Question 1

The vast majority of limited liability company (LLCs) elect to be taxed as _____.
A) C corporations
B) sole proprietorships
C) partnerships
D) S corporations

Accepted Answer

Most LLCs elect to be taxed as partnerships because it allows for pass-through taxation, where the income is taxed at the individual level rather than at the corporate level, avoiding double taxation.

Question 2

A _____ is considered a legal entity separate from its owners that offers its owners limited liability for the debts of their business and more flexibility than a corporation in terms of tax treatment.
A) limited liability company
B) sole proprietorship
C) general partnership
D) limited liability partnership

Accepted Answer

A limited liability company (LLC) is a type of business structure that is considered a legal entity separate from its owners. This means that the owners (also known as members) have limited liability for the debts and liabilities of the business, which helps protect their personal assets. Additionally, LLCs offer more flexibility than corporations in terms of tax treatment, as they can choose to be taxed as a partnership or as a corporation.

Question 3

The individuals who are elected by stockholders of a corporation to represent their interests are known as _____.
A) sole proprietors
B) board of directors
C) limited liability partners
D) conglomerates

Accepted Answer

The individuals elected by stockholders of a corporation to represent their interests are known as the board of directors. Sole proprietors are the sole owners of their business, limited liability partners are partners in a business with limited liability protection, and conglomerates are large corporations made up of smaller companies.

Question 4

A franchise agreement is the contractual arrangement between a franchisor and franchisee that details the duties and responsibilities of both parties.

Accepted Answer

A franchise agreement is a legal document that outlines the terms and conditions of the relationship between the franchisor and franchisee. It includes details such as the franchisee's obligations, payment structure, franchisor support, and intellectual property rights.

Question 5

DiversityFran is an initiative that has made an effort to give minority franchising a boost.

Accepted Answer

DiversityFran is a real initiative that exists to promote diversity in franchising by providing resources and support to minority-owned franchise businesses.

Question 6

As an artificial person, a _____ can legally engage in virtually any business activity a natural person can pursue, including owning property, entering into binding contracts, and initiating legal actions.
A) partnership
B) corporation
C) limited liability company
D) sole proprietorship

Accepted Answer

A corporation is an artificial person or legal entity that has the same legal rights and responsibilities as a natural person. This means that it can engage in various business activities that a natural person can pursue, including owning property, entering into binding contracts, and initiating legal actions. Other options like partnerships, limited liability companies, and sole proprietorships may have certain legal limitations or liabilities that do not apply to corporations.

Question 7

Rob is an engineer who works in nuclear power plants. He is considering starting his own engineering company. Due to the nature of work at his new company, Rob wants to avoid unlimited liability. Which of the following forms of business ownership is most suitable for Rob?
A) A sole proprietorship
B) A partnership
C) A corporation
D) A sole trader

Accepted Answer

A corporation offers limited liability to its owners, which means that the personal assets of the owners are protected in case the company incurs debts or lawsuits. This is important for Rob considering his work in nuclear power plants, which can have significant risks and potential for large lawsuits. A sole proprietorship and a sole trader offer no protection from liability, and a partnership would still expose Rob to unlimited liability.

Question 8

_____ are by far the most common type of business organizations in the United States.
A) General partnerships
B) Sole proprietorships
C) Limited liability companies
D) Corporations

Accepted Answer

According to the Small Business Administration, 73% of all businesses in the United States are sole proprietorships, making them the most common type of business organization.

Question 9

One drawback of operating a franchise is the greater risk of failure relative to independently­owned businesses.

Accepted Answer

Franchises typically have a lower risk of failure compared to independently-owned businesses due to established brand recognition, proven business models, and support from the franchisor.

Question 10

Franchising is seldom used to move into foreign markets.

Accepted Answer

Franchising is commonly used as a method to expand into foreign markets, as it allows for easier entry and knowledge of local markets through the franchisee.

Question 11

As a result of decreased competition and less saturated markets, McDonald's foreign franchise outlets in 2014 were greater than in the United States.

