Deck 14: Business Organizations

Question 1

A sole proprietor has limited liability for the obligations of a proprietorship.

Answer 1

False
Explanation: A sole proprietor is personally obligated for the debt of the proprietorship. Legally speaking, this owner has unlimited liability for the obligations of this type of business organization.

Question 2

The failure to consider how to overcome disputes involving managerial control can cause business activities to suffer and an organization to fail.

Answer 2

True
Explanation: The failure to consider how to overcome disputes involving managerial control can cause business activities to suffer and an organization to fail. Therefore, consideration of potential conflict and mechanisms to resolve disputes are essential to consider when selecting a form for a business venture.

Question 3

The three basic forms of business organizations are limited partnerships,S corporations,and limited liability companies.

Answer 3

False
Explanation: The law recognizes three basic forms of business organizations and several hybrid forms that contain attributes of two or more basic forms. The three basic forms include sole proprietorships, partnerships, and corporations.

Question 4

Jacob and his family own and operate a publishing firm.This is an example of a publicly held organization.

Question 5

If a sole proprietorship retains its profits for business expansion purposes instead of distributing the money to a proprietor,that owner still must pay taxes on the income made by the proprietorship.

Question 6

A dissolution essentially terminates the business of a partnership.

Question 7

Usually,the cost of creation of a business entity is not a major factor in considering which form of business organization a person will choose to operate a business.

Question 8

Ownership of a sole proprietorship can be transferred.

Question 9

Examples of publicly held businesses include those whose stock is traded on a public exchange.

Question 10

A business is likely to shift away from the proprietorship form as it becomes more successful.

Question 11

In the corporate form of organization,the shareholders elect the officers.

Question 12

Partnership is the most easily formed business organization compared to other forms of business organizations.

Question 13

Family-owned and family-operated businesses are common examples of publicly held organizations.

Question 14

When a business is publicly held by a large number of owners,the form of organization usually is a corporation.

Question 15

The creation of a partnership requires permission from each state in which it does business.

Question 16

If a partnership is called "Golden Consultants," then the partners would need to comply with any applicable assumed-name statute.

Question 17

All partners in a general partnership have unlimited liability for their organization's debts.

Question 18

A limited partnership is solely made up of limited partners.

Question 19

When two or more persons with a common interest in business share profits and losses,a partnership exists.

Question 20

Although expensive to create in comparison with other forms of businesses,the use of sole proprietorships is becoming all the more common.

Question 21

A limited partner may assign his or her interest to another without dissolving the limited partnership.

Question 22

A benefit corporation is also known as a B-Corp.

Question 23

Criminal prosecutions for corporate wrongdoing are rising due to the increased use of deferred prosecution agreements.

Question 24

Any operating loss suffered by an S corporation is shared and immediately deductible on the returns of its shareholders.

Question 25

A(n)______ is any change in the ownership of an organization that changes the legal existence of the organization.

A) arbitration
B) rescission
C) restitution
D) dissolution
E) extradition

Question 26

The Internal Revenue Service treats limited liability companies as taxable entities.

Question 27

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

A) It can be publicly held.
B) It is not taxed as an organization.
C) It is the hardest business organization to create.
D) It is the most expensive business organization to create.
E) It can be created by multiple owners.

Question 28

In a limited liability company (LLC),members act as agents of the LLC but are not personally liable to third parties.

Question 29

Which of the following statements is true of publicly held business organizations?

A) Publicly held organizations are owned only by a few persons.
B) Publicly held organizations are only owned by the government.
C) Shareholders of publicly held organizations can transfer their ownership without interfering with the organization's management.
D) A family-operated business is an example of a publicly held business organization.
E) Publicly held organizations are free from all legal liabilities to its shareholders, which is the primary reason for this corporate form being used.

Question 30

In the context of factors to consider when selecting a business's organizational form,one of the most significant creation-related issues is

A) the location of the business.
B) how much paperwork is involved.
C) how many people are recruited on average in a year by the organization.
D) the organization's policies.
E) the demographic to which the organization targets its services or products.

