Deck 40: Types of Business Organizations

Question 1

If Farmer Bill and Farmer Sue decide to pool their farm products and sell them, they have probably created a cooperative.

Answer 1

True

Question 2

A corporation must have at least two shareholders.

Answer 2

False

Question 3

Corporations are subject to a form of double taxation.

Answer 3

True

Question 4

Joe and Carol decide to create Sweet Gardens, an unincorporated association for grow a community garden. If someone is injured from food grown at Sweet Gardens, they can sue Sweet Gardens directly.

Question 5

Business corporations exist to make a profit.

Question 6

A limited liability company is treated like a partnership under federal tax law and has the limited liability feature of corporations.

Question 7

A corporation is a separate legal entity capable of owning property, contracting, and being sued in its own name.

Question 8

The death of a majority shareholder terminates a corporate enterprise.

Question 9

A joint venture typically relates to the carrying out of a single enterprise or transaction.

Question 10

A partnership is not dissolved by the death of a partner.

Question 11

The major disadvantage to investors in a corporation is nearly unlimited personal liability.

Question 12

A corporation has perpetual life, until one of its shareholder dies.

Question 13

In the event a joint venture is sued, the negligence of one joint venturer will be imputed to the other venturers.

Question 14

The owner of a sole proprietorship pays federal income taxes at the corporate income tax rate, based on the net earnings of the sole proprietorship.

Question 15

A sole proprietor must file a certificate with the state and pay a single organizational fee.

Question 16

A sole proprietor is subject to unlimited personal liability for the debts of the business.

Question 17

Generally, the members of an unincorporated association are not liable for the debts of the association by the mere fact that they are members.

Question 18

Partnership agreements allow individuals to conduct their business without the requirement of a formal organizational structure.

Question 19

Most courts hold that joint ventures are subject to the same principles of law as corporations.

Question 20

The process of incorporation involves the expenditure of funds for organizational expenses.

Question 21

A franchisee cannot be a corporation.

Question 22

An owner's death would have no effect on any of the business entities below, except: ______.

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

Question 23

Franchise agreements frequently contain an arbitration provision under which a neutral party is to make a final and binding determination whether there has been a breach of the contract sufficient to justify cancellation of the franchise.

Question 24

Most courts hold that joint ventures operate under the same legal principles as partnerships except: ______.

A) a joint venture shares profits and losses.
B) a joint venture involves capital contributions from all the owners.
C) a joint venture does not require a written agreement.
D) a joint venture typically involves a single limited purpose.

Question 25

In a joint venture, the parties: ______.

A) combine their labor or property for a single undertaking and share profits and losses equally.
B) combine their labor or property for a continuing business and share profits and losses equally.
C) assume no personal liability beyond the risk of losing their initial investment.
D) have unlimited personal liability for debts of the venture.

Question 26

A(n) _______ allows the owners to be taxed like a partnership but with limited liability.

A) corporation.
B) franchise.
C) limited liability company.
D) joint venture.

Question 27

A major disadvantage of the sole proprietorship is: ______.

A) no organizational fees.
B) the sole proprietor obtains all of the profits.
C) the sole proprietor is personally liable for the debts of the sole proprietorship.
D) the sole proprietor is free to make all business decisions concerning operation of the sole proprietorship.

Question 28

Freedom from liability to third persons dealing with the franchise holder is one of the main reasons that franchisors grant franchises.

Question 29

Franchisors may be found liable for the wrongful conduct of their franchisees on an apparent authority theory when the conduct of the franchisor creates an appearance of authority.

Question 30

The people in a corporation responsible for the management of the business are the: ______.

A) partners.
B) shareholders.
C) board of directors.
D) licensees.

Question 31

Who serve as agents of the corporation and run the "day-to-day" operations of the business?

A) officers
B) directors
C) shareholders
D) employees

Question 32

To meet the requirements of the FTC, the franchisee must make a minimum payment of at least $540 during the first six months of operations.

Question 33

A sole proprietorship is taxed: _______.

A) on a personal level.
B) only on the corporate level.
C) on both a personal and a corporate level.
D) like a partnership.

Question 34

The government's permission is required to create: ______.

A) sole proprietorships.
B) corporations.
C) partnerships.
D) unincorporated associations.

Question 35

If the negligence of the franchisee causes harm to a third person, the franchisor is not liable because the franchisee is an independent contractor.

Question 36

A franchisor is the person to whom the franchise is granted.

Question 37

The FRC has adopted a franchise disclosure rule that requires franchisors to give prospective franchisees a full disclosure statement thirty (30) days before a franchisee signs a contract or pays any money for a franchise.

Question 38

A joint venture manufacturing agreement gives the manufacturer authority to manufacture products under a proprietary trademark.

Question 39

The principal forms of business organization are: ______.

A) sole proprietorships, joint ventures, and corporations.
B) unincorporated associations, partnerships, and corporations.
C) unincorporated associations, limited partnerships, and corporations.
D) sole proprietorships, partnerships, and corporations.

