Deck 13: Choice of Business Entity, Sole Proprietorships, and Partnerships

Question 1

Federal and state laws regulating the selling of equity in limited partnerships through broker-dealer contracts are known as laws.

Answer 1

blue-sky

Question 2

In all forms of business entities,the entity itself pays taxes on money earned by or through the entity.

Answer 2

False

Question 3

The duty of a partner to act in the best interests of the partnership is called a duty.

Answer 3

fiduciary

Question 4

Wayne Lewis wants to start a sole proprietorship named Lewis Plumbing Services.Because it will be a sole proprietorship,Wayne has no filing requirements other than obtaining the appropriate business license from the local and state government where the business will be located.

Question 5

Business owners are also known as .

Question 6

A partnership where the partners have not agreed to remain partners until the expiration of a definite term or event is known as .

Question 7

A partner may withdraw at any time without causing dissolution of the partnership.

Question 8

The Revised Uniform Partnership Act was enacted by Congress to make partnership law more consistent and standardized throughout the United States.

Question 9

Limited partnerships are required to file a(an) return with the IRS each year.

Question 10

Under the Revised Uniform Partnership Act,the act of leaving a partnership and ceasing to be a principal is called .

Question 11

General partnerships are pass-through entities regarding taxation; however,limited partnerships are not pass-through entities for taxes.

Question 12

Capitalization refers to how the business will fund its operations.

Question 13

Business entities are sometimes referred to as business .

Question 14

If two people identify themselves as general partners and create a written partnership agreement,the law is obligated to recognize their business entity as a general partnership.

Question 15

A general partner who rightfully dissociates from a partnership remains liable for predissociation debts of the partnership.

Question 16

One disadvantage of a sole proprietorship business entity is that it is restricted to the principal and the principal's immediate family in terms of number of employees who may work for the business.

Question 17

General partnerships are not created by filing a form with a government agency.

Question 18

Under the Revised Uniform Limited Partnership Act,the act of leaving a limited partnership and ceasing to be a principal is called .

Question 19

Even if the parties have no intent to form or operate as a partnership,their conduct may result in the law recognizing them as partners.

Question 20

A is a business entity that has a proven track record of success and sells the right to operate the business and use the business's trade secrets,trademarks,products,and so on.

Question 21

Franchises are regulated by a franchise agreement.

Question 22

In Waddell v.Rustin,Waddell was not declared an implied partner despite her testimony that she and her romantic partner ran their business as partners,including her involvement in management and oversight of business projects,access to company checkbook,payment of company bills,and assistance in choosing construction projects.

Question 23

With regard to dissociation and dissolution,the Revised Uniform Partnership Act adopted and reserved the same general rules and procedures as its predecessor,the Uniform Partnership Act.

Question 24

To date,every state in the union has adopted the Revised Uniform Partnership Act except the state of Louisiana.

Question 25

A limited partnership is formed by the limited partner's filing of a certificate of limited partnership with the appropriate state government authority.

Question 26

A sole proprietorship automatically is dissolved when the owner dies.

Question 27

The Revised Uniform Limited Partnership Act requires that there be a written partnership agreement regarding limited partnerships.

Question 28

If a limited partner actively participates in day-to-day management of the business,he or she may forfeit limited partner status and lose limited liability for debts and liabilities.

Question 29

If a sole proprietorship loses money,the principal may deduct the losses from her or his own personal tax liability,if any.

Question 30

Miles is a limited partner in Big Blue,LP.The partnership agreement permits him to have a say in the removal of general partners and the blocking of new partners.This agreement will jeopardize his limited partner status.

Question 31

Ronin and Phineas are the partners of a general partnership.Under the Revised Uniform Partnership Act,if Ronin rightfully or wrongfully dissociates from the partnership,the partnership continues to exist.

Question 32

Family limited partnerships are primarily designed for estate planning and asset distribution for wealthy families.

Question 33

Family limited partnerships are designed for parents and children to operate a business together while protecting family-related assets.

Question 34

One disadvantage of a sole proprietorship business entity is that it is restricted to a single location and cannot expand.

Question 35

Under the Revised Uniform Limited Partnership Act,limited partners may act as consultants and may contribute their expertise to the limited partnership.

Question 36

In the absence of an agreement to the contrary,the Revised Uniform Partnership Act mandates that general partnership profits be split equally among the partners.

