Deck 27: Choice of Business Entity and Sole Proprietorships

Question 1

A chief drawback to a sole proprietorship as a form of business is because of the complete lack of protection of the Principal's personal assets.

Answer 1

True

Question 2

A franchise agreement is the exclusive governing agreement for the franchise.

Answer 2

False

Question 3

The person who is entitled to the profits of a business based on the percentage of ownerships is

A) Principal
B) Executive
C) Board member
D) Manager

Answer 3

Principal

Question 4

Raul wants a simple method to start-up a small marketing company. The marketing firm has relatively low revenue and expenses. Which type of business entity would you suggest?

A) Partnership
B) Corporation
C) Franchise
D) Sole proprietorship

Question 5

Gwendolyn Melvin wishes to start a children's sports store called, "Just Let 'Em Play!" as a sole proprietor. What form must she file so that she can use another name than her own?

A) UCC-1 statement
B) Disclosure statement
C) DBA Certificate
D) Name Certificate

Question 6

Josh is a sole proprietor of an ice cream shop. Regina, a customer, slips and fall on some melted mint chocolate chip ice cream on the floor and breaks her leg. Regina files suit and wins a judgment of $50,000. Josh does not have any insurance and the total value of the assets of the ice cream shop is $10,000. Which statement below is correct?

A) Josh will only have to give Regina the money from the assets of the business, $10,000.
B) Josh will not be required to pay anything because he does not have insurance.
C) Josh will have to pay $10,000 and then set up a payment plan to pay off the balance.
D) Josh will have to use his own personal assets to pay the remainder of the judgment.

Question 7

In Lewis v. Moore, the court ruled

A) Since Moore was a sole-proprietorship she could not close down the business without a majority vote of the employees.
B) Moore could not close down the business if it would be detrimental the employees.
C) Since Moore was a sole proprietor she was free to dissolve it at any time.
D) Moore needed to have shareholder approval before dissolving the business.

Question 8

Reid Sterling owns a sole proprietorship called Dunkle Distributing. Dunkle Distributing is a

A) Brand Name
B) Commercial Name
C) Trade Name
D) Legal Name

Question 9

All of the following are methods that a sole proprietorship can raise money except

A) Sell ownership in the business.
B) Private loans.
C) Commercial loans.
D) Line of credit.

Question 10

Cyndy is a sole proprietor of a day care. She wishes to build a new playground and also purchase new toys. She plans on doing this in stages and therefore wants a loan where she can draw against a predetermined amount as she needs it rather than getting a lump sum loan. Which type of loan would you recommend for Cyndy?

A) Commercial loan
B) Private loan
C) Collateral
D) Line of credit

Question 11

Which of the following is true about a sole proprietorship?

A) It is subject to corporate income tax.
B) The owner must file a tax return on behalf of the business.
C) The owner reports income and expenses on the owner's own tax return.
D) Sole proprietorships face double taxation.

Question 12

Mike owns Swibel Trucking, a successful trucking business, as a sole proprietor. After many successful years in business, one night he decides he wants to change his business to a partnership so that he can share the burden and devote more time to pursue his hobby of duck watching full time. What steps must he take to change the type of business entity to a partnership?

A) None as a sole proprietor can convert to another business form at the proprietor's will.
B) He must seek approval by the board.
C) He must hire an oversight committee to ensure that the sole proprietorship is effectively shut down.
D) He must dissolve the sole proprietorship, notify clients and creditors and apply for a partnership authorization.

Question 13

Shawna, a sole proprietor, dies suddenly. What will happen to the business?

A) The sole proprietorship will transfer to an heir.
B) The sole proprietorship will terminate.
C) The sole proprietorship will operate posthumously until a court order decrees it terminated.
D) The sole proprietorship will pass to the highest bidder.

Question 14

The doctrine that allows a creditor to seek recovery from the purchaser of assets even when the purchaser did not expressly assume such liabilities as part of the purchase is called

A) Joint and several liability
B) Unlimited liability
C) Successor liability
D) Contributory liability

Question 15

In the case, Biller v. Snug Harbor Jazz Bistro of Louisiana, the court ruled

A) The sole proprietorship continued after the death of the owner due to judicial action.
B) The sole proprietorship terminated but only after the estate was settled and closed.
C) The sole proprietorship continued to exist.
D) The sole proprietorship terminated upon the death of the sole proprietor.

Question 16

A sole proprietor is liable

A) For all the debts of the business.
B) Only up to half of the debt of the business.
C) Not liable for the debt of the business.
D) For what the courts determine as fair and just repayment of the debts of the business.

Question 17

Which statement below is correct about a sole proprietorship?

A) It is created by filing bylaws.
B) It has low start-up costs and minimal filing.
C) It can have multiple owners.
D) It faces double taxation.

Question 18

A franchise conducts business

A) According to an established contract.
B) As a corporation.
C) According to default rules.
D) Only as a sole proprietorship.

Question 19

Which governmental organization oversees the regulation of franchisors?

A) International Trade Commission
B) National Commerce Agency
C) Federal Commerce Commission
D) Federal Trade Commission

Question 20

Which of the following statements about a franchise is correct?

A) Start-up is simple with very little filing.
B) A franchise faces mandatory disclosures.
C) All transactions of a franchise are protected by privacy laws.
D) A franchise only faces state regulations.

Question 21

Business owners are also known as __________.

A) Principals
B) Executives
C) Officers
D) Fiduciaries

Question 22

A __________ is a business entity that has a proven track record of success and sells the right to operate the business and use the business's trade secrets, trademarks, products, and so on.

A) Sole proprietorship
B) LLC
C) Franchise
D) LLLP

Question 23

Jed wants to pass his sole proprietorship on to his son Luke in his will. Can her do this?

A) No.
B) Yes.
C) No unless the court can prove the Luke is in the best position to run the business.
D) Yes if the court finds that no other heirs exist.

Question 24

A name used by a sole proprietorship for a business instead of the proprietor's actual name is called

A) Commercial name
B) UCC name
C) Trade name
D) Legal name

Question 25

In the case of Lewis v. Moore, the court ruled

A) The sole proprietor has limited liability.
B) The sole proprietor has the right to dissolve the proprietorship at any time.
C) The sole proprietor has a fiduciary duty to the employees.
D) The sole proprietor must operate within certain corporate formalities.

Question 26

A franchisor sells the right to operate the business and use the business's trade secrets to a(n)

A) Franchisee
B) Successor
C) Principal
D) Member

Question 27

A franchisor assists the franchisee with all the following except

A) Financing
B) Training
C) Supplies
D) Filing the articles of incorporation

Question 28

All of the following statements about management of a sole proprietorship is correct except

A) The sole proprietor has sole discretion to bind the business.
B) The sole proprietor has no oversight committees.
C) The sole proprietor has a fiduciary duty to the employees.
D) The sole proprietor may change to another form of entity at the sole proprietor's will.

Question 29

Explain the basic elements of a franchise agreement that binds the parties in the franchise.

Question 30

Discuss the factors a person must take into consideration and evaluate when deciding to start a sole proprietorship.

Question 31

Explain the options available to a sole proprietorship to capitalize and explain if capitalization of a sole proprietorship is an advantage or disadvantage.

Question 32

What events can cause a sole proprietorship to terminate?