Deck 34: Small Businesses, Entrepreneurs, and General Partnerships

Question 1

A general partnership hides behind the corporate veil,thereby relieving the general partners of liability for the debts and obligations of the partnership.

Answer 1

False

Question 2

The purpose of requiring the filing of fictitious business names is to allow the public to know the true owner of businesses operating under fictitious names.

Answer 2

True

Question 3

State approval is needed in order to form a sole proprietorship.

Answer 3

False

Question 4

If a person,operating a business as a sole proprietor,owes money to business creditors,those creditors may collect only from the assets of the business itself.

Question 5

In most states a sole proprietorship that operates under a trade name must file with the appropriate state agency.

Question 6

A large business can be operated as a sole proprietorship.

Question 7

If a sole proprietor closes a business that has no assets but owes money to a creditor,the owner is personally liable to pay the creditor.

Question 8

The "fictitious name statutes" require all sole proprietorships to file a statement indicating whether or not they use a trade name.

Question 9

An entrepreneur is a person who forms and operates a new business.

Question 10

A general partnership is a voluntary association of two or more persons for carrying on a business as co-owners for profit.

Question 11

The shareholders are the owners in a sole proprietorship.

Question 12

In order to use a fictitious name,a sole proprietorship must incorporate the business.

Question 13

A sole proprietor's access to capital is unlimited.

Question 14

There are no disadvantages to doing business as a sole proprietorship.

Question 15

It is difficult to transfer or sell a sole proprietorship.

Question 16

Ease and cost of formation have little to do with the selection of the form under which a business should operate.

Question 17

Jack is the sole proprietor of Jack's Appliances.He gives out a 5-year warranty on all appliances that he sells.Sara buys a stove from him.A year later,Jack dies and the business is sold to Ken.Sara can now enforce the warranty against Ken.

Question 18

A sole proprietor is personally liable for the debts of the business.

Question 19

Sole proprietorships are the most common form of business organization in the United States.

Question 20

A sole proprietorship is a separate legal entity from the sole proprietor.

Question 21

The Uniform Partnership Act may not act as a gap-filling device if the partners' agreement fails to provide for an essential term or contingency.

Question 22

A release of one partner does not discharge the liability of the other partners.

Question 23

The process of winding up involves the liquidation of the partnership's assets.

Question 24

A new partner who is admitted to a partnership is not liable for the existing debts and obligations of the partnership.

Question 25

Under the UPA,partners are individually liable for the contracts and debts of the partnership.

Question 26

Partners owe one another a duty of loyalty.

Question 27

Partnerships that exist for more than one year must be in writing.

Question 28

Each partner's vote is based on his or her capital contribution or share in the partnership profits.

Question 29

Partners are allowed to bring an action for an accounting against other partners.

Question 30

Upon termination of a partnership,the partners are entitled to have all of their capital contributions returned to them,so long as the partnerships creditors are paid in full.

Question 31

A partner who withdraws from a partnership for a term before the expiration of the term does not have the right to dissolve the partnership.

Question 32

A partner is entitled to indemnification of his or her expenses on behalf of the partnership.

Question 33

A partnership with a fixed duration is called a partnership at will.

Question 34

The UPA provides that a partner is not entitled to remuneration for his or her performance in the partnership's business.

Question 35

In general,all partners have equal rights in the management and conduct of the partnership business.

Question 36

Partnerships are considered to be separate legal entities under the UPA.

Question 37

If a partnership agreement provides for the sharing of losses but is silent as to how profits are to be shared,profits are shared equally.

Question 38

A partnership with no fixed duration is called a partnership for a term.

Question 39

Each partner has a privacy right whereby they need not provide information affecting the partnership.

Question 40

Partners are liable for damages caused by their negligence regardless if the negligence was cause by an honest error in judgment.

Question 41

A third party who has actually dealt with the partnership must be given actual notice of the partnership's dissolution or have acquired knowledge of the dissolution from another source.

Question 42

When a partnership is continued and the old partnership is dissolved,the creditors of the old partnership do not become creditors of the new partnership.

Question 43

Martha started a flower shop as a sole proprietor.After 1 year,she was forced to close the shop because business was so bad.At that time,the business assets totaled $50,000,but the business liabilities totaled $125,000.Which of the following statements is true?

A) Martha is personally liable for the additional $75,000.
B) Martha's business creditors can collect only the $50,000 of business assets.
C) Martha's business creditors can collect only the $50,000 now,but if Martha ever goes into business again,they can get the assets of the new business.
D) Once Martha terminates the sole proprietorship,the business creditors cannot even get the $50,000.

Question 44

In order to form a sole proprietorship,the owner must:

A) apply to the secretary of state and wait for approval
B) register with the secretary of state,but no separate approval is required
C) execute a sole proprietorship agreement
D) register with the Internal Revenue Service
E) none of the above

Question 45

Patty owned a sole proprietorship.She had four salespersons selling the company's products.One of her salespersons made false statements about a competitor's products while trying to sell Patty's products.The competitor sues Patty's business and wins the lawsuit.Under what circumstances could Patty be personally responsible to pay the judgment?

