Deck 16: Law and Business Associations I

Question 1

In a limited partnership, ownership interests are limited to no more than 35 shareholders.

Answer 1

False

Question 2

In a limited liability company, profits are taxed as income to corporation and again as income to owners when distributed as dividends.

Answer 2

False

Question 3

Principle factors influencing the choice of business organizational form include whether the firm will likely choose to exercise its power of condemnation.

Answer 3

False

Question 4

Which of the following is true of a sole proprietorship in the United States?

A) It is the most expensive way to create a business organization.
B) The daily management is controlled by the owner.
C) The transfer of ownership is a complex process.
D) The debt of the business is shared by all stakeholders.

Question 5

Solutions, Inc., a consultancy firm in the United States, has thirty-five shareholders. It decides to raise capital by issuing shares to more people, thereby increasing the number of shareholders. However, Solutions finds that the law prohibits it from doing so. Based on this information, Solutions is a .

A) public corporation
B) sole proprietorship
C) limited liability company
D) Subchapter S corporation

Question 6

A business owned by one person, who has complete control over management and profits, is known as a .

A) public corporation
B) general partnership
C) sole proprietorship
D) limited liability company

Question 7

Which of the following is a similarity between a public corporation and a limited liability company?

A) Both have a limitation on the number of owners.
B) Both allow owners control over daily management decisions.
C) Both limit liability of owners to loss of capital contribution.
D) Both have their profits taxed as income to corporation and again as income to owners when distributed as dividends.

Question 8

Which of the following is one of the principal factors influencing the choice of organizational form?

A) number of competitors in the relevant industry
B) transferability of ownership interests
C) innovativeness of the proposed product or service
D) employee attrition rate

Question 9

There is no ideal form for a business venture.

Question 10

Discuss the principal factors influencing a business manager's choice of organizational form.

Question 11

A is the easiest and least expensive way to create a business organization.

A) sole proprietorship
B) general partnership
C) public corporation
D) limited liability company

Question 12

Which of the following is not a principal factor influencing a business manager's choice of organizational form?

A) tax ramifications
B) control considerations
C) potential liability of owner(s)
D) zoning and variances

Question 13

Which of the following is a characteristic of a sole proprietorship?

A) Ownership interests are nontransferable.
B) Profits are taxed as income to the organization and again as income to owners.
C) The lifetime of the organization is unlimited.
D) Liability of the owners is limited to loss of capital contribution.

Question 14

Principle factors influencing the choice of business organizational form include tax ramifications.

Question 15

In a Subchapter S corporation, the owner has complete control over daily management decisions.

Question 16

Which of the following is a difference between a Subchapter S corporation and a limited liability company?

A) A Subchapter S corporation has no limitation on number of members, whereas a limited liability company limits ownership interests to no more than 35 shareholders.
B) In a Subchapter S corporation, each owner has unlimited personal liability for debts of the organization, whereas in a limited liability company, liability of the owners is limited to loss of capital contribution.
C) In a Subchapter S corporation, profits are taxed to owners as ordinary income and losses are deducted by them, whereas in a limited liability company, profits are taxed as income to corporation and again as income to owners when distributed as dividends.
D) A Subchapter S corporation does not allow the owners control over daily management decisions, whereas a limited liability company does.

Question 17

Which of the following is an incorrect statement regarding factors influencing a business manager's choice of organizational form?

A) Provided that the business manager chooses correctly, there is an ideal form of business venture.
B) Each organizational form has its advantages.
C) Each organizational form has its disadvantages.
D) The entrepreneur, with the counsel of an attorney and an accountant or a tax expert, should carefully weigh the advantages and disadvantages of different organizational forms for the type of business the entrepreneur wishes to engage in.

Question 18

Which of the following is a characteristic of a public corporation?

A) The lifetime of the organization is limited to the lifetime of the decision-making committee or the Chief Executive Officer, whichever is longer.
B) Profits are taxed as income to corporation and again as income to owners when distributed as dividends.
C) Ownership interests are generally limited to no more than 35 shareholders.
D) Owners can exert control over daily management decisions.

Question 19

Which of the following is not a principal factor influencing the choice of business organizational form?

A) eminent domain
B) ease and expense of formation and operations
C) transferability of ownership interests
D) projected life of the organization

Question 20

Which of the following is a characteristic of a limited partnership?