Question 31

The criteria used to select a form of organization needs to be reviewed periodically in consultation with close advisers.

Question 32

It is not unusual for the growth in a business to be reflected in changes in organizational forms as a part of a life cycle.

Question 33

Even though a corporation is treated the same as an individual under most aspects of the law,there are some rights that only individuals can possess.

Question 34

The use of sole proprietorships is very limited because

A) there is no formal documentation process for its creation.
B) it gives limited control to the proprietor.
C) it is the most expensive business organization to create.
D) multiple owners cannot create a proprietorship.
E) it is the hardest business organization to create.

Question 35

A limited partner,even if he or she participates in management,cannot be held liable as a general partner.

Question 36

Fiduciary duties in limited liability companies are clearly spelled out in some state statutes,while others are silent.

Question 37

It is not possible to change an existing corporate structure to a benefit corporation in any state.

Question 38

The impetus for creating the benefit corporation structure comes from the perception that traditional corporate forms place less emphasis on shareholder rights.

Question 39

The crucial issue with the continuity factor of a business's organizational form is

A) its management style.
B) the average age of the employees working for the business.
C) the method by which the business can be dissolved.
D) the method adopted by the business to reach out to its customers.
E) the control exercised by its managers.

Question 40

Corporate officers and directors do not owe fiduciary duties of care and loyalty to shareholders.

Question 41

Which of the following is a disadvantage of partnerships?

A) They have a high cost of formation.
B) They are tax-paying entities.
C) They are subject to more governmental supervision than corporations.
D) They need to obtain a license if they wish to operate in more than one state.
E) They will be dissolved any time a partner leaves the partnership.

Question 42

Which of the following is a characteristic of partnerships?

A) They cannot operate in more than one state without obtaining a license to do so.
B) They are generally subject to more regulation and governmental supervision than a corporation.
C) They may not use any word in the name that would imply the existence of a corporation.
D) They are the least expensive form of business organization.
E) They allow unlimited number of people to become partners.

Question 43

Which of the following statements is true of managerial control in a general partnership?

A) It is mandatory for each partner to have equal voice in a firm's affairs.
B) Partners may agree to divide control in such a way as to make controlling partners and minority partners.
C) The differences in the degree of control do not affect a business's success.
D) The possibility of deadlock is higher when there is a greater number of partners and an odd number of them.
E) Language governing issues of managerial control need to be made orally clear to all partners.

Question 44

Which of the following is an advantage of a sole proprietorship?

A) A sole proprietor is personally obligated for the debt of the proprietorship.
B) A sole proprietorship is not taxed as an organization.
C) In a sole proprietorship, liability is shared with many partners.
D) A sole proprietorship is the least expensive business organization to create.
E) A sole proprietorship's business activity may be more stable than the proprietor's willingness to remain actively involved in the business.

Question 45

As a creature of state legislative bodies,a ______ is much more complex to create and to operate than other forms of businesses.

A) sole proprietorship
B) partnership
C) limited partnership
D) corporation
E) limited liability partnership

Question 46

Which of the following forms of organization is most easily formed at minimal costs?

A) limited liability partnership
B) partnership
C) corporation
D) S corporation
E) limited liability company

Question 47

A corporation created under the authority of a foreign country may be called a(n)______.

A) imported corporation
B) offshore corporation
C) alien corporation
D) distant corporation
E) external corporation

Question 48

Which of the following statements is true of corporations?

A) Corporations do not have to pay income taxes on their profits.
B) In comparison with partnerships, corporations are more costly to form.
C) A corporation's organizational structure changes whenever a shareholder sells his or her stock.
D) In comparison with proprietorships, corporations are easier to form.
E) The law treats a corporation's existence in tandem with its owners' status as shareholders.

Question 49

Technically,a(n)______ is an agent appointed by a shareholder for the purpose of voting the shares.

A) officer
B) director
C) proxy
D) arbitrator
E) signatory

Question 50

To prevent problems that may arise when a partner dies or withdraws from a partnership,the articles of partnership should include a(n)______.

