Deck 37: Introduction to Forms of Business and Formation of Partnerships

Question 1

A sole proprietorship is a legal entity separate from its owner.

Answer 1

False
Explanation: A sole proprietorship is not a legal entity.

Question 2

No formalities are required in order to establish a partnership.

Answer 2

True
Explanation: Formation of a partnership requires no formalities and may be formed by default.A partnership is created automatically when two or more persons own a business together without selecting another form.

Question 3

As an association,a partnership is a voluntary and consensual relationship.

Answer 3

True
Explanation: As an association,a partnership is a voluntary and consensual relationship.It cannot be imposed on a person;a person must agree expressly or impliedly to have a person associate with her.

Question 4

Ann and Susan want to enter into a partnership business,having a term of five years,of selling used cars.They have to prepare a partnership agreement in writing to be enforceable under the statute of frauds.

Question 5

A group of individuals can form a partnership for the nonprofit business that provides charitable services.

Question 6

A limited partner in a limited partnership has the right to manage the limited partnership business.

Question 7

A written agreement to the effect that the parties do not intend to form a partnership is not conclusive if their actions provide evidence of their intent to form a relationship that meets the RUPA partnership test.

Question 8

The general law governing general partnerships is primarily found in the Revised Uniform Partnership Act (RUPA).

Question 9

The decision on what form of business to make a startup business is important because it will affect how much the business owner is liable and has control over the new business.

Question 10

The owner of a sole proprietorship assumes personal liability for the actions of the business.

Question 11

You can form a partnership with one individual.

Question 12

The sole proprietor has the right to deduct business losses on his individual tax return.

Question 13

A partnership is an income tax-paying entity for federal income tax purposes.

Question 14

Although not required,a partnership agreement is highly desirable for the same reasons that written contracts are generally preferred.

Question 15

Loans made by partners to a partnership are partnership capital.

Question 16

Under the doctrine of purported partners,a third party may hold liable persons who purport to be partners.

Question 17

Generally,professional shareholders are personally liable for the obligations of the professional corporation.

Question 18

John is a partner of Aegon Services,a limited liability partnership firm.He committed fraud and embezzled $1 million from a client.The other partners would not be personally liable for John's malpractice.

Question 19

The shareholders of a corporation that has elected S Corporation status may report the income and losses of the business on their individual federal income tax returns.

Question 20

Individuals in a valid general partnership are not personally liable for the actions of the business.

Question 21

In a limited partnership,general partners:

A) have the right to manage the business.
B) are not liable for the firm's debts.
C) are nonparticipating investors.
D) cannot transfer their ownership interest.

Question 22

If a partnership leases a building that belongs to one of the partners,the property is said to be owned by the partnership.

Question 23

A _____ has one or more general partners and one or more limited partners.

A) limited liability partnership
B) professional corporation
C) limited partnership
D) limited liability company

Question 24

An S corporation:

A) must have at least 100 shareholders.
B) may have only one class of shares.
C) has the ability to attract capital,more than the limited partnership.
D) has the disadvantage of its shareholders being double taxed at the federal tax level.

Question 25

The _____ is the preferred form of business for professionals and is especially good for consultants and auditors,allowing them management flexibility while insulating them mostly from personal liability.

A) S Corporation
B) LLLP
C) LLC
D) LLP

Question 26

Which of the following is true of a corporation?

A) A corporation is not a tax-paying entity for federal income tax purposes.
B) A corporation does not have a life separate from its owners and its managers.
C) A corporation has the ability to attract capital,more than the limited partnership.
D) A corporation is owned by partners who have founded the business and have the right to manage it.

Question 27

Which of the following business forms means personal liability for the owner of the business?

A) Sole proprietorship
B) LLC
C) Corporation
D) LLP

Question 28

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

A) It has the ability to attract large amounts of capital.
B) It is a nontax paying entity.
C) It can be created by default.
D) It cannot be transferred to another person.

Question 29

Partners of a partnership:

A) are not liable for all the obligations of their partnership.
B) are entitled to income of the partnership,which must be reported on their individual federal income tax returns.
C) are not permitted to deduct partnership losses on their individual federal income tax returns.
D) can create a partnership only by complying with a statute.

Question 30

A limited partnership:

A) dissolves when a limited partner dies.
B) may not have a corporation as a general partner.
C) may be taxed either as a partnership or as a corporation.
D) may be created by default.

Question 31

Which of the following is true about a sole proprietorship?

A) A sole proprietorship is a legal entity.
B) A sole proprietorship cannot sue or be sued.
C) A sole proprietorship as form of business can be transferred to someone else.
D) A sole proprietorship has a life of its own apart from its owner.

