Deck 28: Types of Business Organizations

Question 1

Partnership profits are distributed in proportion to partners' tenure and seniority.

Answer 1

False

Question 2

The proprietor's opportunity to raise capital for a sole proprietorship is limited.

Answer 2

True

Question 3

A partnership arises from an agreement between two or more parties to carry on a business for profit.

Answer 3

True

Question 4

When there is no formal, written partnership agreement, an agreement to form a partnership is unenforceable .

Question 5

In a sole proprietorship, the proprietor receives all the profits.

Question 6

Anyone who does business without creating a separate business organization has a partnership.

Question 7

A general partnership is a pass-through entity and a tax-paying entity.

Question 8

The sharing of profits from ownership of property proves the existence of a partnership.

Question 9

The proprietor pays only personal income taxes on a sole proprietorship's profits.

Question 10

There are two basic types of partnerships- general partnerships and specific partnerships.

Question 11

Generally, the law recognizes a partnership as an independent entity .

Question 12

Unanimous consent of the partners is required to make basic changes in the nature of the business or the partnership agreement.

Question 13

In many instances, agency law governs the relationships among partners.

Question 14

It is often more difficult and costly to start a sole proprietorship because so many legal forms are involved.

Question 15

The proprietor of a sole proprietorship does not bear the burden of all liabilities incurred by the business.

Question 16

In a sole proprietorship, the owner is not the business.

Question 17

Each partner has the right to complete information concerning all aspects of partnership business.

Question 18

When the owner of a sole proprietorship dies, the business does not dissolve-it is automatically transferred to family members or other heirs.

Question 19

The Uniform Partnership Act governs the operation of partnerships in spite of a different agreement among the partners.

Question 20

One of the essential elements of a general partnership is a joint ownership of the business.

Question 21

Members of a limited liability company are not allowed to participate fully in management activities.

Question 22

Without creating a separate business organization, Roy starts up Street Cruisers, a new, pre-owned auto sales enterprise. Roy is

A) a general partner.
B) a member.
C) a limited partner.
D) a sole proprietor.

Question 23

Dissociation occurs when a partnership's customer ceases to carry on business with the firm.

Question 24

In a limited partnership, a limited partner assumes no liability for partnership debts beyond the amount of capital contributed.

Question 25

A foreign investor cannot be a member of a limited liability company.

Question 26

The liability of the members of a limited liability company for the firms' debts and obligations is unlimited.

Question 27

Laura owns and operates Meditation Center without creating a separate business organization. She receives all the profits from the fees for the classes and the sales of the center's merchandise. This is most likely

A) a general partnership.
B) a limited liability partnership.
C) a sole proprietorship.
D) a limited liability company.

Question 28

To form a limited liability company, articles of organization must be filed with a central state agency.

Question 29

Bayard organized, and owns and operates, Cypress Tours in the simplest form of business organization. This is

A) a limited liability company.
B) a limited partnership.
C) a general partnership.
D) a sole proprietorship.

Question 30

A partner's interest in the partnership is a personal asset.

Question 31

A partner cannot pursue his or her own interest without violating the partner's fiduciary duties to the partnership.

Question 32

During the winding up stage of dissolution, no party can make a claim on the partnership assets.

Question 33

I n a limited partnership, a limited partner has the right to participate in the operation of the partnership.

Question 34

Dissolution of a partnership can be brought about only by operation of law.

Question 35

A limited liability partnership allows professionals to avoid personal liability for the malpractice of other partners.

Question 36

Chase, the owner of Data Master, a sole proprietorship, wants to obtain additional business capital. This opportunity is most likely limited to

A) borrowing funds.
B) bringing in partners.
C) issuing stock.
D) selling the business.

Question 37

Every act of a partner concerning partnership business binds the firm.

Question 38

A partner can be held liable for a partnership obligation only if he or she participated in, or knew about, whatever it was that gave rise to the obligation.

Question 39

Generally, in dealing with a limited liability company (LLC) formed in another state, a state will apply the law of the state where the LLC was formed.

Question 40

Lee wants to go into the business of construction contracting. Among the reasons that would probably convince Lee to set up his business as a sole proprietorship would be

A) its greater organizational flexibility.
B) its limited liability.
C) its perpetual existence.
D) the ease of transferring the business to other family members.

Question 41

Fact Pattern 28-2 Kristin and Lindsey are partners in Mobile Devise, a marketing firm.
Refer to Fact Pattern 28-2. Kristin signs a contract with Nature's Chocolate, a candy maker, apparently on Mobile's behalf. The contract is binding on

A) Kristin, Lindsey, and Mobile.
B) Kristin only.
C) Mobile only.
D) Nature's only.