Question 37

Sole proprietorships may sell equity in the company in order to raise funds.

Question 38

If someone successfully sues a sole proprietorship,he or she must exhaust the assets of the business before going after the principal's personal assets.

Question 39

A limited partnership is required to have two or more limited partners.

Question 40

An advantage of operating as a sole proprietorship is that personal liability for any business losses is limited to the owner's investment in the business.

Question 41

Which of the following is not an option available to a general partnership seeking capitalization?

A) Borrowing money from one or more of the partners.
B) Selling the right to a percentage of the profits to an investor.
C) Selling ownership rights through the public markets.
D) Borrowing money from a commercial lender.

Question 42

Franco and Jesse are operating as a general partnership.A question has arisen that is not covered under their partnership agreement nor addressed by the Revised Uniform Partnership Act.What will the courts do to resolve the situation?

A) Dissolve the partnership and allow them to reform.
B) Look to foreign partnership laws because the RUPA encompasses all U.S. partnership law.
C) Look to common law.
D) Look to the UCC for a gap filler.

Question 43

Regarding limited partners,

A) they may withdraw from the partnership at any time, but they forfeit their investment if they withdraw early.
B) they may not withdraw before the time that the partners have agreed the partnership will terminate.
C) if the partnership agreement is silent as to notice required prior to termination, 90 days' written notice is required before the limited partner may withdraw.
D) they must obtain a court order to withdraw because of their limited liability and its effect on the remaining partners and third parties dealing with the business.

Question 44

Jonathan has graduated and wants to start a business.Which business entity gives him the most complete and exclusive control over the business and any business decisions?
A) corporation

A) sole proprietorship
B) limited liability company
D) general partnership

Question 45

In a general partnership

A) profits and losses must be split equally among the partners.
B) an unequal split of profits may be agreed to based on the partnership agreement, but losses must be split equally.
C) profits must be split equally, but losses may be split unequally based on the partnership agreement.
D) profits and losses may be unequally split based on the partnership agreement.

Question 46

Han wants to start a personal training business.He should choose a sole proprietorship entity if he seeks

A) limited liability.
B) perpetual existence for the new company.
C) the ability to raise capital by selling equity in the business.
D) the ability to avoid management conflict.

Question 47

A limited partnership requires

A) at least two general partners.
B) at least two limited partners.
C) a written limited partnership agreement.
D) at least one general and one limited partner.

Question 48

Morton lends money as a business loan to Luisa,who is capitalizing her start-up sole proprietorship named Luisa's Things.If Morton must sue for repayment,he would sue

A) Luisa.
B) Luisa's Things.
C) Luisa and Luisa's Things.
D) no one, since the loan makes him a partner.

Question 49

The Revised Uniform Partnership Act mandates that with regard to partnership debts and liabilities,general partners are

A) not personally liable for non-debt liabilities, which may be charged only to the partnership, but personally liable for debts.
B) personally jointly liable for unpaid debts and liabilities.
C) personally jointly and severally liable for unpaid debts and liabilities.
D) not personally liable for debts or liabilities, which may be charged only to the partnership.

Question 50

Boris,Carina,and Theo have decided to go into business as a limited partnership importing and selling exotic spices.Boris and Carina will manage the business,and Theo will have no role in the day-to-day operations.Boris and Carina have each invested $500,000,and Theo has contributed the building and land that the business will be operated from.Alina,a customer,contracts a rare disease from a contaminated spice sold by the company and sues.Alina is awarded a judgment for $5 million.After she exhausts the assets of the partnership,having the property and building sold,and seizing all other property,$3 million remains unpaid.

A) Boris, Carina, and Theo each owe $1 million, and Alina must sue each for his or her part.
B) Boris, Carina, and Theo each owe $3 million jointly and severally, so Alina may sue one, two, or all three for the $3 million balance.
C) Boris and Carina each owe $1.5 million, and Alina must sue each for his or her part; Theo has no additional liability.
D) Boris and Carina each owe $3 million jointly and severally, so Alina may sue one or both of them; Theo has no additional liability.

Question 51

A partnership is considered fully terminated

A) after dissociation.
B) after winding up.
C) after dissolution.
D) after the termination certificate is properly filed.

Question 52

Mariel owns a toy store,which is a sole proprietorship.She wants to retire.What is the best way for Mariel to transfer the ownership of her business?