Question 40

The relationship between the franchisor and the franchisee is ordinarily an arm's-length employment relationship.

Question 41

Normally in a franchise operation: ______.

A) both the franchiser and the franchisee will be liable to third persons for contracts that are breached by the franchisee.
B) only the franchisor will be liable to third persons for contracts that are breached by the franchisee.
C) only the franchisee will be liable to third persons for contracts that are breached by the franchisee.
D) neither the franchisor nor the franchisee will be liable to third persons for contracts that are breached by the franchisee.

Question 42

A rule requiring that a franchisor provide a disclosure statement to all prospective franchisees was adopted by the: ______.

A) UCC.
B) Franchise Tax Board.
C) Securities and Exchange Commission.
D) Federal Trade Commission.

Question 43

Theoretically, the relationship between a franchisor and a franchisee is one of: ______.

A) parent and subsidiary.
B) an "arm's-length" relationship between two (2) independent contractors.
C) an "arm's-length" relationship between two (2) partners.
D) an "arm's-length" relationship between two (2) joint tenants.

Question 44

Sally Gomez is interested in starting a new business. Although Gomez has developed her business plan and is ready to implement her ideas, she lacks the necessary finances to begin her new business. Along with a lack of finances, Gomez worries about the potential liability involved with starting a new business. Gomez would hate to lose all that she has personally accumulated to date in the event of a successful lawsuit against her. She is considering a sole proprietorship, a partnership, or a corporation as the organizing structure of her new venture. Which type of business would best serve Gomez's needs at this given time?

Question 45

An unincorporated association (UA) possess all of the following characteristics, except: _______.

A) a UA cannot sue in its own name.
B) a UA cannot be sued in its own name.
C) a UA does not have any legal existence apart from the members who compose it.
D) a UA requires legal filings with a public authority.

Question 46

The Petroleum Marketing Practices Act gives gas station __________ the opportunity to continue in business by purchasing the entire premises used in selling motor fuel when the franchisor decides to sell the property and not renew a lease.

A) franchisees
B) licensors
C) joint venturers
D) partners

Question 47

A parents' group in a small town formed an association to run a little league baseball team. Tom and Mary were members of the association, which was never incorporated. Tom was elected president of the association and ordered some uniforms for the team. When the uniforms were not paid for, the baseball supply company sued Tom and Mary for the contract price. Regarding the liability of Mary: ______.

A) Mary is liable because she is a member of an unincorporated association.
B) Mary is not liable because members of an unincorporated association have no personal liability.
C) Mary is liable if she authorized or ratified the purchase.
D) Mary is liable but only for 50% of the outstanding debt.

Question 48

To protect themselves against liability, franchisors often require individual franchisees to: ______.

A) take out fraud insurance.
B) register with the attorney general.
C) publicly disclose their own separate business identities.
D) disavow any connection with the franchisor.

Question 49

Arnold was the sole shareholder, president, and chief executive officer of Algernon Enterprises, Inc. Acting on behalf of Algernon, Arnold negotiated the credit purchase of inventory from Amax. The contract was signed in the name of Algernon Enterprises. Algernon never paid the sums due on the contract, and Arnold and the corporation were sued. Is Arnold personally liable to Amax?

Question 50

Louise Feldspar obtained the exclusive right to sell TastyCrunchy Chicken in a specified area. Under the agreement, Feldspar was permitted to use the TastyCrunchy name and logo for her restaurant and she agreed to comply with TastyCrunchy's restaurant requirements. She purchased her equipment, as well as the chicken she served, from the firm. She agreed to devote a certain percentage of her revenues to promoting the TastyCrunchy operation in local media. The operation was successful from the start, and Feldspar has had no problem meeting the sales quotas imposed by TastyCrunchy. The past year TastyCrunchy informed Feldspar that it intended to open a new restaurant on an interstate highway that had just been completed in her exclusive area of trade. Because her operation would be competition for the new store, Feldspar's right to sell TastyCrunchy products and use the name TastyCrunchy was revoked. What can Louise do?

Question 51

An arrangement in which the owner of a trademark licenses others, under specified conditions or limitations, to use the trademark in purveying goods or services is a(n): ______.

A) corporation.
B) limited partnership.
C) unincorporated association.
D) franchise.

Question 52

Holders of automobile dealership franchises are protected from bad faith termination of their dealerships by the: ______.

A) Sherman Antitrust Act.
B) Robinson-Patman Franchise Act.
C) Automobile Dealers' Day in Court Act.
D) Franchise Holder Protection Act.

Question 53

A business that complies with FTC franchise requirements meets all of the following criteria except: ______.

A) the franchisor must promise to provide a trademark or other commercial symbol.
B) the franchisor must promise to exercise significant control or provide significant assistance in the operation of the business; any current and past litigation against the franchisor.
C) the franchise must require a minimum payment of at least $540 during the first six months of operations.
D) the franchise must require a minimum payment of at least $5,400 during the first six months of operations.