A) The personal liability of each partner is unlimited.
B) The lifetime of the organization is unlimited.
C) Limited partners have control over daily management decisions.
D) The liability of a limited partner is limited to his or her capital contribution.

Question 21

Which of the following is true of the relationship between partners?

A) In most general partnerships, each partner has two votes in decisions pertaining to the management of the business.
B) Each partner should have a fiduciary relationship with the partnership.
C) Decisions pertaining to merging with another partnership should never be decided by a unanimous vote.
D) The duty of loyalty and a duty of good faith and fair dealings by partners are established by the Uniform Partnership Act.

Question 22

Which of the following holds true for a general partnership if the partners have not entered into a written agreement?

A) Partners are required to contribute equal capital to the partnership and bear equal responsibilities.
B) Individual partners are exempted from federal income taxes because those taxes are paid by the partnership.
C) Partners are required to file a partnership return with the Internal Revenue Service that shows the partnership's profit or loss.
D) The partnership is double-taxed because both the partnership and the individual partners pay taxes.

Question 23

Which of the following is an advantage of sole proprietorship?

A) The owner's personal liability for all assets is the least.
B) The proprietor does not have to worry about day-to-day management decisions.
C) The proprietorship is subject to less government regulation at all levels.
D) The lifetime of such an organization is unlimited.

Question 24

On its "deathbed," a partnership goes through a process called _.

A) dissolution and winding-up
B) bankruptcy
C) realignment and merger
D) foreclosure

Question 25

A partnership in which management responsibilities and profits are divided usually equally among the partners, and all partners have unlimited personal liability for the partnership's debts is called a(n) partnership.

A) nominal
B) active
C) equal
D) general

Question 26

Which of the following is prevented by dissolution after partners have initiated termination proceedings?

A) finalizing the accounting records
B) paying the outstanding debts of the partnership
C) transacting any new business
D) dividing any profits between the partners

Question 27

A voluntary association of two or more persons formed to carry on a business as co-owners for profit is known as a _ .

A) Subchapter S corporation
B) partnership
C) public corporation
D) limited liability company

Question 28

Which section of the general partnership agreement form contains miscellaneous information, such as arbitration and accounting year?

A) Article I
B) Article II
C) Article III
D) Article IV

Question 29

Which of the following is a disadvantage of a general partnership?

A) The control of a partnership is skewed in favor of the partner who invests most capital.
B) Partnerships do not have perpetual existence.
C) Both a partnership and its individual partners are taxed separately.
D) The partnership agreement does not allow partners to leave the business.

Question 30

Adrianna and Trevor have formed a partnership without a partnership agreement. Trevor contributes twenty percent of the partnership capital and does sixty percent of the work. If the partnership earns a profit of $10,000 after its first year, how much of the profit can Adrianna legally claim?

A) $8,000
B) $2,000
C) $5,000
D) $4,000

Question 31

Which section of the general partnership agreement form contains information about a partner's right to demand property?

A) Article I
B) Article II
C) Article III
D) Article IV

Question 32

Which of the following is a reason for a partnership to "die"?

A) One of the partners starts a new business within the same company.
B) The partners decide to relocate the headquarters of the partnership.
C) One of the partners attempts to buy the share of the others.
D) The partnership is merged with another business.

Question 33

Which of the following holds true for a general partnership where there is no partnership agreement varying the usual provisions of partnership law?

A) Partners divide profits equally.
B) Partners divide profits in proportion to the work they do.
C) Partners divide profits in proportion to the capital they contribute.
D) Partners enjoy limited liability for the partnership's debts.

Question 34

Which of the following items is included in the partnership agreement?

A) age of each partner
B) duties of each partner
C) citizenship of each partner
D) net worth of each partner

Question 35

refers to the process of completing all unfinished transactions, paying off outstanding debts, distributing assets, and dividing remaining profits when a partnership is on its "deathbed."

A) Winding-up
B) Liquidation
C) Litigation
D) Rolling-over

Question 36

Which of the following is a disadvantage of the sole proprietorship form of business organization?

A) The proprietor is personally liable for all losses incurred by the proprietorship.
B) The proprietor does not get to retain all profits of the business.
C) The proprietorship suffers double taxation.
D) Establishing the proprietorship requires more forms and other legal formalities than any other form of organization.

Question 37

Which of the following is true of the Revised Uniform Partnership Act?

