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Exam 5: How to Form a Business

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Question 41

True/False

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If a corporation has after-tax profits of $360,000, and elects to distribute this amount in the form of dividends to its stockholders, these distributions are free and clear of taxes because the corporation paid taxes on this amount prior to distribution.

A) True
B) False

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Question 42

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

A) the firm's total assets.
B) the amount they have invested in the company.
C) the percentage of profits they are entitled to earn.
D) their total personal assets.

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

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Question 43

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Taking a firm private involves converting a firm from a corporation to a general partnership.

When two or more people legally agree to become co-owners of a business, the form of business is called a partnership.

Being your own boss means

A multinational corporation is a firm that operates in several countries.

In order to establish a C corporation, it is a requirement that investors run the company, whereas in an S corporation, this is not the case.

One difference between partnerships and sole proprietorships is that partnerships

In a limited liability partnership, each partner's risk of losing personal assets is

Franchising is popular in the United States, but legal barriers have limited its popularity in foreign countries.

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

Most states have legal restrictions that prevent individuals from incorporating.

A ________ is two firms combining to form one company.

When comparing general partnerships to sole proprietorships, an advantage of partnerships is that they

A major objective of a leveraged buyout is to enable investors to gain control of a company by issuing new shares of ownership, thus minimizing the use of debt.

Carter is a stockholder in ExtremeTrax, Inc., a C corporation that designs and manufactures amusement park roller coasters. The company recently lost a major court decision and is being forced into bankruptcy. In fact, the damages being awarded are so large that, even if all company assets are sold and the proceeds are used to pay its debts, ExtremeTrax is likely to still owe money to its creditors. If ExtremeTrax goes bankrupt, Carter and the other stockholders will

If a group of stockholders or management obtain all the stock of a previously publicly traded firm for themselves, this is referred to as

Midwest Auto Experts, Inc. sells franchises to prospective businesspersons who want to use the Midwest Auto Experts name and offer its products. In a franchise arrangement, Midwest Auto Experts would be the ________, and the buyer of the franchise is the ________.

A disadvantage of farm cooperatives is that they are subject to higher tax rates than corporations.

Although it is a small company, Zorn Enterprises owns a large number of inexpensive rental housing units in Texas and Louisiana. Currently, the company is a chartered C corporation, but the owners are interested in switching to be 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?