Question 1

Which of the following is false regarding a sole proprietorship?

Accepted Answer

A)  A sole proprietorship requires few legal formalities. 
B)  A sole proprietor has complete control of the management of the business. 
C)  The sole proprietor keeps all the profits from the business. 
D)  Profits are taxed as the personal income of the sole proprietor. 
E)  A sole proprietor is not personally liable for obligations of the business. 
A)  A sole proprietorship requires few legal formalities. 
B)  A sole proprietor has complete control of the management of the business. 
C)  The sole proprietor keeps all the profits from the business. 
D)  Profits are taxed as the personal income of the sole proprietor. 
E)  A sole proprietor is not personally liable for obligations of the business. E

Question 2

A limited partnership and a limited liability partnership refer to the same type of business organization.

Accepted Answer

A) True 
 B)False  False

Question 3

"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 since they will have to rent tutoring space, and purchase computers and supplies. She is also concerned about parents and students who may sue if their 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, tells their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would even result in tax being imposed twice.
-Which of the following is true regarding Wally's assertion regarding tax?

Accepted Answer

A)  Wally is correct insofar as the corporation would be required to pay taxes on its profits, and the shareholders would also be required to pay taxes on dividends. 
B)  Wally is incorrect because all businesses are taxed in the same manner. 
C)  Wally is incorrect but only because the law involving taxation of corporations does not apply until there are at least 10 shareholders. 
D)  Wally is incorrect but only because the law involving taxation of corporations does not apply until there are at least 75 shareholders. 
E)  Wally is correct but only because his proposal does not involve a writing and the filing of paperwork with the secretary of their state. 
A)  Wally is correct insofar as the corporation would be required to pay taxes on its profits, and the shareholders would also be required to pay taxes on dividends. 
B)  Wally is incorrect because all businesses are taxed in the same manner. 
C)  Wally is incorrect but only because the law involving taxation of corporations does not apply until there are at least 10 shareholders. 
D)  Wally is incorrect but only because the law involving taxation of corporations does not apply until there are at least 75 shareholders. 
E)  Wally is correct but only because his proposal does not involve a writing and the filing of paperwork with the secretary of their state. A

Question 4

In which of the following, if any, may investors share in profits but not in management responsibilities while avoiding personal liability?

Accepted Answer

A)  Limited partnership 
B)  General partnership 
C)  Limited liability partnership 
D)  Limited liability company 
E)  There is no such entity 
A)  Limited partnership 
B)  General partnership 
C)  Limited liability partnership 
D)  Limited liability company 
E)  There is no such entity

Question 5

Which of the following is true regarding joint ventures?

Accepted Answer

A)  Participants in a joint venture usually share profits equally, but share losses based on the percentage of contribution. 
B)  Participants in a joint venture usually share losses equally, but share profits based on the percentage of contribution. 
C)  The joint venture is not automatically terminated when one of the members dies. 
D)  A joint venture requires the filing of a formal agreement with the state. 
E)  Courts frequently apply sole proprietorship law to joint ventures. 
A)  Participants in a joint venture usually share profits equally, but share losses based on the percentage of contribution. 
B)  Participants in a joint venture usually share losses equally, but share profits based on the percentage of contribution. 
C)  The joint venture is not automatically terminated when one of the members dies. 
D)  A joint venture requires the filing of a formal agreement with the state. 
E)  Courts frequently apply sole proprietorship law to joint ventures.

Question 6

Which of the following was the result in Meyer v. Christie, the case in the text involving whether an agreement to enter into a joint venture existed?