Question 42

Selections, a general partnership, operates a gift shop. Selections has five partners. Tony has a one-third interest in the partnership. Each of the other partners has a one-sixth interest. With respect to management decisions

A) a majority of the partners must agree.
B) Tony rules.
C) the senior partner decides.
D) four of the partners must agree.

Question 43

Sam and Terry agree to form a partnership to sell real property. To be enforceable under the Statute of Frauds, their agreement must be

A) filed in the appropriate state office.
B) in writing.
C) signed by a notary public.
D) all of the choices.

Question 44

Fact Pattern 28-2 Kristin and Lindsey are partners in Mobile Devise, a marketing firm.
Refer to Fact Pattern 28-2. Lindsey dissociates from Mobile. This ends Lindsey's

A) right to participate in the partnership business.
B) right to have her interest in the partnership purchased by the firm.
C) duty of care with respect to events that occurred before dissociation.
D) all of the choices.

Question 45

Stefani and Tyler agree in an exchange of e-mail to form a partnership to buy and sell real property. Their partnership agreement is legally binding

A) only if a copy of the agreement is filed in the appropriate state office.
B) only if the agreement is printed in hard copy and signed by the parties.
C) only if the parties exchange valid consideration.
D) without more.

Question 46

Fact Pattern 28-1 Ann starts up Bowls Bistro to sell soups and salads. Ann leases space in an office building owned by Carly. The lease requires a base rent of $1,250, plus 10 percent of Bowls Bistro's profits, each month. The term is two years. Ann hires Demi to take and fill customers' orders at an hourly wage of $15.00, plus tips.
Refer to Fact Pattern 28-1. Ann and Demi are

A) not partners, because Demi does not have an ownership interest or management rights in Bowls Bistro.
B) not partners, because the pay includes an hourly wage.
C) not partners, because the pay includes only 10 percent of the profits.
D) partners in a partnership.

Question 47

Del owns Everlast Painting, a sole proprietorship. Del's liability is

A) limited by state statute.
B) limited to the amount stipulated by the firm's business insurance.
C) limited to the extent of his or her capital contribution.
D) unlimited.

Question 48

Bev owns and operates City Delivery Service as a sole proprietorship. When she dies, the business will automatically

A) dissolve.
B) transfer to the owner's heirs.
C) dissociate.
D) transfer to its creditors.

Question 49

Kay and Linda decide to do business as Marketing & Promotion. To be a partnership, this association can result from an agreement that is

A) express, but not implied.
B) implied, but not express.
C) oral, written, or implied by conduct.
D) written, but not oral or implied.

Question 50

Ford is the sole proprietor of Go, an app service. As a sole proprietor, on the business's profits, Ford pays

A) no income taxes.
B) only personal income taxes.
C) only business income taxes.
D) both personal and business income taxes.

Question 51

Rosalee is a general partner in Silver Dragon, a partnership consisting of the owners of a restaurant. Silver Dragon incurs debt for new dining tables and chairs. With respect to this debt, Rosa is

A) not liable.
B) only liable to the amount of her capital contribution.
C) only liable in proportion to the number of partners in the firm.
D) personally liable to the full extent.

Question 52

Brad and Carol are partners in Doctors for Children, a medical clinic. Brad's dissociation from the firm results in

A) the automatic termination of the firm's legal existence.
B) the partner to have his or her interest purchased by the partnership.
C) the immediate maturity of all partnership debts.
D) the temporary suspension of the partnership's business.

Question 53

Rita and Sal do business as Tech Security, a partnership. In most states, for the purposes of collecting judgments and having accounting performed, this firm would be treated as

A) a combination of individuals.
B) a proprietorship.
C) an independent entity.
D) an aggregate.

Question 54

Fact Pattern 28-1 Ann starts up Bowls Bistro to sell soups and salads. Ann leases space in an office building owned by Carly. The lease requires a base rent of $1,250, plus 10 percent of Bowls Bistro's profits, each month. The term is two years. Ann hires Demi to take and fill customers' orders at an hourly wage of $15.00, plus tips.
Refer to Fact Pattern 28-1. Ann and Carly are

A) not partners, because Carly does not have an ownership interest or management rights in Bowls Bistro.
B) not partners, because the lease includes "base rent."
C) not partners, because the rent includes only 10 percent of the profits.
D) partners in a partnership for two years.

Question 55

Omar is a partner in Party Caterers. Omar's death will

A) dissolve the partnership.
B) breach the partnership agreement.
C) dissociate the partner.
D) wind up the business.

Question 56

Cathy, Don, and Ethel do business as Fertile Farm. Cathy gives notice to quit the firm, which otherwise continues to do business. This is

A) dissociation.
B) dissolution.
C) unethical.
D) illegal.

