Question 1

A partnership is not a separate,taxable entity.

Accepted Answer

A) True 
 B)False  True

Question 2

The most common form of business ownership is the sole proprietorship.

Accepted Answer

A) True 
 B)False  True

Question 3

John,his parents,and three brothers own all the stock of their family farm corporation.This corporation,which is taxed as a corporation,is probably:

Accepted Answer

A)  an S corporation. 
B)  a C corporation. 
C)  a close corporation. 
D)  an LLC. 
A)  an S corporation. 
B)  a C corporation. 
C)  a close corporation. 
D)  an LLC. C

Question 4

In the case of Marsh v.Gentry,the court held:

Accepted Answer

A)  Gentry had the right to purchase the property without disclosing his identity to Marsh because of the special rules for auction sales. 
B)  state statutory law gave Marsh the absolute right to know Gentry was the purchaser. 
C)  Gentry acted properly because he was following "accepted business practice. " 
D)  Gentry acted properly because Marsh had consented to a sale of the property. 
A)  Gentry had the right to purchase the property without disclosing his identity to Marsh because of the special rules for auction sales. 
B)  state statutory law gave Marsh the absolute right to know Gentry was the purchaser. 
C)  Gentry acted properly because he was following "accepted business practice. " 
D)  Gentry acted properly because Marsh had consented to a sale of the property.

Question 5

Charles and Ellen,an unmarried couple,run an ice cream store.The business is not incorporated and they have filed no formation papers with the state.Their business is a:

Accepted Answer

A)  sole proprietorship. 
B)  partnership. 
C)  joint venture. 
D)  limited liability company. 
A)  sole proprietorship. 
B)  partnership. 
C)  joint venture. 
D)  limited liability company.

Question 6

Andy wants to start his own business.He has decided to rent space in a "strip mall" and open a pet shop.Additionally,he will provide dog grooming services.He figures he can do almost everything himself,though he will need to hire a part-time employee on an "as needed" basis.His friend,Lacy,has agreed to work when needed.
Andy is considering operating his business as a sole proprietorship.What are the primary legal advantages and disadvantages to this form of business ownership for Andy's pet shop?

Accepted Answer

There are many advantages to operating t

Question 7

Lawrence,Pablo,and Shanna,who plan to start a business:

Accepted Answer

A)  should consider taxes, potential liability, ease and cost of formation, and transferability of interests when they select a form of organization. 
B)  will be affected by business law which attempts to balance the rights, obligations, and liabilities of the entrepreneurs, managers, investors, and customers. 
C)  will be subject to a form of organization the law automatically selects by default if they do not select the form of organization themselves. 
D)  All of the above. 
A)  should consider taxes, potential liability, ease and cost of formation, and transferability of interests when they select a form of organization. 
B)  will be affected by business law which attempts to balance the rights, obligations, and liabilities of the entrepreneurs, managers, investors, and customers. 
C)  will be subject to a form of organization the law automatically selects by default if they do not select the form of organization themselves. 
D)  All of the above.

Question 8

Guy and Peggy bought a racehorse together,agreeing to share all expenses and split profits equally.There was no agreement as to the duration of the partnership.After two racing seasons,Peggy decided she was tired of the business and left the partnership.Is Guy correct in claiming Peggy's leaving was wrongful?

Accepted Answer

A)  Yes, Peggy was legally required to secure Guy's permission before leaving the partnership. 
B)  Yes, Peggy had a legal duty to stay in the partnership unless she had a better reason for leaving, such as impossibility of continuation. 
C)  Yes, Peggy had a legal duty to stay in the partnership until a new partner could be found. 
D)  No, in a partnership at will, a partner has the right to leave the partnership at any time. 
A)  Yes, Peggy was legally required to secure Guy's permission before leaving the partnership. 
B)  Yes, Peggy had a legal duty to stay in the partnership unless she had a better reason for leaving, such as impossibility of continuation. 
C)  Yes, Peggy had a legal duty to stay in the partnership until a new partner could be found. 
D)  No, in a partnership at will, a partner has the right to leave the partnership at any time.

Question 9

To create an LLC:

Accepted Answer

A)  organizers must have a charter and an operating agreement. 
B)  standard forms for start-up documents are well established, widely available, and effective. 
C)  a lengthy, detailed charter must be filed with the county clerk in the jurisdiction in which the LLC is being formed. 
D)  the use of customized forms, although more expensive than using standard forms, is recommended since the law related to LLCs is so unsettled. 
A)  organizers must have a charter and an operating agreement. 
B)  standard forms for start-up documents are well established, widely available, and effective. 
C)  a lengthy, detailed charter must be filed with the county clerk in the jurisdiction in which the LLC is being formed. 
D)  the use of customized forms, although more expensive than using standard forms, is recommended since the law related to LLCs is so unsettled.

Question 10

Generally,a joint venture is a partnership created for one limited purpose.

Accepted Answer

A) True 
 B)False

Question 11

The case of Apcar v.Gaus illustrates that it is essential to comply with all the technicalities of a limited liability partnership statute.