Accepted Answer

This statement is true according to information reported by McDonald's in their 2014 annual report. Foreign franchise outlets numbered at 36,258, while U.S. franchise outlets numbered at 14,350.

Question 12

A business entity that allows others to operate a business using its name, trademark, business methods, and products in exchange for money and other considerations is called a franchisee.

Accepted Answer

A franchisee is the person or entity that operates the business using the franchisor's name, trademark, business methods, and products in exchange for money and other considerations. The franchisor is the business entity that grants the franchise and allows others to use their business model.

Question 13

Geoffrey spent his youth working in the restaurants of some of his close relatives. Now, he wants to venture into his own business and has decided that he will start his own restaurant. Geoffrey's restaurant will be an example of a:
A) limited liability company.
B) sole proprietorship.
C) conglomerate.
D) statutory close corporation.

Accepted Answer

Since Geoffrey will be the sole owner and operator of the restaurant, it qualifies as a sole proprietorship.

Question 14

One of the advantages of franchising for the franchisee is that the franchise can be sold to other investors without prior approval from the franchisor.

Accepted Answer

Franchise agreements typically include provisions on transferring ownership, and the franchisor usually has the right to approve or reject any potential buyer or transferee.

Question 15

The basic rules governing how a corporation is organized and how it conducts its business are known as _____.
A) corporate bylaws
B) articles of incorporation
C) certificates of organization
D) prospectuses

Accepted Answer

Corporate bylaws are the written rules and regulations that govern the internal affairs of a corporation. They outline the organization's structure and management, procedures for holding meetings of shareholders and directors, voting rights and procedures, and other aspects of the corporation's operations. While articles of incorporation and certificates of organization are also important legal documents for establishing a corporation, they do not govern the day-to-day operations and management of the business in the same way that bylaws do. Prospectuses, meanwhile, are typically used in securities offerings to provide detailed information about a company's financial and operating performance, but they are not directly related to corporate governance.

Question 16

Due to low participation among minorities in franchised businesses, initiatives such as the National Minority Franchising Initiative are addressing this concern.

Accepted Answer

The statement is true, as initiatives such as the National Minority Franchising Initiative are specifically aimed at increasing minority participation in franchised businesses.

Question 17

Individuals who want to be their own boss and use their own methods are likely to have difficulty accepting the terms of a typical franchise agreement.

Accepted Answer

Franchise agreements come with a set of rules and regulations that the franchisee must comply with, including a specific way of operating the business. This may not appeal to individuals who prefer to have complete control over their business methods and processes.

Question 18

Good friends, Bernie and Latasha, both studied accounting in college. Recently, they decided to work together as co­owners of a small accounting firm. This is an example of a(n) _____.
A) sole proprietorship
B) partnership
C) limited liability corporation
D) affiliate

Accepted Answer

Bernie and Latasha are working together as co-owners, indicating a partnership.

Question 19

Franchising is a licensing agreement under which one party allows another party to use its name, trademark, patents, copyrights, business methods, and other property in exchange for monetary payments and other considerations.

Accepted Answer

This accurately describes franchising.

Question 20

Operating a franchise gives the franchisee instant brand­name recognition, which can help attract customers.

Accepted Answer

Operating a franchise means that the franchisee has access to an established brand and business model, which can increase visibility and customer trust.

Quiz 6: Business Formation: Choosing the Form That Fits

The vast majority of limited liability company (LLCs) elect to be taxed as _____.

A _____ is considered a legal entity separate from its owners that offers its owners limited liability for the debts of their business and more flexibility than a corporation in terms of tax treatment.

The individuals who are elected by stockholders of a corporation to represent their interests are known as _____.

A franchise agreement is the contractual arrangement between a franchisor and franchisee that details the duties and responsibilities of both parties.

DiversityFran is an initiative that has made an effort to give minority franchising a boost.

As an artificial person, a _____ can legally engage in virtually any business activity a natural person can pursue, including owning property, entering into binding contracts, and initiating legal actions.

Rob is an engineer who works in nuclear power plants. He is considering starting his own engineering company. Due to the nature of work at his new company, Rob wants to avoid unlimited liability. Which of the following forms of business ownership is most suitable for Rob?

