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Exam 5: How to Form a Business

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Question 121

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In the Legal Briefcase box,"Virtual Companies,"

A) The box discusses the Vermont Teddy Bear Company and the difficulty the company experienced when transitioning from an S-Corporation to a C-Corporation.
B) The box talks about a newly created LLC in Vermont called the Virtual Company,where all official filing is electronic,and members contribute their skills through electronic communication.
C) The box discusses how the state of Vermont wants to attract business,yet refuses to permit the electronic submission of filing for any form of business ownership.
D) The box talks about the Vermont maple syrup industry and how due to the fact that it is a seasonal business,it cannot exist virtually.The labor intensive business requires the expertise of experienced tree tappers.

E) A) and C)
F) A) and B)

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Question 122

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A merger between two businesses in different stages of related businesses is known as a vertical merger.

A) True
B) False

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Question 123

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Al also suggested another way Jenna could finance her expansion.He described setting-up a chain of AutoMotion Garages by selling the rights to use AutoMotion's name,business model,garage design and service ideas to others who would like to own a similar shop.These individuals would pay AutoMotion an initial fee and monthly royalties based on earnings.Al is suggesting that Jenna set up a:

The most popular type of business for franchising is:

A general partner takes an active role in the management of the business.

After a successful five years,Peaceful Pastures,LLC a retirement ranch for race horses)thinks it may be able to attract donations from animal activist groups and even the federal government if it becomes a non-profit corporation.As its business advisor,you explain that as a non-profit corporation,the owners)may earn a salary but the business should not seek after-tax profits.

Global franchising offers:

One reason that a firm would choose to merge or acquire another company would be to gain market share.

Several years ago,Regis Corporation,a very large hair styling salon company purchased 60 "Your Father's Mustache" salons.Although this was initially an acquisition,the merging of these two businesses was an) ____________.Regis went on to purchase several hair care product companies.Joining forces with hair care product companies would represent a _____________.

One reason limited liability companies have become so popular is that they:

With respect to taxes,the sole proprietorship:

Although it is a small company,Zorn Enterprises owns a large number of inexpensive rental housing units in Texas and Louisian A.Currently,the company is a chartered C-corporation,but the owners are interested in switching to an S corporation.After consulting a lawyer,they learned that Zorn Enterprises does not qualify to be designated as an S corporation.Which of the following characteristics of Zorn Enterprises would prevent it from becoming an S corporation?

One of the drawbacks of a limited liability company is that most states do not yet recognize this form of ownership.

In recent years,foreign firms were reluctant to merge with or acquire American corporations.

A disadvantage of corporations is that an owner must get the approval of all other owners before selling his or her interest in the firm to another investor.

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

Tech Solutions,Inc. ,a manufacturer of laptops,is considering a merger with Outtel,a leading producer of microprocessors and other computer chips.Tech Solutions believes such a merger would give them a guaranteed source of needed components,and enable them to have better control over quality.If this merger occurs,it would be an example of a horizontal merger.

Jane has always disliked the notion that the customers,managers and workers of a business are separate individuals with competing goals.She has joined with many other people in her community who share this view to become a member,and part owner,of a child care center.Jane and the other members operate the center for their own benefit,and each is expected to work at the center at least 12 hours each month.The type of organization Jane belongs to is known as a joint venture.

A cooperative is simply another name for a corporation.

_____________ is by far the most popular target for American franchisors seeking to establish franchises in other countries.