Accepted Answer

A) True 
 B)False

Question 12

All of the following are characteristics of a closely held corporation EXCEPT:

Accepted Answer

A)  the shares are publicly traded. 
B)  the corporation can typically operate without a board of directors. 
C)  the shareholders usually restrict share transfer. 
D)  minority shareholders are provided more protection than in regular corporations. 
A)  the shares are publicly traded. 
B)  the corporation can typically operate without a board of directors. 
C)  the shareholders usually restrict share transfer. 
D)  minority shareholders are provided more protection than in regular corporations.

Question 13

Lee and Jan are debating whether to use an LLC or corporate form for a new business.Major advantages of an LLC over a corporation include the tax status of an LLC,the fact that an LLC is easier and less expensive to set up than a corporation,and the fact that venture capitalists generally prefer to invest in LLCs over corporations.

Accepted Answer

A) True 
 B)False

Question 14

The corporate form of business was:

Accepted Answer

A)  first known and used by the Greeks and then spread through the Romans to England. 
B)  not known or conceived of until about 1737 by Sir Francis LaRue. 
C)  first allowed in the State of New York around 1811 and is considered to be an American creation. 
D)  None of the above. 
A)  first known and used by the Greeks and then spread through the Romans to England. 
B)  not known or conceived of until about 1737 by Sir Francis LaRue. 
C)  first allowed in the State of New York around 1811 and is considered to be an American creation. 
D)  None of the above.

Question 15

Lance and Darrell have an equal partnership.This year,after expenses,the partnership had a profit of $100,000.Lance and Darrell will each pay taxes on:

Accepted Answer

A)  whatever they receive from the partnership. 
B)  $50,000. 
C)  $100,000. 
D)  None of the above. The partnership itself will pay the taxes on the business's profit. 
A)  whatever they receive from the partnership. 
B)  $50,000. 
C)  $100,000. 
D)  None of the above. The partnership itself will pay the taxes on the business's profit.

Question 16

Compare and contrast the following forms of business organization: sole proprietorship,general partnership,limited partnership,limited liability company,and corporation as to ease of formation,liability of owners,management,and tax implications.

Accepted Answer

A sole proprietorship is an uninc

Question 17

Miranda was a limited partner in a retail business that was sued by a customer who fell in the store.The customer claimed the business was negligent in caring for its floors.Miranda:

Accepted Answer

A)  has no potential liability to the customer. 
B)  can be held personally liable to the customer since she is a partner. 
C)  can only be held liable to the amount of her investment. 
D)  is personally liable, but the customer must first collect from the general partners before collecting from Miranda. 
A)  has no potential liability to the customer. 
B)  can be held personally liable to the customer since she is a partner. 
C)  can only be held liable to the amount of her investment. 
D)  is personally liable, but the customer must first collect from the general partners before collecting from Miranda.

Question 18

Which of the following is considered by the IRS to be a sale of assets,subject to a tax on the value of the assets?

Accepted Answer

A)  Change from the corporate form to an LLC. 
B)  Change from an LLC to a corporation. 
C)  Change from a partnership to an LLC. 
D)  All of the above. 
E)  None of the above. 
A)  Change from the corporate form to an LLC. 
B)  Change from an LLC to a corporation. 
C)  Change from a partnership to an LLC. 
D)  All of the above. 
E)  None of the above.

Question 19

Briefly discuss the limitations on a corporation electing Subchapter "S" status

Accepted Answer

For a corporation to elect Subchapter "S

Question 20

Which of the following forms of organization is a compromise between starting one's own business as an entrepreneur and working for someone else as an employee?

Accepted Answer

A)  Limited liability company. 
B)  Business trust. 
C)  Close corporation. 
D)  Franchise. 
A)  Limited liability company. 
B)  Business trust. 
C)  Close corporation. 
D)  Franchise.

Exam 18: Starting a Business: Llcs and Other Options

A partnership is not a separate,taxable entity.

The most common form of business ownership is the sole proprietorship.

John,his parents,and three brothers own all the stock of their family farm corporation.This corporation,which is taxed as a corporation,is probably:

In the case of Marsh v.Gentry,the court held:

Charles and Ellen,an unmarried couple,run an ice cream store.The business is not incorporated and they have filed no formation papers with the state.Their business is a:

Lawrence,Pablo,and Shanna,who plan to start a business:

To create an LLC:

Generally,a joint venture is a partnership created for one limited purpose.

The case of Apcar v.Gaus illustrates that it is essential to comply with all the technicalities of a limited liability partnership statute.

All of the following are characteristics of a closely held corporation EXCEPT:

The corporate form of business was:

Lance and Darrell have an equal partnership.This year,after expenses,the partnership had a profit of $100,000.Lance and Darrell will each pay taxes on:

Compare and contrast the following forms of business organization: sole proprietorship,general partnership,limited partnership,limited liability company,and corporation as to ease of formation,liability of owners,management,and tax implications.

Miranda was a limited partner in a retail business that was sued by a customer who fell in the store.The customer claimed the business was negligent in caring for its floors.Miranda:

Which of the following is considered by the IRS to be a sale of assets,subject to a tax on the value of the assets?

Briefly discuss the limitations on a corporation electing Subchapter "S" status

Which of the following forms of organization is a compromise between starting one's own business as an entrepreneur and working for someone else as an employee?

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