Accepted Answer

A)  That the evidence showed only an anticipatory agreement to form a joint venture in the future, not the actual formation of a joint venture. 
B)  That no joint venture existed because there was evidence contrary to the intent to form a joint venture. 
C)  That any alleged joint venture agreement was unenforceable under the statute of frauds because it was premised on an unenforceable oral agreement to purchase and transfer land. 
D)  That while a joint venture existed, no damages were found. 
E)  That a joint venture existed with no prohibition against damages. 
A)  That the evidence showed only an anticipatory agreement to form a joint venture in the future, not the actual formation of a joint venture. 
B)  That no joint venture existed because there was evidence contrary to the intent to form a joint venture. 
C)  That any alleged joint venture agreement was unenforceable under the statute of frauds because it was premised on an unenforceable oral agreement to purchase and transfer land. 
D)  That while a joint venture existed, no damages were found. 
E)  That a joint venture existed with no prohibition against damages.

Question 7

Which of the following is false regarding a limited partnership?

Accepted Answer

A)  There must be at least one general partner. 
B)  There must be at least two limited partners. 
C)  The partnership must use the word "limited" in its title. 
D)  The parties must file a certificate of partnership with a state office to create it. 
E)  If a limited partner dies, the limited partnership is usually unaffected. 
A)  There must be at least one general partner. 
B)  There must be at least two limited partners. 
C)  The partnership must use the word "limited" in its title. 
D)  The parties must file a certificate of partnership with a state office to create it. 
E)  If a limited partner dies, the limited partnership is usually unaffected.

Question 8

Which of the following establishes how a franchise agreement will be terminated?

Accepted Answer

A)  The franchise agreement 
B)  The Franchise Termination Act 
C)  The Franchisor-Franchisee Protection Act 
D)  The Franchisee Protection Act 
E)  The Franchise Wrap-Up Act 
A)  The franchise agreement 
B)  The Franchise Termination Act 
C)  The Franchisor-Franchisee Protection Act 
D)  The Franchisee Protection Act 
E)  The Franchise Wrap-Up Act

Question 9

Which of the following is responsible for running the day-to-day business of a corporation?

Accepted Answer

A)  Investors 
B)  Shareholders 
C)  Officers 
D)  Administrators 
E)  Members of the board of directors 
A)  Investors 
B)  Shareholders 
C)  Officers 
D)  Administrators 
E)  Members of the board of directors

Question 10

Which of the following is the most popular form of business ownership in the U.S.?

Accepted Answer

A)  Sole proprietorship 
B)  Limited partnership 
C)  Limited liability partnership 
D)  Corporation 
E)  Limited liability company 
A)  Sole proprietorship 
B)  Limited partnership 
C)  Limited liability partnership 
D)  Corporation 
E)  Limited liability company

Question 11

Which of the following is false regarding a general partnership?

Accepted Answer

A)  It is easy to create. 
B)  Income of the business is personal income. 
C)  Business losses can be deducted from taxes. 
D)  The partners are considered agents of the partnership. 
E)  In most cases partners do not have personal liability for losses. 
A)  It is easy to create. 
B)  Income of the business is personal income. 
C)  Business losses can be deducted from taxes. 
D)  The partners are considered agents of the partnership. 
E)  In most cases partners do not have personal liability for losses.

Question 12

Which of the following was the result in Cousins Subs Systems Inc., v. Michael R. McKinney, the case in the text involving whether the defendant wrongfully terminated a franchise agreement with the plaintiff?

Accepted Answer

A)  That the defendant rightfully terminated the franchise agreement because the plaintiff made false representations in violation of state statutory law regarding how much money the defendant would make. 
B)  That the defendant rightfully terminated the franchise agreement because the plaintiff made false representations in violation of state statutory law regarding the amount of advertising that would be done. 
C)  That the defendant rightfully terminated the franchise agreement because the plaintiff made false representations in violation of state statutory law regarding efforts at recruitment of other franchisees. 
D)  That the plaintiff did not violate the franchise agreement because the written documents did not contain untrue statements of material facts or omissions of material facts. 
E)  That while the plaintiff violated the franchise agreement, the defendant also violated the agreement, and that no damages would therefore be awarded to either party. 
A)  That the defendant rightfully terminated the franchise agreement because the plaintiff made false representations in violation of state statutory law regarding how much money the defendant would make. 
B)  That the defendant rightfully terminated the franchise agreement because the plaintiff made false representations in violation of state statutory law regarding the amount of advertising that would be done. 
C)  That the defendant rightfully terminated the franchise agreement because the plaintiff made false representations in violation of state statutory law regarding efforts at recruitment of other franchisees. 
D)  That the plaintiff did not violate the franchise agreement because the written documents did not contain untrue statements of material facts or omissions of material facts. 
E)  That while the plaintiff violated the franchise agreement, the defendant also violated the agreement, and that no damages would therefore be awarded to either party.

