Question 1

When Genna confided in Lou and Al that she too was concerned about adding additional risk, Lou suggested that they explore the possibility of a different type of business ownership, a(n) ________, which has very flexible ownership rules and would give them more choices in how the company's earnings are taxed while still protecting all owners from high levels of risk.
A) alien corporation
B) master limited partnership
C) limited partnership
D) limited liability company

Accepted Answer

Limited liability companies offer the protection of limited liability, but allow the company a great deal of flexibility in how the earnings of the business are taxed. In many cases, the company will choose to have its earnings taxed as if it were a partnership, thus avoiding the problem of double taxation. However, the company can also choose to have its earnings taxed as a corporation if that is more advantageous.

Question 2

Al also suggested another way Genna could finance her expansion. He described setting up a chain of Car Keepers Garages by selling the rights to use the Car Keepers' name, business model, garage design, and service ideas to others who would like to own a similar shop. These individuals would pay Car Keepers an initial fee and monthly royalties based on earnings. Al is suggesting that Genna set up a
A) joint venture.
B) franchise arrangement.
C) C corporation.
D) master limited partnership.

Accepted Answer

A franchise arrangement exists when someone with an idea for a business (the franchisor) sells the right to use the business name and to sell a product or a service (the franchise) to others (the franchisees) in a given territory. Franchisees usually pay the franchisor an initial fee and royalties. Many women have turned to franchising as a means of financing an expansion of their business.

Quiz 5: How to Form a Business