Deck 14: Business Organizations

Question 1

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

Answer 1

True
Explanation: Significant factors to consider in selecting the best organizational form for a particular business activity include the cost of creating the organization.

Question 2

Factor continuity refers to the legal steps necessary to form a particular business organization.

Answer 2

False
Explanation: The word "creation" means the legal steps necessary to form a particular business organization. The most significant creation-related issues are how long it will take to create a particular organization and how much paperwork is involved.

Question 3

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

Answer 3

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 4

A dissolution essentially terminates the business of a partnership.

Question 5

A limited partnership is solely made up of limited partners.

Question 6

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

Question 7

A common interest in business is one of the satisfying definitional elements of partnership existence.

Question 8

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

Question 9

Whenever two or more people wish to own a business together, a joint venture is a possible organizational form.

Question 10

Although expensive to create, the use of sole proprietorships is becoming all the more common.

Question 11

A business might shift away from the proprietorship form as it becomes more successful.

Question 12

Partnership is the most easily formed business organization compared to all others.

Question 13

Corporate form of organizations enables shareholders to transfer their ownership without interfering with the organization's management.

Question 14

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

Question 15

Shareholders elect the officers of a corporation.

Question 16

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

Question 17

One of the advantages for a proprietor is that he may transfer the ownership of his proprietorship whenever desired.

Question 18

A sole proprietorship is not taxed as an organization.

Question 19

A dissolution is any change in the ownership of an organization that changes the legal existence of the organization.

Question 20

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

Question 21

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

Question 22

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

A) Limited partnership
B) Corporation
C) Limited liability company
D) Sole proprietorship
E) S corporation

Question 23

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

Question 24

"Creation" means:

A) the legal steps required to form a particular business organization.
B) the concept of a business.
C) the intent to create a business.
D) a paradigm shift in a business.
E) the relation of the organization's existence to its owners.

Question 25

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

A) Limited partnership
B) Corporation
C) Limited liability company
D) Sole proprietorship
E) S corporation

Question 26

Criminal prosecutions for corporate wrongdoing are rising, given the current trend of business environment.

Question 27

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

Question 28

Which of the following is a basic form of business organization?

A) LLC
B) Limited partnership
C) LLP
D) Sole proprietorship
E) S corporation

Question 29

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 30

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

A) These organizations are owned only by a few persons.
B) Decisions regarding selection of appropriate organizational forms are usually limited to these organizations.
C) Shareholders of such organizations can transfer their ownership without interfering with the organization's management.
D) A family-operated business is a classic example of a publicly held business organization.
E) The status of a shareholder in these organizations limits their liability for torts and shareholders mostly forgo their limited liability for cosigning contracts.

Question 31

It is usual for the growth in a business to be reflected in changes in organizational forms as a part of a life cycle.

Question 32

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

A) management style.
B) profit distribution.
C) the method by which the business can be dissolved.
D) the method of customer service observed.
E) the control exercised by managers.

Question 33

In the current business environment, corporate boards are less likely to engage shareholders in governance decisions.

Question 34

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 35

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

Question 36

When selecting a form of business venture, considering potential conflicts and mechanisms to resolve disputes refers to which of the following factors?

A) Creation
B) Continuity
C) Liability
D) Managerial control
E) Taxation

Question 37

In the current business environment, there is an increased focus on legal liability for directors and officers.

Question 38

The IRS treats LLCs as taxable entities.

Question 39

A periodical review of the criteria used to select a form of organization enables the advantages of an organizational form to be balanced against the disadvantages.

Question 40

Which of the following qualifies a sole proprietorship?

A) Owned by one person
B) Owned by one family
C) Has only one location
D) Activities in only one state
E) Has only one activity

Question 41

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

A) Creation of sole proprietorship is expensive and requires formal documentation.
B) Proprietorship's business activity may be more stable than the proprietor's willingness to remain actively involved in the business.
C) Proprietor may have to share his/her voice of control and responsibility for the business' success with the other acting members of the organization.
D) The business is always held liable for 100 percent of the debts.
E) The proprietorship is a victim of double taxation.

Question 42

Whenever two or more people wish to own a business together, they enter into a formal agreement called the:

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

Question 43

A partnership must have:

A) one or more people.
B) no personal liability.
C) a nonprofit focus.
D) a common interest in business.
E) a taxability factor built within.

Question 44

The most difficult and complicated business organization to create is the:

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

Question 45

Which of the following is true about a general partnership?

A) It is dissolved any time there is a change in partners.
B) It can be transferred to new owners without affecting the original agreement.
C) It has no liability.
D) It is taxed as an entity.
E) It requires permission from each state in which it does business during formation.

Question 46

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

A) Partners have limited liability for the 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) Any 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 47

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

A) Limited partnership
B) Partnership
C) Corporation
D) S corporation
E) Limited liability company

Question 48

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 association.
E) articles of integration.

Question 49

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

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

Question 50

Jonathan wants to start a business. Which form of business organization will give him the most complete and exclusive control over business decisions?

A) Sole proprietorship
B) Partnership
C) Corporation
D) S corporation
E) Limited liability company

Question 51

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) dissolution contract.
D) purchase contract.
E) interest agreement.

Question 52

Which of the following requires organizers to file articles of organization with state official for formation?