Question 32

A mining partner's interest is not freely transferable.

Question 33

Which of the following is true about a limited partnership?

A) A limited partnership has difficulties raising large amounts of capital.
B) A limited partnership can be created only by complying with a state statute permitting limited partnerships.
C) A limited partnership cannot be transferred to another person.
D) Limited partners are liable for the obligations of the limited partnership after making their capital contributions.

Question 34

In a limited partnership,limited partners:

A) play an active role in the management of the firm.
B) do not pay federal income tax on their share of the profits.
C) are passive investors.
D) have unlimited liability for the firm's debts.

Question 35

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

A) Owners of sole proprietorships can raise a lot of capital quickly for expansion purposes.
B) The owner of a sole proprietorship has complete control over the business.
C) The sole proprietorship's existence does not depend entirely upon the sole proprietor.
D) The owner of a sole proprietorship has no liability.

Question 36

The equity of a partnership is called partnership capital.

Question 37

Which legal form of business has the ability to attract the greatest amount of capital from investors?

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

Question 38

A _____ is a partnership whose partners have elected limited liability status.

A) limited liability company
B) professional corporation
C) professional partnership
D) limited liability partnership

Question 39

Which of the following is true about a partnership?

A) It is not a tax-paying entity for federal income tax purposes.
B) Business losses are deductible based on the limit on a partner's individual tax return.
C) It does not have a life apart from its owners.
D) Partners in partnership do not assume personal liability for obligations of the business.

Question 40

The charging order creditor is a lien creditor and is entitled to receive only the partner's share of the partnership distributions.

Question 41

One of the most important factors in establishing co-ownership of the business is:

A) making profits.
B) sharing management.
C) encouraging voluntary relationships.
D) creating joint ventures.

Question 42

Which of the following is not a necessary element of the definition of partnership according to the RUPA?

A) Co-ownership of the assets used by the business
B) Association of two or more persons
C) Limited liability of partners
D) Carrying on of a business

Question 43

Which of the following is true about the effect of purported partnerships?

A) Purported partners share profits of the business.
B) A purported partner does not have authority to make contracts for the partnership.
C) A purported partner is liable on contracts entered into by third parties on their belief that he is a partner.
D) A purported partner is not liable for the torts committed in the course of relationships entered by third parties who believed he was a partner.

Question 44

A _____ is owned by shareholders who elect a board of directors to manage the business.

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

Question 45

Which of the following is NOT an essential characteristic of a limited liability company (LLC)?

A) The LLC can elect to be taxed as a partnership or a corporation.
B) Members' ownership interest is completely and freely transferable.
C) Members have limited liability for the obligations of the LLC.
D) The bankruptcy of one member does not dissolve the LLC.

Question 46

A loan made by a partner to partnership business is:

A) a part of partnership capital.
B) a part of the partnership's assets.
C) a liability of the partnership business.
D) a partner's contribution to the partnership business.

Question 47

In many public meetings,John has proclaimed himself to be an equal partner of Chan's partnership business.Chan's business ran into financial difficulties.John and Chan approached a creditor to obtain loan.The creditor gave the loan based on a false presumption that John was a partner in the business too.Can John be made liable for the loan?

A) Yes,because John is a close acquaintance of Chan;thus it is his ethical duty to help Chan during her financial trouble.
B) Yes,because John is a purported partner;public representations of his partner status make him personally liable for the debt.
C) No,because he is not legally a partner;the creditor should have checked the partnership agreement before advancing the loan.
D) No,because John did not participate in the business;he was thus not a member of the partnership business.

Question 48

A sole proprietorship lasts for how long if it continues to run unabated?

A) For 100 years
B) 10 years with an option to renew for another 10 years
C) Till the death of the owner
D) 30 years then the business has to be reformed

Question 49

Which of the following is not essential to the formation of a mining partnership?

A) Joint operation of property
B) Joint ownership of a mineral interest
C) Active physical participation in operations
D) Sharing of profits and losses

Question 50

Which of the following forms of business always imposes double taxation on the earnings of the business?

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

Question 51

Which of the following is incorrect concerning a joint venture?

A) Joint ventures are limited to single projects.
B) Joint venturers are personally liable for its debts.
C) Joint ventures are created much like partnerships.
D) Joint venturers have more implied and apparent authority than do partners in a partnership.

Question 52

A(n)_____ is a limited partnership whose partners have elected limited liability status for all the partners.

A) corporation
B) LLLP
C) S Corporation
D) LLP

Question 53

Abe and Carlos want to form a general partnership.What must they do in order to create this legal form of business?

