Deck 26: Which Form of Business Organization

Question 1

States generally permit limited liability companies to have an indefinite duration.

Answer 1

False

Question 2

When a general business partnership fails, the partners:

A) lose only their investment.
B) may be required to pay partnership debts from personal assets.
C) can waive their limited liability.
D) are liable for losses equivalent to their own individual contributions.

Answer 2

B
Explanation: Safety is a prime consideration for most investors, particularly when they are not major participants in the enterprise. Partners in a general partnership not only may lose their investment but also may be required to pay partnership debts from personal assets.

Question 3

In order to create a general partnership, an express agreement is required.

Answer 3

False

Question 4

A limited liability limited partnership offers limited liability to its limited, but not its general, partners.

Question 5

A corporation cannot acquire, hold, or convey property in its own name.

Question 6

In a general partnership, each partner is an owner and has a right to share in the profits of the business.

Question 7

Anyone who buys the interest of a limited liability partnership (LLP) partner is automatically a partner.

Question 8

Most franchise contracts are typical "contracts of adhesion."

Question 9

Identify the correct statement about a sole proprietorship.

A) The owner shares responsibility with the agents and employees.
B) It may be operated under an assumed or trade name.
C) Employees of the business are not the personal employees of the owner.
D) The salaries paid to the employees are not deductible in determining taxable income.

Question 10

From a risk standpoint, a shareholder or limited partner is better off than a general partner.

Question 11

Generally, the owners of a corporation are personally liable for its debts.

Question 12

The _____ form of business organization most limits personal liability for its shareholders.

A) sole proprietorship
B) cooperative society
C) corporation
D) general partnership

Question 13

Each partner in a limited liability partnership (LLP) reports her share of the LLP's profits and losses on her personal tax return.

Question 14

Like a corporation, a limited liability company is a separate entity with a legal existence apart from its individual owners.

Question 15

A sole proprietorship is a business operated by a person as his own personal property.

Question 16

The formation of a general partnership requires:

A) filing appropriate paperwork with the secretary of state.
B) a formal certificate of cancellation when the partnership is terminated.
C) no express agreement.
D) that each partner be liable for losses depending on the individual partner's contribution to the enterprise.

Question 17

By forming a limited liability partnership (LLP), the personal assets of partners not involved in wrongdoing by other members of the firm will be sheltered from malpractice claims against the firm.

Question 18

The stock of a close corporation is held by the municipality in which the corporation is headquartered.

Question 19

Which of the following run the risk of unlimited personal liability?

A) Partners in a limited partnership
B) Partners in a general partnership
C) Shareholders in S Corporations
D) Corporate shareholders

Question 20

A limited partnership permits investors who do not engage in management to share in the profits of the business without becoming personally liable for its debts.

Question 21

The advantages of sole proprietorship and partnership taxation include the:

A) lessening of tax burden if the shareholders are active in the operation of the business.
B) reduction of tax burden experienced by shareholders by keeping the dividend rate constant.
C) reduction of the tax liability on the owners' other income by the amount of their individual losses.
D) exemption of privilege taxes for doing intrastate business in another state.

Question 22

Which of the following is a taxable entity?

A) Corporation
B) Sole proprietorship
C) General partnership
D) S Corporation

Question 23

When a general partner sells his or her partnership interests, the purchaser:

A) is granted automatic partnership by operation of law.
B) is granted partnership only after he divests all interests in other general partnerships.
C) does not become a partner until he or she is nominated by the director and unanimously accepted by other members.
D) does not become a partner until he or she is unanimously accepted by the other partners.

Question 24

Which of the following is true of a limited liability company (LLC)?

A) It cannot sue or be sued in its own name.
B) Investors of an LLC are able to share in management.
C) Members are personally liable for the wrongful acts of other members.
D) It cannot have more than 100 members.

Question 25

"Piercing the corporate veil" implies that:

A) a corporation is held liable for money laundering.
B) corporate shareholders are stripped of their limited liability to prevent unfair results.
C) an entity is treated as one and the same as its owners.
D) members will not be personally liable for the debts.

Question 26

A turnkey operation can be best described as a:

A) franchise in which the franchisor builds and equips the place of business and leases it to the franchisee.
B) limited liability partnership in which partners frequently rotate in and out.
C) franchise operated by a person as his or her own personal property.
D) franchise in which the franchisee carries out the advertisement campaigns.

Question 27

In the management of a limited liability partnership, _____.

A) the LLP pays income taxes
B) management decisions cannot be altered even by agreement
C) only some partners have a say in its management
D) new partners cannot join without the unanimous consent of the current partners

Question 28

Publicly offered partnership interests are:

A) generally tax shelters for the original purchasers during the early years of ownership.
B) of vital interest to persons hoping to actively manage a business.
C) the primary method of creating general partnerships.
D) generally unattractive to investors in the early years of ownership.

Question 29

A _____ provides the greatest ease of management.

A) close corporation
B) sole proprietorship
C) general partnership
D) limited partnership

Question 30

In a(n) ______, shareholders directly report their share of the corporation's losses or earnings on their individual tax returns.