A) It does not provide protection for the limited liability partner.
B) It has been adopted by all states of the United States.
C) It stipulates that no two partners can have equal share of the profits.
D) It states that a partnership need not dissolve just because a partner leaves.

Question 38

Which of the following is a duty among partners?

A) duty of obedience
B) judiciary duty
C) duty of devotion
D) auxiliary duty

Question 39

Which of the following factors is the basis on which the Revised Uniform Partnership Act (RUPA) determines that a partnership exists?

A) the nationality of the partners
B) age of the partners since the lifetime of the partnership will be determined by their age
C) a joint ownership of the business
D) number of partners since profits will need to be divided accordingly

Question 40

Which of the following is an advantage of a general partnership?

A) It has an unlimited lifetime.
B) Taxes are levied on a partnership and not on its owners.
C) Expenses required for creating a partnership are low.
D) Ownership interests are easily transferable.

Question 41

Shelly wishes to invest in Mark and Rhonda's partnership, but she has no desire to take part in its management. Furthermore, she prefers to limit her liability to her investment. Which of the following organizational forms would accommodate Shelly's wishes?

A) general partnership with Shelly as a limited partner
B) general partnership with Shelly as a general partner
C) limited partnership with Shelly as a general partner
D) limited partnership with Shelly as a limited partner

Question 42

When winding-up is complete, a partnership's legal existence is terminated.

Question 43

Discuss the items included in partnership agreements.

Question 44

List the advantages and disadvantages of a sole proprietorship over other forms of business organization.

Question 45

A public corporation is the easiest and least expensive way to create a business organization.

Question 46

Sheila and Rob mutually decide to start a business together. Being close friends, they do not enter into a written agreement and agree to split all responsibilities and profits equally. However, Sheila soon finds herself saddled with more than her share of work. She now resents splitting the profits equally since her contribution to the business is more. This has affected Rob and Sheila's friendship. What form of business organization is followed by Rob and Sheila? What should they have done to prevent any misunderstandings between themselves? Can Sheila legally claim a greater share of profits?

Question 47

A(n) partnership has one general partner, who is responsible for managing the business, and one or more partners, who invest in the partnership but do not participate in its management and whose liability is restricted to the amount of capital they contribute.

A) active
B) limited
C) unlimited
D) nominal

Question 48

Which of the following is a similarity between general partnerships and limited partnerships?

A) They are created by a contractual agreement between two or more persons.
B) Losses are divided equally among the partners.
C) The personal liability of all partners is unlimited.
D) All partners have an equal role in the management of the organization.

Question 49

The Revised Uniform Partnership Act provides protection for general partners, but not for limited liability partners.

Question 50

The Revised Uniform Partnership Act states that a partnership will be dissolved if a partner leaves.

Question 51

A partnership does not have perpetual existence and can "die" when the partnership agreement expires.

Question 52

In the absence of a written agreement in a partnership, partners are required to share profits equally.

Question 53

Explain the differences between general partnerships and limited partnerships.

Question 54

In a general partnership, liability of partners is limited to loss of capital contribution.

Question 55

Explain the duties and rights of partners in a general partnership.

Question 56

Which of the following statements is true under the 2001 revision to the Revised Uniform Limited Partnership Act (RULPA)?

A) A limited partner cannot be held liable for the partnership debts unless he or she participates in the management of the limited partnership.
B) A limited partner can be held liable for the partnership debts under any circumstance.
C) A limited partner can be held liable for the partnership debts if he or she receives profits.
D) A limited partner cannot be held liable for the partnership debts even if he or she participates in the management and control of the limited partnership.

Question 57

The primary law governing limited partnerships is the .

A) Revised Uniform Partnership Act (RUPA)
B) Uniform Partnership Act (UPA)
C) Revised Uniform Limited Partnership Act (RULPA)
D) Revised Limited Partnership Act (RLPA)

Question 58

A limited liability limited partnership differs from a limited partnership in that liability is the same for a general partner as for a limited partner.

Question 59

The net worth of each partner is one of the items included in a general partnership agreement.

Question 60

A sole proprietor generally pays only personal income taxes on profits.

Question 61

A commercial agreement between a party that owns a trade name or trademark and a party that sells or distributes goods or services using that trade name or trademark is known as a .

A) joint venture
B) joint stock company
C) franchise relationship
D) syndicate

Question 62

Which of the following is not a specialized form of business association?

A) joint stock company
B) syndicate
C) joint venture
D) racket

Question 63

The is the party in a franchise relationship who owns a trade name or trademark.

