Week 4 Quiz

The illustrative coffee cart runs as a sole proprietorship and fails with its 10,000-dollar equipment loan unpaid. Which stakeholder can look to the owner's personal savings to collect what it is owed?

Select one.

• The lender, because a sole proprietor answers personally for every business debt
• The customers, because they bought drinks from the cart before it failed
• The community, because the cart used a public sidewalk to sell
• No stakeholder, because the cart's trade name keeps the debt with the business

In the illustrative cart's comparison, the owner could instead run the cart as a two-person general partnership with a friend. Which statement describes the partners' liability for the 10,000-dollar loan if the cart fails?

Select one.

• Each partner owes at most half the loan, because they share the profit equally
• Only the partner who signed for the loan can be asked to repay it
• Neither partner is liable, because a partnership is a separate legal person
• Both partners carry unlimited liability, so neither is capped at half

Using the illustrative cart's numbers (owner's money 20,000 dollars, equipment loan 10,000 dollars), what is the owner's worst-case personal exposure as a sole proprietor if the cart fails and nothing from it repays the loan?

Select one.

• 10,000 dollars, the amount of the loan
• 30,000 dollars, the money put in plus the loan
• 20,000 dollars, the money the owner put in
• 40,000 dollars, the money put in plus the loan counted twice

Using the same illustrative numbers, what is the owner's worst-case personal exposure if the cart runs as a single-member LLC and fails, with nothing from it repaying the loan?

Select one.

• 0 dollars, because limited liability means the owner cannot lose money
• 30,000 dollars, because the loan still reaches the owner's savings
• 20,000 dollars, the money the owner put in
• 10,000 dollars, the amount of the equipment loan

An LLC is a business structure that state law creates. In a PESTEL scan of the coffee cart's external environment, which force do the laws that set up the forms of ownership belong to?

Select one.

• Economic, because the form changes how much money the owner can lose
• Legal, because they are laws that shape how the business may be organized
• Social, because the owner's friends and family may join the business
• Technological, because forms are filed with a state on its website

A limited liability company (LLC) is a kind of corporation.

True or false.

• True
• False

An illustrative regional bakery is a corporation. A neighbor paid for shares of its stock, and years later the bakery fails owing its lenders far more than it owns. Which statement describes the neighbor's position?

Select one.

• The neighbor owes a share of every debt, because stockholders are the owners
• The neighbor loses nothing, because limited liability means owners cannot lose money
• The neighbor can lose what was paid for the shares, and no more
• The neighbor owes the bakery's debts once the bakery's own money runs out

An illustrative owner pays fees to run a tutoring center under a national tutoring brand in one territory. Which statement describes the deal?

Select one.

• The owner is the franchisor and now owns the tutoring brand
• The owner is a franchisee and uses the brand without owning it
• The owner bought the tutoring brand outright with the first fee
• The owner is a stockholder of the brand's company because of the fees

What does the FTC's Franchise Rule require a franchisor to give a prospective franchisee before the sale?

Select one.

• A written promise that the outlet will earn a profit in its first year
• A share of ownership in the franchisor's brand
• A disclosure document with a set list of required facts about the deal
• A list of every other franchisee's yearly revenue and profit

An illustrative bakery chain buys the flour mill that supplies its flour. What type of merger is this?

Select one.

• Horizontal, because both companies are in the food business
• Conglomerate, because a mill and a bakery do different work
• Horizontal, because the bakery chain is bigger than the mill
• Vertical, because the two sit at different stages of making bread