A) Mariel can sell the assets of the business to another party.
B) Mariel can give the business to her heirs in her will or trust.
C) Mariel can either sell the assets to another party or give it to her heirs.
D) Because it is a sole proprietorship, Mariel must close the business when she retires.

Question 53

Stanton and Francesca have started a general partnership.Stanton has contributed 95 percent of the start-up capital and has the business experience and contacts,while Francesca's primary contribution is the labor necessary to operate the business.Management decisions are jointly made.At the end of the year,the business has shown a $100,000 profit.Stanton and Francesca have no formal written partnership agreement.

A) Stanton is entitled to $95,000, and Francesca gets $5,000.
B) The RUPA mandates that each get $50,000.
C) The RUPA mandates that Francesca be paid a fair amount for her labor contribution and the remaining profits be split with 95 percent going to Stanton and 5 percent going to Francesca.
D) The RUPA mandates that Francesca be paid a fair amount for her labor contribution and the remaining profits be split equally between Stanton and Francesca.

Question 54

With regard to taxation of partnerships,

A) a partnership files a federal and state partnership tax return and pays taxes on its income.
B) a partnership must file an information return.
C) a partnership files a state partnership tax return and pays taxes on its income but no federal filing is required.
D) partnerships have no tax-filing responsibilities.

Question 55

Redrock GP has decided to go out of business.Selling the partnership assets and making payments to creditors will occur during the phase of the closing of a partnership.

A) dissolution
B) dissociation
C) winding-up
D) termination

Question 56

A disadvantage of the sole proprietorship is

A) the difficulty of formation.
B) the inflexibility of management and control.
C) the unlimited liability of the principal.
D) the double taxation that occurs.

Question 57

Stefan has opened a sole proprietorship bicycle shop.The business shows a net income of $100,000.Stefan took a salary of $40,000.The remaining money is left in the bank.

A) At tax time, the business pays taxes on $100,000, and Stefan pays taxes on $40,000.
B) At tax time, the business pays taxes on $140,000.
C) At tax time, Stefan pays taxes on $140,000.
D) At tax time, the business pays taxes on $70,000, and Stefan pays taxes on $70,000.

Question 58

Dissolving a limited partnership requires:

A) a unanimous vote among all partners.
B) a unanimous vote of the general partners and a majority vote of the limited partners.
C) a unanimous vote of the general partners and consent of any limited partner who owns a majority of the rights to receive a distribution as a limited partner.
D) a unanimous vote of the limited partners and consent of any general partner who owns a majority of the rights to receive a distribution as a general partner.

Question 59

Which of the following require(s)a formal filing to be recognized as a valid business entity?
A) a limited partnership

A) a sole proprietorship
B) a general partnership
D) all business entities

Question 60

Liana and Tara are operating a business as a general partnership without an express partnership agreement.Should a dispute arise,the courts will look to to resolve the issue regarding operation of the partnership.
A) federal common law

A) the Revised Uniform Partnership Act
B) state contract law
D) federal contract law

Question 61

Brody and Trina own and operate a bakery.They each perform all of the functions in the bakery,from baking to cleaning up.They make decisions jointly and hold themselves out to the public as business equals.When starting the business,Brody contributed $60,000 and Trina $40,000 to capitalize the business.They have a written agreement stating that they will share profits equally; however,responsibility for losses will be allocated at 60 percent to Trina and 40 percent to Brody.If Helene slips and falls in the shop and gets a judgment for $100,000,how may Helene proceed?

Question 62

Charlie and Mia have started selling T-shirts with iron-on decals and lettering.They have no formal written agreement and simply decided to split all profits equally.Each has contributed
$1,000 to the enterprise,and since Mia will be doing all of the work,Charlie agrees that he will be responsible for 75 percent of any losses.Charlie does call in to make day-to-day decisions,but Mia purchases the shirts,decals,and lettering,operates the press,and runs the store.Charlie stays
home and smokes cigars and drinks scotch.Ava purchases one of their shirts and,after wearing it all day,discovers that the dye has run and her upper body is now blue.After bathing numerous times,she finds that the blue dye will not wash off.Ava sues and is awarded $100,000 in damages.Charlie claims that there was no real business entity formed and that he should not be liable.How will the court decide?

Question 63

Which of the following does not require a duty of care or good faith to other principals?
A) A limited partnership.

A) A sole proprietorship.
B) A general partnership.
D) A family limited partnership.

