1.
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Which of the following statements about choosing a form of ownership is false?
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| The choice of a form of ownership can have far-reaching effects on almost every aspect of a business and its owner. |
| Each form of ownership has its own unique set of advantages and disadvantages |
| The S-corporation is the best form of ownership for entrepreneurs. |
| All of the above. |
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2.
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The most common form of business ownership in the United States is the:
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| sole proprietorship |
| the partnership |
| the corporation |
| the S-corporation |
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3.
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The biggest disadvantage of a sole proprietorship is
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| its high cost of formation. |
| the complexity involved in discontinuing it. |
| the unlimited personal liability the owner has for the business's debts. |
| the owner's limited access to capital. |
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4.
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__________ partners cannot take an active role in the operation of a business, but if the business fails, they stand to lose only what they have invested in the company.
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| General |
| Limited |
| Master |
| Insulated |
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5.
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Every partnership must have at least one __________ partner.
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| General |
| limited |
| silent |
| master |
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6.
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A corporation doing business in a state other than the one in which it is incorporated is called a __________ corporation
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| domestic |
| alien |
| foreign |
| closely-held |
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7.
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The primary reason most entrepreneurs choose to incorporate their businesses is:
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| to gain the benefit of limited liability for the corporation's stockholders. |
| the ability of the business to continue indefinitely. |
| the ability to avoid the disadvantage of double taxation. |
| that the corporation offers the least expensive and least complex process of business formation. |
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8.
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Which form of ownership has the greatest ability to attract capital?
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| sole proprietorship |
| partnership |
| corporation |
| S-corporation |
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9.
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Which of the following forms of ownership is taxed differently from the others
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| the sole proprietorship |
| the partnership |
| the corporation |
| the S-corporation |
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10.
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Which of the following requirements must an S-corporation meet?
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| It must be a domestic corporation. |
| It can issue only one class of common stock, but it can issue voting and nonvoting shares of common stock. |
| It cannot have more than 75 shareholders. |
| All of the above. |
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11.
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A primary difference between an S-corporation and a C-corporation is that:
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| the C-corporation offers the advantage of limited liability to its stockholders, and an S-corporation does not. |
| the C-corporation itself pays taxes based on a corporate tax structure, and the S-corporation passes all of its profits (or losses) through to its individual shareholders where they are taxed at the individual rate. |
| the founders of an S-corporation are protected from the potential loss of control that occurs when the founders of C-corporations sell shares of stock to raise the capital needed for growth. |
| S-corporations are much easier and less expensive to form than C-corporations, which require their founders to file a certificate of incorporation with the state and to pay incorporation fees. |
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12.
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The limited liability company (LLC) offers entrepreneurs
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| the tax advantages of a partnership. |
| the legal protection of a corporation. |
| maximum flexibility in the way it operates. |
| all of the above |
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13.
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To form an limited liability company (LLC), an entrepreneur must file
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| articles of organization. |
| a corporate charter. |
| An operating agreement |
| All of the above |
| A and C only |
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14.
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How many of the following characteristics may a limited liability company (LLC) have: limited liability, continuity of life, free transferability of interest, and centralized management?
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| only 1 |
| no more than 2 |
| no more than 3 |
| all 4, if the owners choose |
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15.
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Which of the following statements concerning franchising is true?
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| Franchise sales total more than $1 trillion. |
| Franchises account for 44 percent of all retail sales. |
| A new franchise opens somewhere in the world every six-and-a-half minutes |
| All of the above. |
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16.
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__________ franchising is a system in which a franchiser provides franchisees with a complete business system, including a license for the tradename, the products or services to be sold, the physical plant, the methods of operation, a marketing plan, and other necessary business services.
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| tradename |
| product distribution |
| pure (or business format) |
| process |
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17.
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The essence of what a franchisee buys from a franchiser is ___________.
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| a steady source of capital. |
| the franchiser's experience |
| a marketing system. |
| an efficient building design. |
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18.
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Which of the following is not a benefit of franchising to the franchisee?
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| management training and support. |
| assistance with site selection |
| an advertising campaign planned, created, and paid for by the franchiser. |
| brandname appeal and name recognition for the products and services they sell. |
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19.
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Which of the following statements concerning franchise operations is true?
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| Franchisers may provide their franchisees with a business system, but they encourage franchisees to deviate significantly from the system to stimulate innovation. |
| Most franchisers provide extensive financial assistance, usually in the form of direct loans, to their franchisees. |
| One of the greatest sources of friction between franchisers and franchisees concerns the location of new franchises; existing franchisees are afraid that placing new outlets so close to their existing ones causes their sales and profits to be diluted. |
| The primary reason franchising has proved so popular is that franchisees are guaranteed that they will succeed. |
| All of the above. |
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20.
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The failure rate for franchises is __________ the failure rate for independent businesses.
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| lower than |
| higher than |
| the same as |
| cannot be determined |
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21.
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The disclosure document that is designed to help prospective franchisees evaluate franchise opportunities and to protect themselves from unscrupulous franchisers is the:
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| Trade Regulation Rule |
| Federal Trade Commission Report |
| Franchisee Protection Prospectus |
| Uniform Franchise Offering Circular |
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22.
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The Uniform Franchise Offering Circular (UFOC):
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| is not required from franchisers with fewer than 10 franchised outlets. |
| must be checked, verified, and approved by the Federal Trade Commission before franchisers can use it. |
| is designed to provide franchisees with important information about a franchise and must be given to franchisees before they sign a franchise contract or pay any money to the franchiser. |
| All of the above. |
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23.
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Experts estimate that __________ percent of franchisers are dishonest.
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| 5 to 10 |
| 15 to 20 |
| 25 to 30 |
| 45 to 50 |
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24.
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Which of the following should alert a potential franchisee that a franchiser is dishonest?
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| Claims that the franchise contract is a standard one and that "you don't need to read it." |
| No written documentation to support claims and promises the franchiser makes about the franchise, its operation, and its performance. |
| Reluctance to provide a list of existing franchisees to talk to. |
| All of the above. |
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25.
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A study by the Federal Trade Commission found that __________ percent of new franchisees sign their franchise contracts without reading them.
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| 10 |
| 20 |
| 40 |
| 60 |
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26.
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Locating franchised outlets in high-traffic, non-traditional locations such as airports, hospitals, zoos, sports arenas, and others is based on the principle of:
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| conversion franchising |
| intercept marketing |
| master franchising |
| piggyback franchising |
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27.
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In __________ franchising, a franchisee purchases the right to open more than one franchise outlet within a broad territory within a specified time period.
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| master |
| conversion |
| multiple-unit |
| piggyback |
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28.
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__________ franchising involves combining two or more complementary franchises, such as a Texaco gas station, a Burger King restaurant, and a TCBY yogurt franchise, in the same location.
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| master |
| conversion |
| multiple-unit |
| Piggyback |
