Question

1. Which of the following is not a typical characteristic of a licensing arrangement?

1. Obtaining the rights to use a particular type of technology.
2. Obtaining a controlling interest in another firm
3. Obtaining patent rights
4. Paying royalties in direct proportion to revenues generated by the agreement
5. Utilizing another firm’s trademark to market your product

2. Which of the following is not a motivation for establishing an alliance?

1. Risk sharing
2. Gaining access to new markets
3. Gaining access to a new technology
4. Achieving maximum control
5. Entering into a foreign market

1. Which one of the following is not a characteristic of a corporate legal structure?

1. Unlimited liability
2. Double taxation
3. Continuity of ownership
4. Managerial autonomy
5. Ease of raising money

Answer 1

Which of the following is not a typical characteristic of a licensing arrangement?

b. Obtaining a controlling interest in another firm

• Licensing arrangement is an agreement between two parties namely, the licensor and the licensee. The licensor grants the licensee the right to produce goods or provide services, use a brand name or registered trademark, use a particular type of technology, obtaining patent rights.
• The licensee agrees to pay a royalty to the licensor.

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Which of the following is not a motivation for establishing an alliance?

d. Achieving maximum control

• Alliance is an arrangement between two independent companies to pursue a project that is beneficial for both of them. Each of the alliance partners maintain their independence.
• The objectives of entering into an alliance includes risk-sharing, gaining access to new markets, gaining access to new technology, Entering into a foreign market, etc.
• However, alliance partner does not achieve control over another.

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Which one of the following is not a characteristic of a corporate legal structure?

a. Unlimited liability

• Characteristics of corporate legal structure:
  • Limited liability: The liability of the shareholder is limited to his share (i.e. investment) in the company. The shareholders are not personally liable for the debts of the company.
  • Double taxation: A corporation pays taxes on its income. Out of this income, it may pay a dividend to its shareholders. The investors must pay taxes on the dividends so received. This results in double taxation of corporate earnings; first in the hands of the corporate and then in the hands of shareholders.
  • Continuity of ownership: Corporations have separate legal existence from its owners. Therefore, they have continuity of ownership. The shares of corporations are transferred upon the death of a shareholder.
  • Managerial autonomy: The management of corporations are separated from the owners. They exercise control over the corporation through Board of directors. Therefore, Borad of Directors manages the company.
  • Ease of raising money: Corporations can raise money through a variety of sources (equity and debt). They can sell shares and raise capital, issue bonds, and avail debt financing etc.