Exam 6: Forms of Business Ownership

Defining the duties, responsibilities, contributions, and roles of the partners in a partnership agreement is not necessary since the law covers these provisions automatically.

Which of the following is not true regarding the limitations of professional corporations?

What is an S corporation? Explain the advantages and the disadvantages of an S corporation.

Which of the following is true regarding the corporate form of ownership?

A ________ partner is a person who makes financial investments in a partnership, does not take an active role in managing the business, and whose liability for the partnerships' debts is limited to the amount they have invested.

If a sole proprietor dies, retires, or becomes incapacitated, the business automatically terminates.

Changing from one form of ownership to another once a business is up and running can be difficult, expensive, and complicated.

Which of the following documents must an entrepreneur file to create a limited liability company?

In a partnership, the business itself is subject to federal income tax.

State law requires that individuals creating a partnership file the Articles of Partnership with the Secretary of State.

Mini Case 6-1: "Today, You Gotta' Be a Corporation" Duke has been a successful used car dealer for 25 years in the same location, operating as a proprietorship. In those 25 years, he has expanded his operation and become the largest independent car dealer in a city of 85,000 people. Few people in town can boast of a business reputation better than Duke's. As he says, "I've always done business in a fair and honest fashion, and I've tried to give my customers an honest deal. The public has responded well, and last year the business revenue increased to an all-time high of $830,000." As the business has grown, so have Duke's liabilities. On a given day, Duke will have cars worth from $350,000 to $450,000 as inventory on the lot. "Twenty years ago, if I'd asked the bank for a line of credit of $200,000, they'd have tossed me out the front door. There is no question that today business is different." Duke's only daughter recently married a garage mechanic who has worked in the area for the past three years. Though Duke thinks the boy is certainly nice enough, he does not believe he is very smart. "The kid sure knows how to fix a car, but that's as far as it goes," says Duke. "On my last visit to the accountant, he suggested I consider incorporating. I guess he knows what he's talking about. That's all you hear today - 'you gotta be a corporation.' I guess he's right. But, to tell you the truth, I don't know." -Would a limited liability corporation be any better for Duke? Why or why not?

Which of the following is required to form a partnership?

A corporation receives its charter from the ________.

The key to choosing the right form of ownership is ________.

What is a partnership? Explain the advantages and the disadvantages of a partnership.

If a partnership agreement does not exist, the partnership will be governed by the Uniform Partnership Act.

A ________ partnership is composed of at least one general partner and at least one limited partner.

A limited partner is personally liable only for the amount of money she/he has invested in the partnership.

A partnership agreement defines how the partners will be compensated. Normally, ________.

The sole proprietorship is the form of ownership with the least ability to accumulate capital.