A) They must get a partnership license from the secretary of state.
B) They must sign a written agreement and file it with the secretary of state.
C) They must first orally agree to become partners and then formulate a contract.
D) They can start a partnership without any formalities.

Question 54

A _____ is found when an arrangement is made not to establish an ongoing business involving many transactions,but is limited to a single project.

A) corporation
B) limited liability company
C) partnership
D) joint venture

Question 55

If a third party deals with a person who appears to be the partner of another person,and the third party is harmed,it may recover damages under:

A) the doctrine of purported partners.
B) the general law for joint ventures.
C) the doctrine of direct liability.
D) the doctrine of respondeat superior.

Question 56

Which of the following is NOT a consequence of being a partner of a partnership?

A) Partners are not liable for each other's torts.
B) Partners are agents of each other.
C) Each partner owns a portion of the value of the business.
D) Each partner owes fiduciary duties to the partnership and to the other partners.

Question 57

A joint venture is a(n):

A) association limited to no more than two persons in business for profit.
B) enterprise of numerous co-owners in a nonprofit undertaking.
C) corporate enterprise for undertaking multiple projects of various durations.
D) association of persons engaged as co-owners in a single undertaking for profit.

Question 58

A partner's contribution is also called _____.

A) partnership property
B) partnership liability
C) partnership cash flow
D) partnership capital

Question 59

Regarding the formation of a general partnership,which of the following is not a legal requirement but has been described as "highly desirable"?

A) A formal,written partnership agreement
B) An oral agreement
C) An exchange of mutual consideration
D) An agreement limiting the liability of the partners

Question 60

According to the RUPA:

A) partners have no liability for the obligations of the partnership.
B) a partnership cannot sue or be sued in its own name.
C) a partnership does not have a life apart from its owners.
D) partnerships have continuity of existence.

Question 61

Sue has transferred her transferable interest of the partnership business to her creditor to discharge her debt.However,Sue is an efficient manager and she still manages the business,even after the transfer.Is she still a partner?

Question 62

Selena joins Kona's management consulting business.They do not indicate whether Selena is Kona's partner,but Selena receives 34 percent of the profits of the business and makes decisions regarding which clients the business should accept.Two years later,Selena leaves the business to start a singing career.Selena claims she owns a portion of the value of the business.Is Selena correct?

Question 63

The sale of a partner's transferable interest in a business entitles the buyer to what rights?

A) Distributions,like profit,that the selling partner was entitled to.
B) The right to inspect the partnership's accounting books.
C) The right to manage the partnership.
D) The right to represent the partnership in a legal proceeding.

Question 64

A partner's ownership interest is called _____.

A) a partnership interest
B) a shareholder interest
C) a partnership liability
D) a charging order

Question 65

An order charging all or part of the partner's transferable partnership interest with payment of the unsatisfied amount of the judgment is called a(n)_____.

A) interim charge
B) redeeming order
C) charging order
D) redeeming the charge order

Question 66

Babs,Mindy,and Eric decide to leave a large accounting firm and start their own accounting business.What form of business should they elect?

Question 67

Dr.Matt Fornfeld,a physician practicing as a sole proprietor,falls behind in his payments to First Bank,a creditor to whom he owes $275,000.First Bank agrees to take reduced payments from Matt,but wants more money if Matt's practice becomes more profitable.Matt agrees to pay First Bank at least $4,000 per month up to a maximum of 15 percent of his profits.Does this agreement make First Bank a partner with Matt?

Question 68

A mining partner's interest is:

A) nontransferable.
B) freely transferable.
C) partially transferable.
D) dissolved and later,transferred.

Question 69

Jane and Ridge are partners in a computer animation firm.Jane retires from the firm,but tells Ridge it is OK to leave his name on the entrance door to the firm and in the telephone listing.Alex,a new client,visits the firm after telephoning the firm.Alex has seen Jane's name listed in the phone book along with Ridge's and the firm's names.He also sees Jane's name on the entrance door to the firm.Believing Jane is a partner with Ridge,Alex contracts to have the firm develop animation for his upcoming film.Ridge,however,never performs the contract.Alex sues Ridge and Jane.Is Jane liable to Alex?

Question 70

Mr.Olive and Mrs.Pickle enter into a partnership to provide IT consulting services.The name of the business is IT Doctor.From the partnership account Mr.Olive purchases a laptop and an iPad.Who owns the laptop and iPad?

A) Mr.Olive
B) Mrs.Pickle
C) The business IT Doctor
D) The government