A) buy and sell agreement
B) escrow instruction
C) establishment clause
D) commerce clause
E) interest agreement

Question 51

Which of the following statements is true of a general partnership?

A) A general partnership is dissolved any time there is a change in the partners.
B) A general partnership must have at least one controlling partner.
C) A dissolution does not necessarily destroy the business of a partnership.
D) Unlike proprietorships, partnerships are taxable entities.
E) All partners in a general partnership have only limited liability for their organization's debts.

Question 52

Jonathan intends to have maximum control over his decisions in his business.Which of the following forms of business organizations is most likely to give Jonathan total control over his business decisions?

A) sole proprietorship
B) partnership
C) corporation
D) S corporation
E) limited liability company

Question 53

Which of the following makes sole proprietorship a less desirable form of organization?

A) The creation of sole proprietorship is expensive and requires formal documentation.
B) A proprietorship's business activity may be more stable than a proprietor's willingness to remain actively involved in the business.
C) A proprietor may have to share his or her voice of control and responsibility for the business' success with the other acting members of the organization.
D) Sole proprietorships are the hardest forms of organization to create.
E) Sole proprietorships are subject to double taxation.

Question 54

Which of the following forms of organization requires no formal documentation but only business licenses for formation?

A) l imited partnership
B) corporation
C) limited liability company
D) sole proprietorship
E) S corporation

Question 55

Which of the following is the basic difficulty of owning a minority interest in a closely held corporation?

A) There is no ready market for the minority stock should a shareholder desire to dispose of it.
B) Stockholders with a minority interest have no rights in a closely held corporation.
C) Buy and sell agreements to own a minority interest are not allowed in a closely held corporation.
D) Minority shareholders have unlimited personal liability for the obligations of a closely held corporation.
E) Minority shareholders risk losing more than their investment amount.

Question 56

The creation of a(n)______ is automatic based on business conduct and is modified by agreement.

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

Question 57

Which of the following statements is true of liability of partners in a general partnership?

A) Partners have limited liability for an organization's debts.
B) Partners' personal assets, which are not associated with the partnership, may not be claimed by the creditors.
C) From a creditor's perspective, the liability of each partner extends only to a pro rata share.
D) A partner who has to pay beyond his pro rata share will have to make use of his future buyout interest.
E) A partner having unlimited liability will be jointly and severally liable for the partnership's obligations.

Question 58

While selecting a name for a partnership,if the name is other than that of the partners,the partners must give notice as to their actual identity under the state's ______.

A) fictitious-name certification law
B) annexed-name statute
C) suppositious-name law
D) fictious-name rule
E) assumed-name statute

Question 59

Which of the following is an advantage of partnerships?

A) A partnership is practical because only a limited number of persons can be partners.
B) A partnership is easily formed because it is based on a contract among persons.
C) Each partner's liability is unlimited.
D) Partners are taxed on their share of the partnership's profits, whether the profits are distributed or not.
E) A partnership is dissolved anytime a partner ceases to be a partner, regardless of whether the reason is withdrawal or death.

Question 60

In a(n)______,the shareholders are taxed only on income distributed.

A) limited partnership
B) corporation
C) limited liability company
D) sole proprietorship
E) S corporation

Question 61

Which of the following statements is true of an S corporation?

A) It cannot have more than 100 shareholders.
B) It is the official designation for a corporation with less than 500 employees.
C) It is the least expensive form of organization to create.
D) It does not have shareholders.
E) It need not file an information return with the Internal Revenue Services since it does not pay any taxes.

Question 62

A limited liability company is created through filing the ______ with a state official.

A) articles of confederation
B) articles of incorporation
C) articles of organization
D) articles of association
E) articles of integration

Question 63

The formal application for a corporate charter is called the ______.

A) articles of confederation
B) articles of incorporation
C) articles of partnership
D) articles of application
E) articles of integration

Question 64

The ______,by which the corporate veil can be pierced,may also be used to impose personal liability upon corporate officers,directors,and stockholders.

A) alter-ego theory
B) negligent conduct theory
C) Med-Arb theory
D) corporate envelopment theory
E) corporate doppelganger theory

Question 65

Which of the following is the disadvantage of the corporate form of organization?

