Deck 18: Small Businesses and Limited Liability Companies

Question 1

Anyone who does business must create a separate business organization.​

Answer 1

False

Question 2

Any business-except a sole proprietorship-must comply with business registration and licensing requirements.​

Answer 2

False

Question 3

A partner is not liable for honest errors in judgment in conducting partnership business.​

Answer 3

True

Question 4

Dissociation normally entitles the partner to buy his or her interest from the partnership.​

Question 5

A sole proprietorship offers less flexibility than does a partnership or a corporation.​

Question 6

The law considers all new businesses to be sole proprietorships regardless of the number of owners.​

Question 7

A partner may not have the right to dissociate from the partnership.​

Question 8

In choosing a form of business organization for a new enterprise, important factors include tax considerations.​

Question 9

A sole proprietor owns the entire business.​

Question 10

Limited legal liability generally is necessary for small businesses that wish to raise outside capital.​

Question 11

In a partnership, the senior partner controls decisions on ordinary matters connected with the firm's business.​

Question 12

When lending capital to a small business, a bank may require a personal guaranty of its repayment from the owner.​

Question 13

A sole proprietor does not own the entire business.​

Question 14

Typically, the articles of organization of a limited liability company (LLC) include information on how the LLC will be managed.​

Question 15

A partner's profit from a partnership is taxed as income to the firm.​

Question 16

Most states treat a partnership as an aggregate for most purposes.​

Question 17

Any suit against the business or its employees can lead to unlimited personal liability for the owner of a sole proprietorship.​

Question 18

A partner may pursue his or her own interests without automatically violating the partner's fiduciary duties to the partnership and the other partners.​

Question 19

A sharing of profits from a business creates a presumption that a partnership exists.​

Question 20

In most states, a limited liability company can have only a limited number of members.​

Question 21

A limited liability company can be held liable for any loss or injury caused by the wrongful acts or omissions of its members.​

Question 22

Limited liability company operating agreements can provide whether formal members' meetings will be held.​

Question 23

The members of a limited liability company have unlimited liability for any loss or injury caused by the wrongful acts or omissions of the firm.​

Question 24

A limited liability company can be taxed as a corporation.​

Question 25

Nina, the owner of Organic Farm, a sole proprietorship, wants to obtain additional capital to operate. This can be accomplished by​

A) ​a bank loan.
B) ​a Small Business Administration Loan.
C) ​a state grant.
D) ​any of the choices.

Question 26

Most states apply to a limited liability company (LLC) formed in another state the law of the state where the LLC currently does business.​

Question 27

The owners of a limited liability company are liable for the obligations of the firm to the full limit.​

Question 28

Carl starts up, and assumes the financial risk of, DataWorks, a new Web marketing enterprise. Carl and DataWorks must meet legal requirements relating to​

A) ​business name and state tax registration.
B) ​occupational licensing.
C) ​intellectual property laws.
D) ​all of the choices.

Question 29

Laura owns and operates Meditation Center without creating a separate business organization. She receives all the profits from the fees for the classes and the sales of the center's merchandise. This is most likely​

A) ​a limited liability company.
B) ​a partnership.
C) ​a sole proprietorship.
D) ​none of the choices.

Question 30

Lee wants to go into the business of architectural design. Among the reasons that might convince Lee to set up his business as a sole proprietorship would be​

A) ​its greater organizational flexibility.
B) ​its limited liability.
C) ​its perpetual existence.
D) ​the ease of transferring the business to other family members.

Question 31

In many states, an operating agreement is required for a limited liability company to exist.​

Question 32

Generally, a dissociated member of a limited liability company (LLC) has the right to buy his or her interest in the LLC from the other members.​

Question 33

When a limited liability company is dissolved, any member, including those who wrongfully dissociated, may participate in the winding up process.​

Question 34

​In a limited liability company, the management may consist of members or nonmembers, but not both.

Question 35

If a dispute arises and the applicable limited liability company statute does not cover the issue, a court will most likely dismiss the case.​

Question 36

Limited liability companies are entities apart from their owners.​

Question 37

Members of a limited liability company can stipulate in their operating agreement how voting rights will be apportioned.​

Question 38

For federal income tax purposes, one-member limited liability companies are not taxed.​

Question 39

Normally, a member who dissociates from a limited liability company (LLC) has the right to force the LLC to dissolve.​

Question 40

Without creating a separate business organization, Lou starts up Main Street Motors, a new, pre-owned auto sales enterprise. Lou is​

A) ​none of the choices.
B) ​a member.
C) ​a partner.
D) ​a sole proprietor.

Question 41

Bill sells Corner Deli, a sole proprietorship, to Debra. This is​

A) ​the creation of a partnership.
B) ​not a transfer of ownership without the other owners' approval.
C) ​not a transfer of ownership-a sole proprietorship cannot be transferred.
D) ​a transfer of the ownership of the business.

