperative, members/customers:

Democratically control their businesses by electing a board of directors.

Unlimited liability means:

When you own your own business you are responsible for all the business debts.

Kristen and her brothers and sisters decided to form a partnership that specializes in home design of all types. One of their goals is to maintain the loving relationship they currently enjoy so they are following the Model Business Corporation Act recommendations as they write the partnership agreement. Which of the following is an accurate recommendation of the Act?

There should be discussion and well-understood ways that the partners will handle disagreements and have a written exit strategy.

A master limited partnership (MLP) is:

Taxed like a partnership.

The board of directors for a corporation is elected by its:


When two companies in completely unrelated industries agree to become one firm, the result is called a:

Conglomerate merger.

One disadvantage of _________ is the initial cost of formation.


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

Has the ability to raise more money.

The limited liability provided to limited partners means that they are not responsible for the debts of the business beyond:

The amount they have invested in the company.

According to the Uniform Partnership Act, the three key elements of any general partnership are:

Common ownership, shared profits and losses, and right to participate in management.

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

Ability to pool financial resources.

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