A) franchisee
B) franchisor
C) delegator
D) delegatee

Question 64

The Franchising Rule was promulgated by the in 1979.

A) Federal Communications Commission
B) Securities and Exchange Commission
C) Federal Trade Commission
D) Consumer Financial Protection Bureau

Question 65

The is the party in a franchise relationship who sells or distributes goods using the trade name or trademark.

A) franchisee
B) franchisor
C) delegator
D) delegatee

Question 66

Which of the following is true of a franchising relationship?

A) A franchisor pays a percentage of the gross sales to a franchisee.
B) Usually, a franchisee is a foreign national whom a franchisor supplies with goods.
C) A franchisee sells or distributes goods using a trade name or trademark owned by a franchisor.
D) Federal law allows franchisors to terminate franchise agreements without any cause in order to protect their patent rights.

Question 67

A is an investment group that privately agrees to come together for the purpose of financing a large commercial project that none of the members could finance alone.

A) joint stock company
B) syndicate
C) joint venture
D) franchise

Question 68

A clause included in a franchise agreement is violated when the franchisee uses an Internet website to market products worldwide.

A) privacy
B) marketing
C) commercial
D) territorial area

Question 69

A is a partnership agreement in which members of the organization own shares that are transferable, but all goods are held in the name of the members, who assume partnership liability.

A) joint stock company
B) syndicate
C) joint venture
D) franchise

Question 70

Which of the following is a fee for advertising and promotional campaigns and administrative costs billed to franchisees either as a flat monthly or annual fee or as a percentage of gross sales?

A) assessment fee
B) initial license fee
C) royalty fee
D) lease fee

Question 71

Which of the following is an incorrect statement regarding a syndicate?

A) A syndicate is an investment group.
B) A syndicate comes together for the purpose of financing a large commercial project.
C) The advantage of a syndicate is that members are not liable to third parties for project failure.
D) The advantage of a syndicate is that it can raise large amounts of capital quickly.

Question 72

Which of the following topics is covered under the "other terms" of a franchise agreement?

A) the franchisor's right to make periodic inspections of the franchisee's premises
B) the duration of training programs either on site or at the franchisor's training facilities
C) the restrictions on use of the franchisor's trade name
D) the claim or controversy arising from the franchise agreement or an alleged breach

Question 73

Which of the following pieces of information is required to be disclosed under the Uniform Franchise Offering Circular (UFOC)?

A) the list of competitors within the same industry
B) the material terms of the franchise agreement
C) the age of all owners of the trademark
D) the nationality of all the employees of the franchise

Question 74

A is a relationship between two or more persons or corporations set up for a specific business undertaking or a limited time period.

A) general partnership
B) joint venture
C) syndicate
D) franchise

Question 75

A joint stock company is a partnership agreement in which members agree to stock ownership in exchange for partnership liability.

Question 76

Alexis Corporation (Alexis) decided to finance the construction of a large hotel. Two months after the project started, financial difficulties forced the firm to call the project to a halt. The construction company decided to sue Alexis for breach of agreement. Alexis decided to collaborate with Excalibur Industries and Phantasy, Inc. to complete the project. In this scenario, the three firms have decided to form a .

A) general partnership
B) franchise
C) joint venture
D) syndicate

Question 77

Which of the following federal laws requires a franchisor to disclose all material facts to a franchisee before entering into a franchise agreement?

A) the Franchise Rule
B) the Uniform Franchise Law
C) the Uniform Franchise Offering Circular
D) the Federal Franchise Law

Question 78

Which of the following holds true for the royalty fee paid by a franchisee?

A) It is a lump-sum payment for the privilege of being granted a franchise.
B) It is a fee for promotional campaigns and administrative costs.
C) It is a fee for the continued use of a franchisor's trade name.
D) It is a payment for any land or equipment leased from a franchisor.

Question 79

Which of the following is an incorrect statement regarding a joint venture?

A) Partnerships can form a joint venture.
B) Corporations cannot form a joint venture.
C) Individuals can form a joint venture.
D) Joint ventures are a popular way for developing nations to attract foreign capital.

Question 80

Which of the following is an incorrect statement regarding a joint stock company?

A) Members of a joint stock company own shares that are transferable.
B) The joint stock company is treated as a partnership.
C) In a joint stock company, all goods are held in the name of the partners.
D) A joint stock company is an S corporation.