Deck 29: Starting a Business: Llcs and Other Options

Question 1

Which of the following characteristics is that of a closely held corporation?

A)the shares are not publicly traded.
B)the corporation can typically operate without a board of directors.
C)the shareholders usually restrict share transfer.
D)all of the above

Answer 1

D

Question 2

Lawrence,Pablo,and Shanna,who plan to start a business:

A)should consider taxes, potential liability, ease and cost of formation, and transferability of interests when they select a form of organization.
B)will be affected by business law which attempts to balance the rights, obligations, and liabilities of the entrepreneurs, managers, investors, and customers.
C)will be subject to a form of organization the law automatically selects by default if they do not select the form of organization themselves.
D)All of the above.

Answer 2

D

Question 3

Becoming a franchisee is a compromise between being an entrepreneur and being an employee.

Answer 3

True

Question 4

To form an LLC,a charter and an operating agreement must be filed with the Secretary of State in the jurisdiction where the business will operate.

Question 5

Cooperatives may be either incorporated or unincorporated businesses.

Question 6

The advantage of a corporation over a partnership is:

A)shares are easily transferable to another person.
B)perpetual existence.
C)it is easier to raise funds.
D)All the above.

Question 7

John and Bob agree to start a gutter cleaning business together.Even though they did not reduce their agreement in writing,the law will treat them as partners if they share management and profits.

Question 8

Businesses often operate in the legal form of a business trust.

Question 9

Lance and Darrell have an equal partnership.This year,after expenses,the partnership had a profit of $100,000.Lance and Darrell will each pay taxes on:

A)whatever they receive from the partnership.
B)$50,000.
C)$100,000.
D)None of the above.The partnership itself will pay the taxes on the business's profit.

Question 10

In the Marsh v.Gentry case,the court ruled that by buying partnership property without letting his partner know,he violated his fiduciary duty.

Question 11

State laws regulate corporations,but federal statutes determine their tax status.

Question 12

Generally,a joint venture is a partnership created for one limited purpose.

Question 13

The case of Apcar v.Gaus illustrates that it is essential to comply with all the technicalities of a limited liability partnership statute.

Question 14

Lee and Jan are debating whether to use an LLC or corporate form for a new business.Major advantages of an LLC over a corporation include the tax status of an LLC,the fact that an LLC is easier and less expensive to set up than a corporation,and the fact that venture capitalists generally prefer to invest in LLCs over corporations.

Question 15

The most common form of business ownership is the sole proprietorship.

Question 16

A partnership is not a separate,taxable entity.

Question 17

Which of the following statements about limited partnership is correct?

A)Limited partnership is a very popular form of business organization.
B)Limited partners have the right to manage the business.
C)General partners are personally liable.
D)All of the above.

Question 18

The Uniform Limited Liability Company Act has been adopted by most states.

Question 19

No filings are required by a limited partnership.

Question 20

Limited liability is a major advantage of a partnership as compared to a corporation.

Question 21

The process of paying all debts of a partnership and distributing the remaining proceeds to the partners at the end of a partnership is called:

A)termination.
B)dissociation.
C)winding up.
D)distribution.

Question 22

The business form that is taxed as a partnership and gives all owners limited liability,is a:

A)close corporation.
B)limited partnership.
C)limited liability company.
D)general partnership.

Question 23

John,his parents,and three brothers own all the stock of their family farm corporation.This corporation,which is taxed as a corporation,is probably:

A)an S corporation.
B)a C corporation.
C)a close corporation.
D)an LLC.

Question 24

Which of the following is considered by the IRS to be a sale of assets,subject to a tax on the value of the assets?

A)Change from the corporate form to an LLC.
B)Change from an LLC to a corporation.
C)Change from a partnership to an LLC.
D)All of the above.
E)None of the above.

Question 25

The term "S Corporation" comes from:

A)the subchapter S of the Internal Revenue Code.
B)the section S of the FTC rules.
C)the subchapter S of the Uniform Corporation Act.
D)it simply means "small".

Question 26

Murray was a partner in a large firm.He died unexpectedly.His son,Frank,wanted to take over for his father in the partnership and was well qualified to do the work his father had done.Which statement best describes Frank's rights in the partnership if he inherits the interest?

A)Frank has a right to take over for his father in the partnership.
B)Frank is entitled to the value of his father's interest in the partnership, but not to become a full partner.
C)Frank has no rights to his father's partnership interest.
D)None of the above.

Question 27

In the case of Marsh v.Gentry,the court held:

A)Gentry had the right to purchase the property without disclosing his identity to Marsh because of the special rules for auction sales.
B)state statutory law gave Marsh the absolute right to know Gentry was the purchaser.
C)Gentry acted properly because he was following "accepted business practice."
D)Gentry acted properly because Marsh had consented to a sale of the property.