Question 42

Luke and Maya form Northeast Air Express, a partnership. The essential elements of this partnership do not include​

A) ​a sharing of profits and losses.
B) ​a joint ownership of the business.
C) ​an equal right to management in the business.
D) ​goodwill.

Question 43

Craig, Donna, and Eve do business as Fast-Track Career Consultants. Eve's relationship to Fast-Track ends, but the firm continues to do business. This is​

A) ​dissociation.
B) ​dissolution.
C) ​most likely illegal.
D) ​unethical.

Question 44

Kay and Linda decide to do business as Marketing & Promotion. To be a partnership, this association can result from an agreement that is​

A) ​express, but not implied.
B) ​implied, but not express.
C) ​oral, written, or implied by conduct.
D) ​written, but not oral or implied.

Question 45

Fact Pattern 18-1
Bryn, Cornell, and Duke are partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
Refer to Fact Pattern 18-1. The partners decide to dissolve Equity Lending. Duke collects and distributes the firm's assets. This results in​

A) ​nothing with respect to the firm's existence.
B) ​the continuation of the firm's business.
C) ​the termination of the firm's legal existence.
D) ​the temporary suspension of the firm's business.

Question 46

Olivia is a partner in Pacific Traders. In the majority of states, with respect to any partnership obligations that Olivia does not participate in, know about, or ratify, she would be liable for​

A) ​none of the obligations.
B) ​all of the obligations, jointly and severally.
C) ​all of the obligations, jointly but not severally.
D) ​only the contractual obligations.

Question 47

Quisa and Reilly are partners in Sport Bikes, which rents and sells bikes, bike accessories, and related gear. Quisa manages the business. Unless the partnership agreement states otherwise, Quisa is​

A) ​entitled to compensation in proportion to her effect on the business.
B) ​entitled to compensation in proportion to her effort.
C) ​entitled to compensation in proportion to her capital contribution.
D) ​not entitled to compensation.

Question 48

Rosa is a partner in Silver Dragon, a partnership consisting of the owners of a restaurant. Silver Dragon incurs debt for new dining tables and chairs. With respect to this debt, Rosa is​

A) ​not liable.
B) ​only liable to the amount of her capital contribution.
C) ​only liable in proportion to the number of partners in the firm.
D) ​personally liable to the full extent.

Question 49

Ford is the sole proprietor of Go, a game app subscription service. As a sole proprietor, on the business's profits, Ford pays​

A) ​no income taxes.
B) ​only personal income taxes.
C) ​only business income taxes.
D) ​both personal and business income taxes.

Question 50

Ed, a partner in Farm Equipment Sales, applies for a loan with Growers Bank allegedly on Farm Equipment's behalf but without the authorization of the other partners. The bank knows that Ed is not authorized to take out the loan. Liability in the event of default will be imposed on​

A) ​none of the choices.
B) ​Ed.
C) ​Farm Equipment.
D) ​Growers Bank.

Question 51

Fact Pattern 18-1
Bryn, Cornell, and Duke are partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
Refer to Fact Pattern 18-1. Cornell's assignment of his interest in Equity Lending to Financial Consultants Corporation results in​

A) ​nothing with respect to Cornell or Equity Lending.
B) ​the automatic termination of Equity Lending's legal existence.
C) ​Cornell's liability for all of Equity Lending's debts.
D) ​Cornell's wrongful dissociation and liability for any damages.

Question 52

Sara and Terry agree while talking on the phone to form a partnership to enter into the business of real property management. To be enforceable under the Statute of Frauds, their agreement must​

A) ​be filed in the appropriate state office.
B) ​be in writing.
C) ​be signed by a notary public.
D) ​not involve a third party.

Question 53

Chet is a partner in Diligent Accounting Service. Chet can inspect Diligent's books and records​

A) ​in their entirety.
B) ​only as the firm's management permits.
C) ​only for a reasonable purpose.
D) ​only in relation to Chet's capital contribution.

Question 54

Ken owns and operates Living Earth Garden Shop as a sole proprietorship. When Ken dies, Living Earth will automatically​

A) ​dissolve.
B) ​pass to Ken's heirs.
C) ​pass to the state.
D) ​be offered for sale to its creditors and competitors.

Question 55

Selections, a partnership, operates a gift shop. Selections has five partners. Tony has a one-third interest in the partnership. Each of the other partners has a one-sixth interest. With respect to management decisions​

A) ​a majority of the partners must agree.
B) ​Tony rules.
C) ​the senior partner decides.
D) ​four of the partners must agree.

Question 56

Gwen and Hugo do business as Gwen & Hugo Civil Engineers, a partnership. This firm is governed by the Uniform Partnership Act​

A) in the absence of an express agreement.​
B) ​in the absence of an implied agreement.
C) ​only under an express agreement.
D) ​under all circumstances.

Question 57

Fact Pattern 18-1
Bryn, Cornell, and Duke are partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners.
Refer to Fact Pattern 18-1. Bryn, Cornell, and Duke decide to admit Giselle as a new partner in Equity Lending. Giselle's liability for partnership debts incurred before her admission is​

A) ​limited to her capital contribution to the firm.
B) ​limited to her personal assets.
C) ​nothing.
D) ​unlimited.

