Deck 29: Sole Proprietorships, partnerships, and Limited Liability Companies

Question 1

Any suit against the business or its employees does not lead to unlimited personal liability for the owner of a sole proprietorship.

Answer 1

False

Question 2

A sharing of profits from the ownership of property creates a presumption that a partnership exists.

Answer 2

False

Question 3

In a general partnership,the acts of one partner in the ordinary course of business do not subject the other partners to personal liability.

Answer 3

False

Question 4

In choosing a form of business organization for a new enterprise,important factors include the ability to raise capital.

Question 5

In a general partnership,all partners have equal rights in managing the partnership.

Question 6

A third party cannot sue one of the partners of a partnership without suing all members of the partnership.

Question 7

A sole proprietor pays personal and business income taxes on the business's profits.

Question 8

A partner's profit from a partnership is taxed as income to the firm.

Question 9

Under no circumstances can a non-partner be regarded as an agent whose acts are binding on the partnership.

Question 10

A sole proprietorship lacks continuity on the death of the proprietor.

Question 11

A sole proprietor is free to make any decision he or she wishes concerning the business.

Question 12

Most states treat a partnership as an aggregate for most purposes.

Question 13

Unlike most agents,each partner in a partnership has an ownership interest in the business.

Question 14

On a partner's dissociation,his or her right to participate in the management and conduct of the business terminates.

Question 15

A sole proprietor does not own the entire business.

Question 16

A partnership is forced to terminate every time a partner dissociates from the firm.

Question 17

The simplest form of business is a sole proprietorship.

Question 18

The majority rule controls decisions on ordinary matters connected with partnership business.

Question 19

In a sole proprietorship,the proprietor shares the burden of any losses or liabilities incurred by the business enterprise with the government.

Question 20

A partner has a duty to devote time,skill and energy on behalf of the partnership business.

Question 21

In most states,a limited liability company can have only a limited number of members.

Question 22

In a limited liability company,members are not allowed to participate in the management of the company.

Question 23

Limited liability companies are governed solely by federal statutes.

Question 24

The owners of a limited liability company enjoy limited liability.

Question 25

Wren owns and operates Yoga Center without creating a separate business organization.She receives all the profits from the doll sales.Yoga Center is most likely 

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

Question 26

Without creating a separate business organization,Reynold starts up,and assumes the financial risk of,Sole Savers,a new,pre-owned auto sales enterprise.Reynold is 

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

Question 27

In a limited partnership,limited partners have essentially the same rights as general partners to participate in management.

Question 28

A limited liability partnership must be formed in compliance with state law.

Question 29

Members of a limited liability company (LLC)can stipulate in their operating agreement procedures for choosing or removing members or managers.

Question 30

In a limited liability partnership,a partner can be exempt from personal liability for the malpractice of other partners.

Question 31

A limited liability company (LLC)formed in one state but doing business in another state is referred to in the second state as a foreign LLC.

Question 32

A corporation cannot be a member of a limited liability company.

Question 33

Corbin organized,and owns and operates,Corbin's Deep Sea Fishing 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 34

The managers of a limited liability company must be members.

Question 35

Kelly,the owner of Llama Farms,a sole proprietorship,wants to obtain additional business capital but to maintain control.This can best be accomplished by 

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

Question 36

On a partner's dissociation,his or her interest in the partnership must be purchased.

Question 37

In a limited partnership,no partner has full responsibility for the partnership and for all its debts.

Question 38

Leigh wants to go into the business of construction contracting.Among the reasons that would probably convince Leigh 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 39

Limited liability companies cannot sue or be sued.

Question 40

In winding up a general partnership,creditors are paid before partners receive their capital contributions.

Question 41

Fact Pattern 29-2Krispin and Linley are partners in Mobile Devises, an online marketing firm.
Refer to Fact Pattern 29-2.Linley dissociates from Mobile.Krispin signs a contract with Organic Olives,a food seller,apparently on Mobile's behalf.Organic Olives does not know of Linley's dissociation.The contract is binding on 

A) ​Krispin, Linley, and Mobile. 
B) ​Krispin only. 
C) ​Mobile only. 
D) ​Organic Olives only.

Question 42

Forrest and Gentry do business as Forrest & Gentry Accountants,a partnership.This firm is governed by the Uniform Partnership Act​ 

A) ​in the absence of an express agreement. 
B) ​in the absence of an implied agreement. 
C) ​only under an express agreement. 
D) ​under all circumstances.