Question 13

"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. Unfortunately, Bitsy 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 told her to leave out the peanuts in Bobby's batch because of the allergy. Cathy, however, forgot about the peanut allergy and proceeded to make Bobby's cookies with 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 discusses her problems with the bakery with her parents. 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.
-What type of business had Kitty initially set up?

Accepted Answer

A)  A franchise 
B)  A sole proprietorship 
C)  An individual proprietorship 
D)  A general company 
E)  An S corporation 
A)  A franchise 
B)  A sole proprietorship 
C)  An individual proprietorship 
D)  A general company 
E)  An S corporation

Question 14

Which of the following is a business that exists because of an arrangement between the owner of a trade name or trademark and a person who sells goods or services under the trade name or trademark?

Accepted Answer

A)  Joint venture 
B)  Franchise 
C)  Joint partnership 
D)  Consensual seller 
E)  Approved arrangement 
A)  Joint venture 
B)  Franchise 
C)  Joint partnership 
D)  Consensual seller 
E)  Approved arrangement

Question 15

"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 since they will have to rent tutoring space, and purchase computers and supplies. She is also concerned about parents and students who may sue if their 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, tells their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would even result in tax being imposed twice.
-What type of arrangement did Wally propose with his suggestion that they share control of the business and split profits equally, not bothering with a written agreement?

Accepted Answer

A)  A joint sole proprietorship 
B)  A partnership 
C)  A corporation 
D)  An S corporation 
E)  A limited partnership 
A)  A joint sole proprietorship 
B)  A partnership 
C)  A corporation 
D)  An S corporation 
E)  A limited partnership

Question 16

"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 since they will have to rent tutoring space, and purchase computers and supplies. She is also concerned about parents and students who may sue if their 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, tells their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would even result in tax being imposed twice.
-In regard to the quest of Wally and Sally to find the best form of business organization, which of the following is true?

Accepted Answer

A)  An S corporation provides the tax advantages of a partnership but does not avoid personal liability for shareholders. 
B)  A limited liability company combines the tax advantages of a partnership with the limited liability of a corporation. 
C)  A double sole proprietorship avoids corporate double taxation and also shields assets of the owners from tort claims of third parties although creditors may reach the personal assets of the owners. 
D)  An unincorporated cooperative combines the tax advantages of a partnership with the limited liability of a corporation. 
E)  A joint venture is a type of undertaking involving joint stock which is treated as a corporation in regard to double taxation and limited liability. 
A)  An S corporation provides the tax advantages of a partnership but does not avoid personal liability for shareholders. 
B)  A limited liability company combines the tax advantages of a partnership with the limited liability of a corporation. 
C)  A double sole proprietorship avoids corporate double taxation and also shields assets of the owners from tort claims of third parties although creditors may reach the personal assets of the owners. 
D)  An unincorporated cooperative combines the tax advantages of a partnership with the limited liability of a corporation. 
E)  A joint venture is a type of undertaking involving joint stock which is treated as a corporation in regard to double taxation and limited liability.

Question 17

Investor-owners of a corporation are called which of the following?