A) Control of a corporation may be held by those with a minority of the investment.
B) Ownership may be divided into many unequal shares.
C) Shareholders' liabilities are limited to their investments.
D) The organization cannot have perpetual existence.
E) Corporate income may be subject to double taxation.

Question 66

Which of the following statements is true of limited partners?

A) They cannot act as an agent of the partnership.
B) They can control operations of the limited partnership.
C) They cannot vote on the change of the partnership's name.
D) They can have their surnames used in the partnership's name.
E) They can act as a guarantor of the partnership's obligations.

Question 67

The owners of limited liability companies are called ______.

A) shareholders
B) partners
C) proprietors
D) members
E) directors

Question 68

In a closely held corporation,the majority shareholders

A) have no influence on management.
B) can control election of a board of directors.
C) cannot be employed by the corporation.
D) have the same impact on policy as minority stockholders.
E) bring derivative suits on behalf of the corporation.

Question 69

Which of the following is a taxable entity?

A) a partnership
B) a limited liability partnership
C) a limited liability company
D) a corporation
E) a sole proprietorship

Question 70

Which of the following organizations is equally managed by the members unless a manager is designated?

A) l partnership
B) corporation
C) limited liability company
D) sole proprietorship
E) S corporation

Question 71

A corporate charter is issued following an application made by individuals known as ______.

A) incorporators
B) arbitrators
C) mediators
D) officers
E) directors

Question 72

Which of the following is required to have its organizers file articles of organization with state official for formation?

A) limited partnership
B) partnership
C) limited liability company
D) sole proprietorship
E) limited liability partnership

Question 73

Which of the following has a perpetual existence so long as the number of shareholders is limited?

A) limited partnership
B) partnership
C) limited liability company
D) sole proprietorship
E) S corporation

Question 74

Which of the following is an advantage of the corporate form of organization?

A) License fees and franchise taxes are not assessed against corporations.
B) Control of a corporation may be held by those with a minority of the investment.
C) The cost of forming and maintaining a corporation is minimal.
D) A corporation need not be qualified in all states where it is conducting local or intrastate business.
E) Corporate income is not subject to double taxation.

Question 75

In a closely held corporation,which of the following lawsuits is likely to be brought by a minority shareholder on behalf of a corporation if the majority is acting illegally or oppresses the rights of the minority shareholders?

A) a derivative suit
B) a preemption suit
C) a petit suit
D) a dissolution suit
E) a termination suit

Question 76

When organizations are owned by only a few persons,they are said to be ______.

A) publicly held
B) legally held
C) closely held
D) openly held
E) overtly held

Question 77

In the context of the continuity of limited liability companies (LLCs),which of the following statements is true?

A) Membership in LLCs is limited to individuals.
B) In an LLC, a business organization can be an owner.
C) An LLC dissolves when the number of shareholders falls below 100.
D) LLCs cannot be dissolved unless the owner of the LLC dies.
E) In an LLC, only the government can dictate when the company can be dissolved.

Question 78

Which of the following is essential if limited partners are to be assured of their limited liability?

A) substantial compliance with all the technical requirements of the limited partnership law
B) signing an agreement according to the limited liability law to dissolve a partnership whenever a member withdraws
C) using a limited partner's surname in a partnership's name
D) inclusion of a limited commerce clause in the partnership agreement
E) participation in an organization's management

Question 79

Under the Revised Uniform Limited Partnership Act (RULPA),if a limited partner's name is used in a firm's name,that partner

A) does not get his or her contribution returned when the partnership dissolves.
B) cannot advise the general partner.
C) will become personally liable to unsuspecting creditors.
D) must actively participate in management activities to retain his or her status of limited liability.
E) cannot receive any of the partnership's profits.

Question 80

When courts find that a corporate organization is being misused,the corporate entity can be disregarded.This has been called

A) cracking the corporate shell.
B) piercing the corporate veil.
C) breaking the corporate shield.
D) breaching the corporate defense.
E) rupturing the corporate law.