Question 43

Clu,Dolf,and Elton do business as Fertile Valley Farm.Clu's relationship to the firm ends,but it continues to do business.This is 

A) ​dissociation. 
B) ​dissolution. 
C) ​winding up. 
D) ​wrongful.

Question 44

Silvano owns Textbooks Plus,a sole proprietorship that sells textbooks and other school supplies.When Silvano dies,Textbooks Plus will automatically 

A) ​cease to continue. 
B) ​pass to Silvano's heirs. 
C) ​pass to the state. 
D) ​be offered for sale to its creditors and competitors.

Question 45

Steffi and Ty agree in an exchange of e-mail to form a partnership to deal in transfers of 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 put in writing on paper and signed by the parties. 
C) ​only if the parties exchange valid consideration. 
D) ​without more.

Question 46

Fact Pattern 29-2Krispin and Linley are partners in Mobile Devises, an online marketing firm.
Refer to Fact Pattern 29-2.Krispin signs a contract with Natural Valley Chocolate,a candy maker and seller,apparently on Mobile's behalf.The contract is binding on 

A) ​Krispin, Linley, and Mobile. 
B) ​Krispin only. 
C) ​Mobile only. 
D) ​Natural Valley only.

Question 47

Olav owns Precision Painting,a sole proprietorship.Olav's liability is 

A) ​limited by state statute and varies from state to state. 
B) ​limited to the extent of capital expenditures. 
C) ​limited to the extent of his or her original investment. 
D) ​unlimited.

Question 48

Ralph and Simone do business as Tech Troubleshooters,a partnership.In most states,for the purposes of collecting judgments and having accounting performed,Tech Troubleshooters would be treated as​ 

A) ​an aggregate of individuals. 
B) ​a person. 
C) ​an entity. 
D) ​a proprietorship.

Question 49

Fact Pattern 29-1Abby starts up Bowls to serve and sell soups for workday lunches. Abby leases space in an office building owned by Carmen. The lease requires Abby to pay Carmen a base rental of $1,250, plus 10 percent of Bowls' profits, each month. The term is two years. Abby hires Deja to take and fill customers' orders at an hourly wage of $12.50, plus tips.
Refer to Fact Pattern 29-1.Abby and Deja are​ 

A) ​not partners, because Deja does not have an ownership interest or management rights in Bowls. 
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 50

Kari is the sole proprietor of Living Earth Garden Shop.As a sole proprietor,on the business's profits,Kari pays 

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

Question 51

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

A) ​express, but not from an agreement that is implied. 
B) ​implied, but not from an agreement that is express. 
C) ​oral, written, or implied by conduct. 
D) ​written, but not from an agreement that is oral or implied.

Question 52

Chet is a partner in Diligent Accounting Service.Chet can inspect 

A) ​all of Diligent's books and records. 
B) ​Diligent's books and records only as the firm's management permits. 
C) ​Diligent's books and records only for a reasonable purpose. 
D) ​Diligent's books and records relating only to Chet's capital contribution.

Question 53

Kathy and John decide to form a partnership to sell fish food to local fish farms for the next five years.To be enforceable under the Statute of Frauds,the partnership agreement​ 

A) ​must be signed by a notary public. 
B) ​must be in writing. 
C) ​must be oral. 
D) ​cannot involve a third party.

Question 54

Brad and Carlita 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 partnership's buyout of Brad's interest in the firm. 
C) ​the immediate maturity of all partnership debts. 
D) ​the temporary suspension of the partnership's business.

Question 55

Fact Pattern 29-1Abby starts up Bowls to serve and sell soups for workday lunches. Abby leases space in an office building owned by Carmen. The lease requires Abby to pay Carmen a base rental of $1,250, plus 10 percent of Bowls' profits, each month. The term is two years. Abby hires Deja to take and fill customers' orders at an hourly wage of $12.50, plus tips.
Refer to Fact Pattern 29-1.Abby and Carmen are​ 

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

Question 56

Rosalee is a partner in Silver Dragon,a partnership consisting of the owners of a Chinese and American restaurant.Silver Dragon incurs debt for new dining tables and chairs.Rosalee is 

A) ​not liable for the debt. 
B) ​only liable for the debt up to the amount of her capital contribution. 
C) ​personally liable only to the extent the other partners do not pay. 
D) ​personally liable to the full extent of the debt.

