Question 1

The Federal Trade Commission requires franchisors to

Accepted Answer

The Federal Trade Commission's Franchise Rule requires franchisors to give prospective franchisees a franchise disclosure document (FDD) at least 14 business days prior to the signing of a contract or payment of any money. The FDD contains important information about the franchise system, including the franchisor's background, the franchise fees and other costs, and the obligations of both the franchisor and the franchisee. This is done to ensure that prospective franchisees have all the necessary information to make an informed decision before investing in a franchise. While the other choices may also be required or recommended by the FTC, they are not mandatory under the Franchise Rule.

Question 2

Corporations have a distinct advantage over other forms of business organization in the area of taxation.

Accepted Answer

Corporations face double taxation, where income is taxed at the corporate level and again at the shareholder level when distributed as dividends, unlike sole proprietorships and partnerships where income is only taxed once at the individual level.

Question 3

A partnership is a taxable entity,separate from the partners.

Accepted Answer

In a partnership, the entity itself is not taxed on its income. Instead, the profits and losses are passed through to the individual partners, who then report their share of these on their personal tax returns.

Question 4

All the business forms listed below have limited liability EXCEPT the

Accepted Answer

General partnership does not offer limited liability to its partners or owners. This means that the personal assets of the partners can be used to satisfy the partnership's obligations. However, the other options listed (limited liability company, "S" corporation, corporation) offer limited liability protection to their owners or shareholders.

Question 5

A limited liability company,unlike an S corporation,can have members that are corporations,partnerships,or nonresident aliens.

Accepted Answer

A limited liability company (LLC) is a business structure that offers the liability protection of a corporation but the tax benefits of a partnership. Unlike an S corporation, an LLC can have members that are corporations, partnerships, or nonresident aliens.

Question 6

Alan,a dentist,and his wife Martha,an attorney,can protect their personal assets with limited liability from their business dealings by creating and operating a professional corporation together.

Accepted Answer

The answer of Alan,a dentist,and his wife Martha,an attorney,can protect...

Question 7

The most common form of business ownership is the corporation.

Accepted Answer

The most common form of business ownership is actually the sole proprietorship, followed by partnerships. Corporations are still a common form of business ownership, but not the most common.

Question 8

Corporations have perpetual existence.

Accepted Answer

Corporations, unlike individuals, have perpetual existence, meaning they do not cease to exist when one of its owners or shareholders dies or sells their stake. They exist independently of their owners and can continue to operate and do business indefinitely.

Question 9

To be a close corporation,the business must be small,with no more than 20 owners and no more than $500,000 in gross annual income.

Accepted Answer

To be a close corporation, the business must be small with no more than 50 shareholders, not 20, and no more than $10 million in assets, not $500,000 in gross annual income.

Question 10

No formal steps are necessary to create a sole proprietorship.

Accepted Answer

No formal steps are required to create a sole proprietorship. However, depending on the state or country, a business license may be required to operate legally.

Question 11

An organization that does not pay income tax on its profits but passes them through to its owners who pay the tax at their individual rates is called a

Accepted Answer

This type of organization is known as a flow-through tax entity, which includes partnerships, limited liability companies (LLCs), and S corporations. These entities do not pay income tax at the entity level, but instead pass through the profits and losses to the owners who report them on their personal tax returns at their individual tax rates. This avoids double taxation that occurs in traditional corporations.

Question 12

Social enterprises are organizations that pledge to behave in a socially responsible manner,even as they pursue profits.

Accepted Answer

Social enterprises aim to make a positive impact on society and the environment while also generating revenue.

Question 13

Debra wanted to form a partnership with Lawrence.He agreed and they became co-owners in an equal partnership.This year,after expenses,the partnership had a profit of $200,000.How will the taxation of this profit be handled?

Accepted Answer

In a partnership, the profits and losses are shared between the partners based on their ownership percentage. In this case, Debra and Lawrence are equal partners, so they will split the $200,000 profit equally. Each partner will report their share of the profit on their personal tax return and pay taxes on it. Therefore, option C is the correct answer. Option A is incorrect because as a partnership, the taxes are paid by the partners and not the business. Option B is incorrect because the partners are responsible for paying taxes, not the business. Option D is incorrect because the business is not responsible for paying taxes on behalf of its owners.

Question 14

Limited liability is a major advantage of a partnership as compared to a corporation.

Accepted Answer

Limited liability is actually a major advantage of a corporation as compared to a partnership. In a corporation, the owners (shareholders) are not personally liable for the company's debts or legal obligations. However, in a partnership, the partners can be held personally liable for the partnership's debts and obligations.

Question 15

Generally,a joint venture is a partnership created for one limited purpose.

Accepted Answer

Joint ventures are typically formed for a specific purpose or project, rather than a long-term business partnership.

Question 16

If partners wish to maintain having protection against personal liability,it is essential to comply with all the technicalities of a limited liability partnership statute.

Accepted Answer

True, complying with all the technicalities of a limited liability partnership statute is necessary to maintain protection against personal liability.

Question 17

To form an LLC,both a charter and an operating agreement must be filed with the Secretary of State in the jurisdiction where the business will operate.

Accepted Answer

A charter (or articles of organization) must be filed with the Secretary of State, but an operating agreement is typically an internal document and not required to be filed.

Question 18

For those wishing to purchase a franchise,the Federal Trade Commission acts as a guardian ensuring that the business idea is sound and that the information in the Franchise Disclosure Document is accurate.

Accepted Answer

The Federal Trade Commission (FTC) requires franchisors to provide a Franchise Disclosure Document (FDD) to prospective franchisees, which includes important information about the franchise, but the FTC does not ensure the business idea is sound or verify the accuracy of the information in the FDD.

Question 19

Which of the following statements regarding social enterprises is TRUE?

Accepted Answer

Social enterprises are businesses that aim to generate both social and financial returns, and can sell stock to investors. Unlike traditional charities, they are not solely reliant on donations and grants, but can also utilize business techniques to achieve their social goals.

Question 20

Franchise fees can be costly,but they are usually payable over a number of years,after profits are generated from the business.

Accepted Answer

Franchise fees are typically required upfront when you purchase the franchise, not payable over several years after profits are generated.

Quiz 31: Starting a Business: LLCs and Other Options