Accepted Answer

A)  Profit owners 
B)  Profit and loss owners 
C)  Approved investors 
D)  Limited partners 
E)  Shareholders 
A)  Profit owners 
B)  Profit and loss owners 
C)  Approved investors 
D)  Limited partners 
E)  Shareholders

Question 18

Syndicates are usually considered a type of ______, thus they are almost always governed by ______ law.

Accepted Answer

A)  Limited liability company; corporate 
B)  Joint venture; partnership 
C)  Cooperative; corporate 
D)  Business trust; corporate 
E)  Joint stock company; partnership 
A)  Limited liability company; corporate 
B)  Joint venture; partnership 
C)  Cooperative; corporate 
D)  Business trust; corporate 
E)  Joint stock company; partnership

Question 19

Brice just finished a residence in internal medicine and wants to go into practice with Horace and Joyce. Brice tells you that while he needs to practice with other physicians for call coverage and for other reasons, he does not want to be liable should the other physicians be found guilty of malpractice. You discuss various incorporation options with him, but he tells you that he would like to form a partnership. What business form would you recommend to him and why?

Accepted Answer

A limited liability partnershi

Question 20

An S corporation cannot have more than 75 shareholders.

Accepted Answer

A) True 
 B)False

Exam 35: Forms of Business Organization

Which of the following is false regarding a sole proprietorship?

A limited partnership and a limited liability partnership refer to the same type of business organization.

In which of the following, if any, may investors share in profits but not in management responsibilities while avoiding personal liability?

Which of the following is true regarding joint ventures?

Which of the following was the result in Meyer v. Christie, the case in the text involving whether an agreement to enter into a joint venture existed?

Which of the following is false regarding a limited partnership?

Which of the following establishes how a franchise agreement will be terminated?

Which of the following is responsible for running the day-to-day business of a corporation?

Which of the following is the most popular form of business ownership in the U.S.?

Which of the following is false regarding a general partnership?

Which of the following was the result in Cousins Subs Systems Inc., v. Michael R. McKinney, the case in the text involving whether the defendant wrongfully terminated a franchise agreement with the plaintiff?

Which of the following is a business that exists because of an arrangement between the owner of a trade name or trademark and a person who sells goods or services under the trade name or trademark?

Investor-owners of a corporation are called which of the following?

Syndicates are usually considered a type of ______, thus they are almost always governed by ______ law.

An S corporation cannot have more than 75 shareholders.

An Introduction to Dynamic Business Law

Business Ethics

The US Legal System

Alternative Dispute Resolution

Constitutional Principles

International and Comparative Law

Crime and the Business Community

Tort Law

Negligence and Strict Liability

Product Liability

Liability of Accountants and Other Professionals

Intellectual Property

Introduction to Contracts

Agreement

Consideration

Capacity and Legality

Legal Assent

Contracts in Writing

Third-Party Rights to Contracts

Discharge and Remedies

Introduction to Sales and Lease Contracts

Title, Risk of Loss, and Insurable Interest

Performance and Obligations Under Sales and Leases

Remedies for Breach of Sales and Lease Contracts

Warranties

Negotiable Instruments: Negotiability and Transferability

Negotiation, Holder in Due Course, and Defenses

Liability, Defenses, and Discharge

Checks and Electronic Fund Transfers

Secured Transactions

Other Creditors Remedies and Suretyship

Bankruptcy and Reorganization

Agency Formation and Duties

Liability to Third Parties and Termination

Partnerships: Nature, Formation, and Operation

Partnerships: Termination and Limited Partnerships

Corporations: Formation and Financing

Corporations: Directors, Officers, and Shareholders

Corporations: Mergers, Consolidations, Terminations

Corporations: Securities and Investor Protection

Employment and Labor Law

Employment Discrimination

Administrative Law

Consumer Law

Environmental Law

Antitrust Law

The Nature of Property, Personal Property, and Bailments

Real Property

Landlord-Tenant Law

Insurance Law

Wills and Trusts

Filters

Syndicates are usually considered a type of , thus they are almost always governed by law.