Question 57

Nathalie and Olina do business as Profitable Properties,a real estate investment partnership.In acting on the firm's behalf in a deal with Quaint Village Mall,Nathalie takes advantage of an opportunity to make a secret profit on her own behalf.To her firm,Nathalie is 

A) ​liable for breach of the duty of care. 
B) ​liable for breach of the duty of accounting. 
C) ​liable for breach of the duty of loyalty. 
D) ​not liable.

Question 58

Marta is a partner in Kasper's Kleaning.When Marta dies her heirs are 

A) ​not entitled to any interest in Kasper's Kleaning. 
B) ​entitled to half of Marta's interest in Kasper's Kleaning. 
C) ​entitled to the value of Marta's interest in Kasper's Kleaning. 
D) ​entitled to one third of Marta's interest in Kasper's Kleaning.

Question 59

Sweet Selections is a general partnership that sells candy,cards and flowers.Sweet Selections has ten partners.Jill and Amy each have a 25 percent interest in the partnership.All the other members have a 10 percent interest.To pass a management decision 

A) ​a majority of the partners must agree to the decision. 
B) ​both Jill and Amy must agree to the decision. 
C) ​Jill or Amy must agree to the decision. 
D) ​30 percent of the partners must agree to the decision.

Question 60

Tom and Bill are partners in Tough Trucks Towing.James is not a partner.In dealing with Fred,James holds himself out to be a partner in Tough Trucks Towing and Fred contracts to have Tough Trucks Towing tow some vehicles for him.If Tough Trucks fails to tow the vehicles,a court may conclude that 

A) ​a partnership by estoppel exists and James is liable to Fred. 
B) ​no partnership exists and James is not liable to Fred. 
C) ​a partnership by estoppel exists and Fred has all partnership rights. 
D) ​no partnership exists, but Tom and Bill are liable to Fred.

Question 61

Jeri and Knute are members of Lighthouse Tours LLC,a limited liability company.With respect to Lighthouse Tours's liability,as members,Jeri and Knute are shielded from 

A) ​all liability. 
B) ​no liability. 
C) ​personal liability. 
D) ​"alter ego" liability.

Question 62

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 63

Darryl is a limited partner in Eco Baits,a pest control service organized as a limited partnership,which cannot pay its debts.Darryl is personally liable for the debts 

A) ​in proportion to the number of partners in the firm. 
B) ​to no extent. 
C) ​to the extent of his contribution to the firm. 
D) ​to the full extent.

Question 64

Jim and Kyle are partners in J&K Sales,which exports technical equipment under a three-year partnership agreement.The U.S.government declares that the equipment can no longer be exported.J&K 

A) ​dissolves as soon as the stated term expires. 
B) ​dissolves as soon as the partners agree to dissolve it. 
C) ​dissolves immediately unless the partners change its business. 
D) ​does not dissolve.

Question 65

Cherry Creek 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 Cherry Creek limited partner loses his or her limited liability if he or she 

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

Question 66

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 67

Outreach Security & Rescue,LLC,is a limited liability company.Unless the members have agreed otherwise,participants in the firm's management will be considered to include 

A) ​all members. 
B) ​no member. 
C) ​one member. 
D) ​one non-member manager.

Question 68

Roma and Swain are partners in Roma & Swain Attorneys,LLP,a limited liability partnership.Roma supervises their firm's associate Taylor,who negligently fails to appear in court on behalf of Umberto,a client.Liability to Umberto rests with 

A) ​Roma and Taylor. 
B) ​Roma only. 
C) ​Taylor only. 
D) ​Roma & Swain Attorneys, LLP.

Question 69

Delany and Efron want to form a limited partnership to do general business bookkeeping with an emphasis on tax accounting.In 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 70

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

A) ​their own wrongful acts. 
B) ​any partnership obligation. 
C) ​their own and other partners' wrongful acts. 
D) ​none of the choices.

Question 71

Qatar Global Investments is a foreign entity-a firm owned and operated by investors in a foreign country.With respect to a limited liability company in the United States,Qatar Global can 

A) ​act as a creditor, but cannot otherwise invest or participate. 
B) ​become a member. 
C) ​not become a member, but can participate in its operations. 
D) ​not become a member or otherwise participate in its operations.

Question 72

Custom Auto Body & Detailing,LLC,is a limited liability company.Unless indicated otherwise,the firm will be taxed as 

A) ​a person. 
B) ​a corporation. 
C) ​a proprietorship. 
D) ​a partnership.