A) Limited partnership
B) Partnership
C) Limited liability company
D) Sole proprietorship
E) S corporation

Question 53

Which of the following is true about the creation of a corporation?

A) It is created under federal law.
B) It created under state law.
C) The formal application for a corporate charter is called the articles of association.
D) It is regulated only by local statutes.
E) Corporations are inexpensive to form.

Question 54

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

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

Question 55

Two or more individuals, an individual and a corporation, a partnership and a corporation, or any combination of these entities may agree to create a(n):

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

Question 56

The creation of _____ 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 is a disadvantage of partnerships?

A) The cost of formation is high.
B) They are based on consensual contracts.
C) They are subject to more governmental supervision than corporations.
D) A partnership needs to obtain a license if it wishes to operate in more than one state.
E) A partnership will be dissolved any time a partner leaves the partnership.

Question 58

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

A) incorporators.
B) corporate officers.
C) board members.
D) corporate panel.
E) proxies.

Question 59

A partnership:

A) cannot operate in more than one state without obtaining a license to do so.
B) is generally subject to more regulation and governmental supervision than a corporation.
C) provides general partners with unlimited liability.
D) involves significant formation costs.
E) allows unlimited number of people to become partners.

Question 60

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

A) The agreement has to provide for each partner to have equal voice in the firm's affairs.
B) Control may be divided for the firm to include controlling partners and minority partners.
C) The differences in the degree of control do not affect the business's success.
D) The possibility of deadlock is higher when there are more 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 61

Which of the following is an activity that a limited partner may NOT engage in?

A) Acting as an agent of the partnership
B) Approving an amendment to the partnerships' certificate
C) Participating in management
D) Inspecting any of the partnership's financial records
E) Advising or consulting with a general partner

Question 62

Which of the following is a taxable entity?

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

Question 63

Which of the following is true about an S corporation?

A) It has the same legal characteristics as any other corporation except for the issue of taxation.
B) It is the official designation for a corporation with 500 or less employees.
C) It is the same as any other corporation except for management participation by stockholders.
D) It is exactly the same as any other corporation.
E) It need not file an information return with the IRS since it does not pay any taxes.

Question 64

Disadvantages of the corporate form of organization include:

A) single taxation.
B) cost of formation and maintenance.
C) unlimited liability.
D) dissolution from change in memberships.
E) lack of benefits for shareholders.

Question 65

The owners of LLCs are called:

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

Question 66

How can business organizations be classified based on the number of persons who own them? Give one example of each.

Question 67

Explain sole proprietorship in terms of its continuity.

Question 68

What factors should be considered when selecting the best organizational form for a particular business?

Question 69

When a derivative law suit is filed:

A) majority shareholders may complain that minority shareholders are not cooperating with the board.
B) majority shareholders are required to prove that they are not acting illegally or oppressing the rights of minority shareholders.
C) minority shareholders are required to provide evidence that the majority shareholders are acting illegally or oppressing the rights of the minority shareholders.
D) directors are suing the officers and asking for their termination due to illegal or oppressive acts directed at all shareholders.
E) majority shareholders act on behalf of the organization.

Question 70

When a court finds that the shareholders of a corporation are using the corporate structure to shield themselves from liability when acting for purely personal purposes, the court may disregard the corporate structure and impose personal liability on the shareholders treating them like partners. This is 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.

Question 71

Explain the degree of control enjoyed by a sole proprietor.

Question 72

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

A) License fees and franchise taxes are rarely 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) Once a corporation is properly formed, it becomes automatically eligible to do business in all 50 states.
E) Ownership must be divided into three or more equal shares.

Question 73

An LLC is created through filing the _____ with a state official, usually the secretary of state.

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

Question 74

When one person, or a very few persons, own all the shares of stock in a corporation, it is considered a _____ organization.

A) publicly held
B) narrowly held
C) closely held
D) tightly held
E) minority held

Question 75

In a closely held corporation, the majority shareholders:

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

Question 76

Which of the following is true about the trends in operating business organizations?

A) With the recent financial crises, public attention is moving toward management of limited partnerships.
B) Shareholders are losing interest and are becoming less active.
C) The Dodd-Frank Act has mandated rules that prevent shareholders from including their own board candidates in proxy materials.
D) In many cases, corporations and individuals reasonably have an equal claim to rights and protections under the law.
E) The focus on legal liability for directors and officers is decreasing.

Question 77

If a corporate entity is disregarded by officers or directors so that there is such a unity of ownership and interest that separateness of the corporation has ceased to exist, the corporate veil may be pierced based on the:

A) alter-ego theory.
B) negligent conduct theory.
C) corporate confusion theory.
D) corporate envelopment theory.
E) corporate doppelganger theory.

Question 78

For limited partners to retain their status of limited liability, the partnership must evidence _____ compliance with all technical requirements of the limited partnership law.

A) complete
B) nominal
C) minor
D) reasonable
E) substantial

Question 79

Limited partners:

A) are personally responsible for debts of the business.
B) control operations of the limited partnership.
C) may dissolve the limited partnership by assigning their interest in a business to another person.
D) may have their surnames used in the partnership's name.
E) may act as a guarantor of the partnership's obligations.

Question 80

Explain the term "creation" as a factor considered when selecting a business organizational form.