A) S corporation
B) trust
C) franchising agreement
D) corporation

Question 31

When it comes to tax liability, limited liability companies (LLCs):

A) in all states are required to file annual reports with the secretary of state.
B) are taxed as partnerships.
C) do not require partners to report their share of the LLC's profits on personal tax returns.
D) are taxed as corporations.

Question 32

Which of the following is true of the dissolution of a limited liability company (LLC)?

A) The remaining members cannot avoid liquidation even by unanimously agreeing to continue the business operations.
B) Dissolution can only be caused by bankruptcy.
C) An LLC must be set up so that it can be easily dissolved.
D) The act of dissolution terminates an LLC's business.

Question 33

Which of the following statements is true of limited liability partnerships (LLPs)?

A) The partners are not required to file an LLP form with the state.
B) The partners maintain an adequate amount of professional liability insurance.
C) They are relatively difficult to organize around an existing partnership.
D) They necessitate that all existing partnerships be dissolved.

Question 34

Which of the following is true about franchising?

A) It can be conducted as a sole proprietorship or a corporation but not as a partnership.
B) It typically involves a corporation as a franchisor.
C) It does not include the risk of violating federal and state antitrust laws under any circumstances.
D) It is not contractual.

Question 35

William and Nigel decide to start a partnership business. They ask their friend Sophia to become a limited partner in order to help them with additional funds to get the business started. Which of the following statements about Sophia would be correct if she becomes and remains a limited partner in this scenario?

A) She may be involved in management of the business but to a rather limited degree.
B) She cannot be entitled to any share in the profits of the business.
C) She may lose her investment if the business fails, but she will have no personal liability for partnership debts.
D) She may be considered an employee and therefore will be entitled to wages for the services she renders to the partnership.

Question 36

A freeze-out:

A) occurs when a majority shareholder is "frozen out" by the management regarding such issues as a reduction or elimination of dividends.
B) can be easily reversed in court.
C) results in the minority shareholder having little influence in important corporate issues such as loss of employment.
D) occurs mostly in S corporations.

Question 37

If a business involves high risk, a single factor such as _____ will be so important as to outweigh other factors.

A) limited liability
B) taxation
C) formalities
D) financing

Question 38

Partnerships:

A) are not required to pay corporate franchise taxes.
B) need to pay privilege taxes to do intrastate business in another state.
C) are taxed on their operations at the same level as corporations.
D) cannot save income tax even if losses are anticipated in the early years of business.

Question 39

Ira is deeply involved in the management of a certain business. If Ira dies, the business entity would be considered legally dissolved as a result of Ira's death if:

A) she was a shareholder of a corporation.
B) the business is a partnership and Ira is a partner in it.
C) the business is a corporation.
D) the business is a Subchapter S corporation.

Question 40

In terms of an S corporation, which of the following is a requirement that must be maintained so that the corporation does not lose its tax status?

A) There can be no more than 80 shareholders in an S corporation.
B) The shareholders must all be corporate shareholders or partnerships.
C) The losses and earnings are not to be reported on the shareholders' individual tax returns.
D) Shareholders must consent in writing to having the corporation taxed as a partnership.

Question 41

The Federal Trade Commission:

A) requires franchisors to explain the termination, cancellation, and renewal provisions of the franchise contract.
B) requires franchisors to disclose the number of franchisees terminated in the last five years.
C) prohibits certain contract provisions and franchisee practices thought to be unfair to franchisors.
D) prohibits the inclusion of restrictions on franchisees in the agreement.

Question 42

Explain the legal status of a limited liability company (LLC).

Question 43

A major advantage of franchising for the franchisor is the:

A) absence of state or federal regulations governing this form of business conduct.
B) ability to gain considerable control over the distribution of its products without owning the retail outlets.
C) enhancement of competition among the retail outlets.
D) right to share a trade mark with the franchisee that is well known and/or highly advertised.

Question 44

Attempts to require franchisees to buy products, equipment, and supplies exclusively from the franchisor may violate the prohibition in the _____ Act against tie-in sales.

A) Sherman
B) USA PATRIOT
C) Clayton
D) Small Business

Question 45

What are some of the strategies a corporation can employ to minimize taxation disadvantages?

Question 46

Which of the following is a franchisor problem?

A) Attempts to require franchisees to buy products exclusively from the franchisor may violate the Sherman Act.
B) Attempts to require adherence to prices set by the franchisor may violate the Sherman Act.
C) Insurance cannot be used to cover risks due to torts committed by the franchisee.
D) The franchisee has to be made an employee of the franchisor.

Question 47

Pelican Inc., a multinational oil corporation headquartered in Denmark, conducts its operations in various nations by establishing an outlet in different locations. Each outlet creates a separate corporation to own and perform the functions of Pelican Inc. Given this scenario, we can conclude that Pelican Inc. operates through _____.

A) joint venture
B) merger
C) strategic alliance
D) franchising

Question 48

What are the advantages of franchising?

Question 49

Explain the difference between a limited partnership and a limited liability limited partnership (LLLP).

Question 50

Describe the characteristics of a corporation.