Question 64

Thelma and Louise are roommates in college.Thelma loves to bake and makes incredibly tasty chocolate chip cookies.Louise suggests that they sell the cookies around campus and split the profits.They orally agree that Louise will advertise the cookies,provide decorative bags to put the cookies in,and be responsible for deliveries around campus while Thelma will obtain the ingredients and do all the baking.They intend the whole endeavor to be low-key and informal.Have Thelma and Louise created a business entity,and why is it important for them to fully understand their relationship?

Question 65

Name the three specific events that are deemed events of dissociation by the Revised Uniform Partnership Act and are considered to be the most common.

Question 66

Principals generally have no personal liability for the business entity's debts regarding
A) corporations.

A) limited partnerships.
B) limited liability partnerships.
D) limited liability companies.

Question 67

A franchise should be thought of as
A) a contractually based business entity.

A) a type of business entity.
B) a federally regulated business entity.
D) a method of conducting business.

Question 68

Sonya and Davi are going to open a sporting goods store.They sign a written limited partnership agreement naming Davi as a limited partner and Sonya as the general partner.Sonya files a certificate of limited partnership with the state.Sonya contributes $100,000 toward the start-up,while Davi contributes $200,000.They agree to split profits evenly because Sonya will be working in the store and operating the day-to-day business.About a month after they open,the business is not doing well,so Davi starts becoming more involved.Soon he is requiring that Sonya approve all purchases with him,and Davi is actively directing Jack,the sole employee.One day,Geoff,a customer,is injured when a bowling ball falls off a shelf and shatters his foot.Geoff sues and is awarded a judgment of $1 million.

A) As this was a limited partnership, Sonya is liable for $800,000 and Davi is liable for $200,000.
B) Sonya and Davi are each liable for up to $500,000.
C) Under the circumstances, Sonya and Davi are both jointly and severally liable for the full $1 million.
D) Whoever negligently secured the bowling ball on the shelf is liable for the $1 million liability.

Question 69

A general partnership may be formed by
A) either oral or written agreement.

A) oral agreement.
B) written agreement.
D) oral, written, or implied agreement.

Question 70

You have just graduated and you want to start your own business.You have a degree in horticulture,so you have chosen to open a florist shop and plant nursery.What type of business entity will you choose? Explain its benefits and detriments in detail.

Question 71

Name and discuss the fiduciary duties owed by general partners to the partnership as set out in the Revised Uniform Partnership Act.

Question 72

You have been invited to become a member of a partnership.What are some of the considerations you need to assess in making a decision to become a general or limited partner?

Question 73

Which of the following is not a part of the winding up process?

A) Dissolution of the partnership.
B) Distribution of the net proceeds to the partners.
C) Discharge of the partnership debts.
D) Closing the partnership's business.

Question 74

Christin and Paola operate a business in which both have contributed $50,000 to the business's capitalization.Christin makes all business decisions,and Paola made Christin sign a partnership agreement saying that Paola is liable only for partnership debts up to $50,000.

A) Both are general partners.
B) Christin is a general partner, and Paola is a limited partner.
C) Paola is a general partner, and Christin is a limited partner.
D) Both are limited partners.

Question 75

Roger is a limited partner in a business.To retain his limited liability protection,he must not

A) participate in the approval of new partners.
B) participate in the removal of existing partners.
C) consult or be paid by the business.
D) assume management responsibilities.

Question 76

How is the Revised Uniform Partnership Act similar to the Uniform Commercial Code in terms of gap filling?

Question 77

What process will the courts use to resolve a dispute between principals of a limited partnership in the absence of a written partnership agreement?

Question 78

Brayden is a general partner in a four-member limited partnership with two general and two limited partners.The partnership is silent with regard to the duration of the partnership,and Brayden wishes to retire.

A) Brayden may withdraw at any time, and the partnership continues.
B) Brayden must give six months' notice before being permitted to withdraw.
C) The other general partner and the limited partner with the largest liability must agree to his withdrawal.
D) The court must grant permission for Brayden to withdraw since the agreement was silent and the other partners and third-party customers of the partnership must be protected.

Question 79

Describe the common terms of a franchise agreement that govern the relationship between franchisee and franchisor.

Question 80

Which of the following does not require two or more principals?
A) limited partnerships

A) sole proprietorships
B) limited liability partnerships
D) limited liability companies