A) none,because this was a debt of the business
B) if Patty was separately named in the lawsuit
C) if Patty knew about the salesperson's activities
D) if the salesperson's activities were part of a continuing pattern rather than an isolated incident
E) Patty is liable here regardless of any other circumstances.

Question 46

Fred and Ginger are general partners in a business.They decide to purchase a building for the partnership.Ginger will put up the money for the building,and Fred will complete the remodeling.While inspecting the building,Fred is informed that the building is packed full of asbestos.He fails to tell Ginger of the presence of the substance.They buy the building and go into business.During remodeling of the building,people from the neighborhood begin complaining about the dust from the building.Some of them even threaten to sue! Who is liable?

A) Neither is liable personally,nor is the partnership,as they did not put the substance in the building.
B) Fred will have liability because he was put on notice of the presence of the substance. Ginger will not be liable because she did not have actual knowledge.
C) Ginger will be liable because she is the one that purchased the building. Fred will not be liable. Even though he had actual knowledge,he did not purchase the building.
D) Both will be liable by virtue of the fact that they are partners.

Question 47

The dissolution of a partnership discharges the liability of the outgoing partners for the existing partnership's debts and obligations.

Question 48

Mark operates an auto parts shop.The shop has gone out of business,and all assets have been sold.The following debts remain: 1.$10,000 owed to suppliers for merchandise that was sold to customers.
2)$20,000 owed to suppliers for merchandise that was ruined in an unexpected flood.
3)$35,000 owed to a customer who has a final judgment in a product liability suit against the auto parts shop.
For which of these debts can Mark be held personally liable?

A) None; they were all business debts.
B) 1 only
C) 1 and 2 only
D) 1 and 3 only
E) 1,2,and 3

Question 49

Betty starts up a business selling party supplies from a retail store.This business is very successful.She opens several other stores in the same city.She eventually has six similar stores in her city.She has a manager for each store who is paid a fixed annual salary.All her other employees are paid on an hourly basis.She has never chosen any particular form of business organization for this business.This business is most likely:

A) a sole proprietorship
B) a joint venture
C) a corporation
D) a partnership
E) a franchise

Question 50

The major disadvantage of a sole proprietorship is:

A) the difficulty and cost of formation
B) the unlimited liability for the business's debts
C) the sharing of management authority with others
D) the difficulty in transferring ownership to others

Question 51

The major advantage of a sole proprietorship is that:

A) it is easy to create
B) it offers limited liability
C) it includes a "need not file under a fictitious name" statute
D) it is easy to raise capital

Question 52

Does a sole proprietor have unlimited liability for any of the liabilities of the business?

A) No.
B) Yes,but only for ordinary recurring types of expenses.
C) Yes,but only for foreseeable expenses and liabilities.
D) Yes,but only for debts if the owner specifically assumed personal liability when the debt was incurred.
E) Yes,for all debts of the business.

Question 53

Lorna has recently developed a software program tailored for the upscale coffee shop industry.Lorna has begun marketing her program and has had some success selling to small independent stores.She is now ready to begin marketing to franchisees of the national chains,with the hope that a franchisor might make the software part of its required franchisee package.Lorna wants to keep the business separate from her personal affairs,so she has set up separate checking accounts,separate phone lines,and has set up a fictitious business name that does not use her name.She has filed a fictitious business name statement in the appropriate state office.She has written a will in which she has declared that in the event of her death,her business and personal assets and liabilities are to be kept separate,just as they were during her life.Her personal checks say,"Lorna Lones,personal account only." Discuss the extent to which Lorna has insulated her personal assets from any business losses.

Question 54

If a business,having one owner,is started without the owner choosing any particular form of business organization,that business will be:

A) nonexistent until the form of organization is chosen
B) a corporation
C) a joint venture
D) a sole proprietorship
E) a franchise

Question 55

Which of the following businesses can be operated as a sole proprietorship?

A) any business,so long as there are no employees other than the proprietor
B) any service-type business
C) any business,so long as revenues are not excessively large
D) any business,so long as the number of employees is not excessively large
E) any business

Question 56

A sole proprietor has unlimited liability for:

A) personal,but not business debts
B) business,but not personal debts
C) both business and personal debts
D) neither business nor personal debts

Question 57

Which of the following is true about the choice of business entity for an entrepreneur?

A) The choice will be determined by the amount of capital invested.
B) The Internal Revenue Service will determine the type of entity based on all the facts and circumstances.
C) The choice will be determined by whether the primary business is services or goods.
D) The choice will take into account many factors,with wide latitude in finding an entity that has all the characteristics desired.
E) The choice will take into account many factors,but the entrepreneur usually will have to accept substantial tradeoffs,as each different entity generally has a set of characteristics that must be accepted in total,the desirable and the undesirable.