Question 58

Rita and Salvatore do business as Tech Fixers, a partnership. In most states, for the purposes of collecting judgments and having accounting performed, this firm would be treated as​

A) ​an aggregate of individuals.
B) ​a person.
C) ​an entity.
D) ​a non-entity.

Question 59

Diane organized, and owns and operates, Reliable Roofing, a construction outfit, in the simplest form of business organization. This is​

A) ​a limited liability company.
B) ​a partnership.
C) ​a sole proprietorship.
D) ​none of the choices.

Question 60

Stefani and Tyler agree in an exchange of e-mail to form a partnership to buy and sell real property. Their partnership agreement is legally binding​

A) ​only if a copy of the agreement is filed in the appropriate state office.
B) ​only if the agreement is printed in hard copy and signed by the parties.
C) ​only if the parties exchange valid consideration.
D) ​without more.

Question 61

Jess and Keri are members of Livewire LLC, a limited liability company. In most situations, with respect to Livewire's debts, Jess and Keri are shielded from​

A) ​all liability.
B) ​no liability.
C) ​personal liability.
D) ​"corporate veil" liability.

Question 62

Bette is one of three partners in Clean & Clear, a commercial janitorial service. With respect to her interest in the firm, when she dies, her heirs are most likely entitled to​

A) ​nothing.
B) ​a payout of her capital contribution without more.
C) ​the buyout price paid by the firm for the interest.
D) ​one-third of the value of the interest.

Question 63

Jim is considering forms of business organization, including the limited liability company (LLC), for his business-Kettle Popt-Korn. Most states require that an LLC have​

A) ​a corporate veil, but no minimum number of participants.
B) ​at least one member.
C) ​at least two members.
D) ​at least one non-member manager.

Question 64

Home Healthcare, LLC's owners are Inez and Jan. For purposes of entering into contracts, Home Healthcare is​

A) ​an aggregate of its owners.
B) ​a non-entity
C) ​a legal entity apart from its owners.
D) ​a non-participating third party.

Question 65

Rico, the owner of Simply Sushi, is a sole proprietor. What are the chief characteristics, advantages, and disadvantages of this form of business organization? Rico wants to obtain additional capital to expand Simply Sushi, but she does not want to lose control of the firm. As a sole proprietor, what is her best option to attain these goals?​

Question 66

Sebastian was the manager of Thai Bistro, a restaurant specializing in Southeast Asian foods. Sebastian opened a bank account in Thai Bistro's name, signing the account signature card as "owner." Umeko, who was often at Thai Bistro and had free access to its office, told others that she was "an owner" and "a partner." She also opened a bank account in Thai Bistro's name, and signed the account signature card as "owner." Sebastian told Vijay, the owner of Wong Noodles, Inc., that Umeko was a member of a partnership that owned Thai Bistro. On this basis, Wong Noodles delivered its goods to Thai Bistro on credit. In fact, Thai Bistro was owned by a corporation. When the unpaid account totaled more than $10,000, Wong Noodles filed a suit against Umeko to collect. On what basis might Umeko be liable for the debt?​

Question 67

Bee Hive Honey, LLC's members include Charlie and Donna. For purposes of suing and being sued, Bee Hive Honey is​

A) ​an aggregate of its members.
B) ​a non-entity
C) ​a legal entity apart from its members.
D) ​a non-participating third party.

Question 68

Custom Auto, LLC, is a limited liability company. Its members include Dennis and Emma. Like other LLCs with more than one member, unless indicated otherwise, the firm will automatically be taxed as​

A) ​a person.
B) ​a corporation.
C) ​a sole proprietorship.
D) ​a partnership.

Question 69

Kim and Lyle are partners in K&L Sales, which exports technical equipment. If Congress declares that the equipment can no longer be exported, K&L​

A) ​can continue its business for one twelve-month period.
B) ​can continue its business indefinitely.
C) ​dissolves immediately unless the partners change its business.
D) ​is immediately subject to criminal prosecution and penalties.

Question 70

Data Analytics, LLC, is a limited liability company. Unless the articles of organization specify otherwise, it will most likely be assumed that the firm is​

A) ​member-managed.
B) ​manager-managed.
C) ​an aggregate of member and non-member managers.
D) ​run by an outside professional management group.

Question 71

Michel is a citizen of France. With respect to a limited liability company in the United States, Michel can​

A) ​act as a creditor, but cannot otherwise invest or participate.
B) ​become a member.
C) ​not become a member, but can participate in its operations.
D) ​not become a member or otherwise participate in its operations.

Question 72

Beth and Carol want to form a limited liability company to manage their business, DoReMi Music. Their state has adopted the Uniform Limited Liability Company Act, which has been adopted in​

A) ​all states.
B) ​no state.
C) ​less than one-fifth of the states.
D) ​about half of the states.