_____ are by far the most common type of business organizations in the United States.

One drawback of operating a franchise is the greater risk of failure relative to independentlyowned businesses.

Franchising is seldom used to move into foreign markets.

As a result of decreased competition and less saturated markets, McDonald's foreign franchise outlets in 2014 were greater than in the United States.

A business entity that allows others to operate a business using its name, trademark, business methods, and products in exchange for money and other considerations is called a franchisee.

Geoffrey spent his youth working in the restaurants of some of his close relatives. Now, he wants to venture into his own business and has decided that he will start his own restaurant. Geoffrey's restaurant will be an example of a:

One of the advantages of franchising for the franchisee is that the franchise can be sold to other investors without prior approval from the franchisor.

The basic rules governing how a corporation is organized and how it conducts its business are known as _____.

Due to low participation among minorities in franchised businesses, initiatives such as the National Minority Franchising Initiative are addressing this concern.

Individuals who want to be their own boss and use their own methods are likely to have difficulty accepting the terms of a typical franchise agreement.

Good friends, Bernie and Latasha, both studied accounting in college. Recently, they decided to work together as coowners of a small accounting firm. This is an example of a(n) _____.

Franchising is a licensing agreement under which one party allows another party to use its name, trademark, patents, copyrights, business methods, and other property in exchange for monetary payments and other considerations.

Operating a franchise gives the franchisee instant brandname recognition, which can help attract customers.

Quiz 6: Business Formation: Choosing the Form That Fits

The vast majority of limited liability company (LLCs) elect to be taxed as _____.

A _____ is considered a legal entity separate from its owners that offers its owners limited liability for the debts of their business and more flexibility than a corporation in terms of tax treatment.

The individuals who are elected by stockholders of a corporation to represent their interests are known as _____.

A franchise agreement is the contractual arrangement between a franchisor and franchisee that details the duties and responsibilities of both parties.

DiversityFran is an initiative that has made an effort to give minority franchising a boost.

As an artificial person, a _____ can legally engage in virtually any business activity a natural person can pursue, including owning property, entering into binding contracts, and initiating legal actions.

Rob is an engineer who works in nuclear power plants. He is considering starting his own engineering company. Due to the nature of work at his new company, Rob wants to avoid unlimited liability. Which of the following forms of business ownership is most suitable for Rob?

_____ are by far the most common type of business organizations in the United States.

One drawback of operating a franchise is the greater risk of failure relative to independently­owned businesses.

Franchising is seldom used to move into foreign markets.

As a result of decreased competition and less saturated markets, McDonald's foreign franchise outlets in 2014 were greater than in the United States.

A business entity that allows others to operate a business using its name, trademark, business methods, and products in exchange for money and other considerations is called a franchisee.

Geoffrey spent his youth working in the restaurants of some of his close relatives. Now, he wants to venture into his own business and has decided that he will start his own restaurant. Geoffrey's restaurant will be an example of a:

One of the advantages of franchising for the franchisee is that the franchise can be sold to other investors without prior approval from the franchisor.

The basic rules governing how a corporation is organized and how it conducts its business are known as _____.

Due to low participation among minorities in franchised businesses, initiatives such as the National Minority Franchising Initiative are addressing this concern.

Individuals who want to be their own boss and use their own methods are likely to have difficulty accepting the terms of a typical franchise agreement.

Good friends, Bernie and Latasha, both studied accounting in college. Recently, they decided to work together as co­owners of a small accounting firm. This is an example of a(n) _____.

Franchising is a licensing agreement under which one party allows another party to use its name, trademark, patents, copyrights, business methods, and other property in exchange for monetary payments and other considerations.

Operating a franchise gives the franchisee instant brand­name recognition, which can help attract customers.

One drawback of operating a franchise is the greater risk of failure relative to independentlyowned businesses.

Good friends, Bernie and Latasha, both studied accounting in college. Recently, they decided to work together as coowners of a small accounting firm. This is an example of a(n) _____.

Operating a franchise gives the franchisee instant brandname recognition, which can help attract customers.