Question 57

Nora and Owen do business as Profit & Property, a real estate investment partnership. In acting on the firm's behalf, Nora takes advantage of an opportunity to make a secret profit for herself. To her firm, Nora is liable for

A) breach of the duty of care.
B) breach of contract.
C) breach of the duty of loyalty.
D) nothing.

Question 58

The essential elements of a partnership do not include

A) a sharing of profits and losses.
B) a joint ownership of the business.
C) an equal right in the management of the business.
D) good faith.

Question 59

Vern is a partner in Waffles Food Truck. Concerning all aspects of the partnership business, Vern is entitled to information

A) on a complete basis.
B) only on an "as needed" basis.
C) only for a reasonable purpose.
D) only related to the partner's capital contribution.

Question 60

Deb and Erv are partners in Framing & Foundations, a construction outfit. Deb manages the business. For this service, she is

A) entitled to pay in proportion to her effect on the business if the partners agree.
B) entitled to pay in proportion to her effort by default.
C) entitled to pay in proportion to her capital contribution.
D) not entitled to pay.

Question 61

Global Investments is a foreign investor. With respect to the operations of a limited liability company in the United States, Global can

A) become a member , but cannot otherwise participate.
B) become a member and participate.
C) not become a member, but can participate.
D) not become a member or participate.

Question 62

Kim and Lyle are partners in K&L Sales, which exports technical equipment. If Congress declares that the equipment can no longer be exported, K&L

A) can continue its business for one twelve-month period.
B) can continue its business indefinitely.
C) dissolves immediately unless the partners change its business.
D) is immediately subject to criminal prosecution and penalties.

Question 63

Housing Development, LP, is a limited partnership that invests in residential real estate projects. Its limited partners include more than 150 sophisticated investors and investment professionals. A limited partner risks losing his or her limited liability if he or she

A) participates in the firm's management.
B) does not participate in the firm's management.
C) invests in a project that the firm has declined.
D) votes to sell or dissolve the firm.

Question 64

Jess and Keri are members of Livewire LLC, a limited liability company. In most situations, with respect to Livewire's debts, Jess and Keri are shielded from

A) all liability.
B) no liability.
C) personal liability.
D) joint and several liability.

Question 65

Dana is a member of Earthground Coffee, LLC, a limited liability company. Dana is liable for Earthground's debts

A) in proportion to the total number of members.
B) to the extent of her investment in the company.
C) in proportion to her profit derived from the company.
D) to the full extent.

Question 66

Able Accounting, LLC, is a limited liability company. With respect to the firm's management, Able's members can

A) participate fully.
B) participate only if the firm's main managers are non-members.
C) participate only if they possess special skills related to the business.
D) not participate.

Question 67

Len is a member of Maintenance Service, a limited liability company. The firm's profits are "passed through" to Len and the other members who pay

A) no income taxes.
B) only personal income taxes.
C) only business income taxes.
D) both personal and business income taxes.

Question 68

Sally and Tom decide to go into business, selling discounted merchandise through their Web site "e-Buy." They sign a partnership agreement that requires Sally to contribute $12,000 and Tom to contribute $8,000 in capital to start the firm. The agreement says nothing about the management of the firm or a division of profits. Without Sally's knowledge, Tom tells United Computer Products, Inc., that he represents the firm and signs a contract with United to buy hard drives for resale on e-Buy. In the first year, e-Buy makes a profit of $50,000. What are the partners' rights with respect to the management of the firm? Is the partnership bound to the contract with United? Do the partners split the first year's profits?  If so, how much is each entitled to?

Question 69

Owen plans to open Owen's Pets Store, a pet sales and pet supplies outlet, and to hire Quimby and Ruth. Owen will invest only his own money. He does not expect to make any profit for at least two years and to make almost no profit for the first three years, but he hopes to expand eventually. Which form of business organization would be most appropriate? What are the chief characteristics, advantages, and disadvantages of this form of business organization? If Owen wants to obtain additional capital to expand the business, but does not want to lose control of the firm, what is his best option?

Question 70

In Ohio, Paving LLC is a foreign limited liability company. In dealing with Paving, Ohio will apply the law of the state where the firm

A) was formed.
B) is headquartered.
C) does business.
D) will receive consistent treatment.

Question 71

Delany and Efron want to form a limited partnership to do general business bookkeeping with an emphasis on tax accounting. I n most states, a limited partnership will be created when Delaney and Efron

A) file a certificate of limited partnership.
B) execute a partnership agreement.
C) accept their first client.
D) make their capital contributions.

Question 72

Nell is considering forms of business organization for Optic Center, a medical eye clinic. An advantage of a limited liability partnership is that partners can avoid personal liability for

A) their own wrongful acts.
B) the malpractice of other partners.
C) all wrongful acts.
D) none of the choices.