Question 28

An S Corporation cannot have more than ____ shareholders.

A)25
B)50
C)75
D)100

Question 29

In the BLD Products,LTC.v.Technical Plastics of Oregon,LLC,the court addressed the issue of:

A)personal liability of general partners.
B)transfer of shares in a close corporation.
C)piercing the LLC's veil to hold a member personally liable.
D)the distribution of partnership's assets after dissolution.

Question 30

For the creation of which of the following business organizations no formation papers need to be filed with the state?

A)LLC.
B)Partnership.
C)Limited liability partnership.
D)All of the above

Question 31

Seventy farmers in Morgan County joined together to gain the advantages of purchasing seed and fertilizer in bulk and of obtaining better prices when distributing and selling their crops.These farmers have formed a:

A)business trust.
B)cooperative.
C)franchise.
D)joint venture.

Question 32

Which of the following forms of organization is a compromise between starting one's own business as an entrepreneur and working for someone else as an employee?

A)Limited liability partnership.
B)Business trust.
C)Franchise.
D)Limited liability limited partnership.

Question 33

The Federal Trade Commission requires franchisors to:

A)give prospective franchisees an offering circular at least 14 business days prior to the signing of a contract or payment of any money.
B)disclose the exact amount of the initial investment required.
C)disclose any litigation in which the company has ever been involved.
D)disclose how many franchisees have gone out of business in the prior five years.

Question 34

Which of the following statements about limited liability limited partnership is correct?

A)It is a popular business form with professionals.
B)Most states recognize LLLPs.
C)General partners are personally liable for the partnership's debts.
D)None of the above.

Question 35

Which of the following would not be personally liable for the debts of the business?

A)A sole proprietor.
B)A partner in a general partnership.
C)A general partner in a limited liability limited partnership.
D)A general partner in a limited partnership.

Question 36

Harold and Zack have pooled their money to buy real estate but have filed no formal papers to form a business.Harold,a lawyer,handles all the legal matters and Zack,a real estate broker,finds buyers for the property they have subdivided.Harold and Zack are engaged in a:

A)partnership.
B)professional corporation.
C)limited liability company.
D)business trust.

Question 37

Miranda was a limited partner in a retail business that was sued by a customer who fell in the store.The customer claimed the business was negligent in caring for its floors.Miranda:

A)has no potential liability to the customer.
B)can be held personally liable to the customer since she is a partner.
C)can only be held liable to the amount of her investment.
D)is personally liable, but the customer must first collect from the general partners before collecting from Miranda.

Question 38

The importance of a Subchapter S corporation is its:

A)organizational structure.
B)treatment of shareholders for income taxation purposes.
C)requirement of restrictive transfer rights of the shares.
D)small cost of formation.

Question 39

Guy and Peggy bought a racehorse together,agreeing to share all expenses and split profits equally.There was no agreement as to the duration of the partnership.After two racing seasons,Peggy decided she was tired of the business and left the partnership.Is Guy correct in claiming Peggy's leaving was wrongful?

A)Yes, Peggy was legally required to secure Guy's permission before leaving the partnership.
B)Yes, Peggy had a legal duty to stay in the partnership unless she had a better reason for leaving, such as impossibility of continuation.
C)Yes, Peggy had a legal duty to stay in the partnership until a new partner could be found.
D)No, in a partnership at will, a partner has the right to leave the partnership at any time.

Question 40

Susan and Brenda started a retail business called Eagle's Nest Hobbies.The business is operated as a partnership.Under partnership law,Susan is personally liable for any:

A)business contracts entered into by Brenda.
B)business debts, regardless of whether she or Brenda created the obligation.
C)negligent act committed by Brenda in the scope of the business activity.
D)All the above.

Question 41

What is a limited liability company? Explain the advantages and disadvantages of this type of business ownership.

Question 42

What are the advantages of electing Subchapter S status? What are the requirements?

Question 43

Compare and contrast the following forms of business organization: sole proprietorship,general partnership,limited partnership,limited liability company,and corporation as to ease of formation,liability of owners,management,and tax implications.

Question 44

Shelby wishes to buy a national franchise.What information is the seller legally required to provide before she buys the franchise?

Question 45

Andy wants to start his own business.He has decided to rent space in a "strip mall" and open a pet shop.Additionally,he will provide dog grooming services.He figures he can do almost everything himself,though he will need to hire a part-time employee on an "as needed" basis.His friend,Lacy,has agreed to work when needed.
Andy is considering operating his business as a sole proprietorship.What are the primary legal advantages and disadvantages to this form of business ownership for Andy's pet shop?