Exam 21: Forms of Business Organization

Which of the following is a false statement regarding a partnership?

Suzanne wants to open a legal litigation support business and market to attorneys for their needs in court preparation such as copying,preparation of exhibits,and the service of subpoenas.She expects to hire three employees to assist her.Assuming she has sufficient funding,what type of business form(s)would you encourage her to adopt and why?

Sole proprietorships are terminated when the sole proprietor dies.

Define a joint venture and set forth two differences under the law between a joint venture and a partnership.

Tutoring Concerns.Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students.Wally proposes that they share control of the business and split profits equally and not bother with a written agreement.Sally,however,is concerned about being able to pay their debts because they will have to rent tutoring space and purchase computers and supplies.She is also concerned about parents and students who may sue if the students' test scores do not improve.She tells Wally that she just bought a new boat and car,and that she does not want her assets to be in jeopardy.She tells Wally that they should form a corporation to shield their personal assets.Wally,however,says their personal assets are not in danger with his proposal because they are a business and that,furthermore,forming a corporation would likely result in double taxation.What type of arrangement did Wally propose with his suggestion that they share control of the business and split profits equally?

Cooperatives must be incorporated.

Peanut Allergy.Kitty,who had a love of baking,decided to open her own bakery.She decided that she did not need and did not want to pay for a lawyer to advise her on different forms of ownership.Unfortunately,Kitty had not paid attention in business law class.She proceeded,with little thought,to simply open her business called Kitty's Baking.Bobby came in to order some cookies for his girlfriend,Bitsy,who was allergic to peanuts.Bobby told Kitty that he needed some cookies for Bitsy but that Bitsy had allergies to peanuts.Kitty told him not to worry because she would make up a special batch just for him.Kitty had hired some assistants because she was so busy.She told an assistant,Cathy,to make up several batches of cookies for different customers including Bobby and to leave out the peanuts in Bobby's order.Cathy,however,forgot the instruction and proceeded to make Bobby's cookies with crushed peanuts.Bobby picked up the cookies and gave one to Bitsy in the car while they were on the way to the movie in Bobby's new car.Bitsy became violently ill,vomited in Bobby's car,and had to have her stomach pumped.Bobby and Bitsy sought recovery from Kitty who told them that Bitsy's doctor bill and Bobby's car cleaning bill were business debts,that the business was new and not making any money at the moment,and that she had no personal liability.Following the incident involving Bobby and Bitsy,Kitty discussed with her parents her problems with the bakery.Kitty's parents would like to invest in her business and share in any profits,but they do not want to share in the management responsibilities.Which of the following is true regarding Kitty's statement that she had no personal liability?

Which of the following was the result on appeal in Colette Bohatch v.Butler & Binion,the case in the textbook in which the plaintiff,the partner in a law firm,sued after she was expelled from the partnership following her complaint that one of the other partners was overbilling a client?

What is a written agreement that creates a partnership called?

Which of the following is false regarding franchises?

________ is/are responsible for managing the business of a corporation.

Typically,the articles of organization of a limited liability company (LLC)include all but the following information?

Community Fair.Craig and Melinda are searching for a one-time business opportunity that will enable them to make a sufficient amount of cash to take a really great vacation to Galapagos.They live in a rather small rural community that has not,to date,had a community fair.Craig and Melinda decide to sponsor a fair on a weekend in October and to arrange for exhibits and awards,beauty contests,pie eating contests,food vendors,and amusement rides.The profit to Craig and Melinda will come from ticket sales and from charges to food vendors for the privilege of setting up shop.Apart from some minor skirmishes between Craig and Melinda regarding management rights,preparations go fairly well.When the weekend of the fair arrives,things initially go fairly smoothly.Unfortunately,however,one of the beauty contestants slipped on the runway.An argument broke out during the pie eating contests resulting in angry contestants throwing pies and injuring spectators.Finally,an elderly lady,who was angry because she did not win the prize for the best honey,jabbed the volunteer judge with her cane.All injured parties threaten to sue Craig and Melinda.Craig tells Melinda that she should bear the larger percentage of any damages because the idea for the fair was initially hers,and she obtained all necessary permits.Melinda,on the other hand,tells Craig that he should be wholly responsible for any damages because he was put in charge of all competitions.They can reach no agreement regarding winding up the project and splitting the meager profits,and angrily go their separate ways with no resolution.As she is leaving,Melinda shouts to Craig that as her agent he should have done a better job with security.Which of the following is true regarding any agency relationships between Craig and Melinda?

A corporation is not considered an entity separate from its shareholders.

In a partnership,income of the business is personal income and business losses can be deducted from taxes.

What is the process that allows limited liability companies to do business in states other than the state in which they were formed?

A legal entity formed by issuing stock to investors is a ________.

Tutoring Concerns.Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students.Wally proposes that they share control of the business and split profits equally and not bother with a written agreement.Sally,however,is concerned about being able to pay their debts because they will have to rent tutoring space and purchase computers and supplies.She is also concerned about parents and students who may sue if the students' test scores do not improve.She tells Wally that she just bought a new boat and car,and that she does not want her assets to be in jeopardy.She tells Wally that they should form a corporation to shield their personal assets.Wally,however,says their personal assets are not in danger with his proposal because they are a business and that,furthermore,forming a corporation would likely result in double taxation.Is Wally correct that forming a corporation would likely result in double taxation?

In a manager-managed LLC,the managers must be members of the LLC.

A partnership in which the partners divide profits and management responsibilities and share unlimited personal liability for the partnership's debts is called a ________.