Deck 21: Choosing a Business Entity

Question 1

Which of the following statements about a partnership is true?

A)Partnerships,like sole traders,are not regulated by statute.
B)Due to ongoing disclosure requirements,secrecy is generally difficult to maintain.
C)Partners have a heavier tax burden than a sole trader.
D)Liability of partners for partnership debts is unlimited and personal.

Answer 1

D

Question 2

In which of the following business entities would the creditors be able to recover moneys owed to them by the business from the proprietors of the business?

A)The trading trust where a company is used to conduct the business.
B)The limited liability company.
C)The sole trader.
D)None of the above.

Answer 2

C

Question 3

Which of the following is NOT a requirement for the creation of a trust?

A)A trustee.
B)A beneficiary.
C)A trust deed.
D)Trust property.

Answer 3

C

Question 4

Which of the following statements about a trust is true?

A)A trust is administered and controlled by a trustee.
B)The trust is the most complex of business structures.
C)A trust is a creation of equity.
D)All of the above.

Question 5

Which of the following statements about a partnership is NOT true?

A)Partners must keep their capital separate for tax purposes.
B)It can be difficult to sell a share in a partnership.
C)Partners are unable to contract with the firm.
D)Partnerships can be cheap and quick to establish.

Question 6

Which of the following statements about a sole trader is NOT true?

A)A sole trader may have difficulty in raising business capital.
B)The sole trader must generally consult with customers,creditors and employees in deciding what the business will and will not do.
C)Anyone with contractual capacity can be a sole trader.
D)The liability of a sole trader is unlimited and personal.

Question 7

Define a sole trader and discuss its advantages and disadvantages.

Question 8

Which of the following statements about a sole trader is true?

A)A sole trader with employees must change to a different business structure.
B)Every sole trader must register their business name.
C)There are no special requirements to start operating a business if the sole trader uses their own name.
D)The sole trader must generally consult with customers,creditors and employees in deciding what the business will and will not do.

Question 9

Which of the following is NOT an advantage of a trading trust?

A)Protection of privacy.
B)Opportunity for wealth transfer between generations.
C)Protection of assets against creditors.
D)Personal control over trust activities.

Question 10

Which of the following statements about a sole trader is NOT true?

A)All profits made by the business belong to the business and form part of the business' own income.
B)Because there are no special statutory disclosure requirements,secrecy can be maintained by the sole trader.
C)There are no special requirements to start operating a business if the sole trader uses their own name.
D)The sole trader generally has complete control over what the business will and will not do.

Question 11

In choosing a business entity which of the following is NOT a factor in making the decision?

A)Tax implications.
B)Limiting potential liability.
C)Government approval.
D)Opportunity to raise capital.

Question 12

Explain how and why a sole trader might adopt a discretionary trust as their business structure.

Question 13

Which of the following statements about a sole trader is NOT true?

A)Most small businesses fail within the first five years of their establishment.
B)The death of the sole trader usually means the death of the business.
C)The degree of personal involvement by the sole trader can make the business difficult to sell.
D)Sole traders have limited liability for the debts of the business.

Question 14

Which of the following statements about a sole trader is NOT true?

A)Anyone capable of entering into a contract can operate a business as a sole trader.
B)A sole trader may have difficulty in raising business capital.
C)Sole traders have unlimited liability for the debts of the business.
D)The business of a sole trader can sue and be sued in its own name.

Question 15

A corporation is an entity separate from its:

A)members and shareholders but not its directors.
B)members but not its shareholders or directors.
C)members,shareholders and directors.
D)shareholders but not its members or directors.

Question 16

The shareholders of a company with share capital are its members.

Question 17

Which are the three certainties that are necessary for the creation of an express trust?

A)Intention to create a trust,agreement and consideration.
B)Intention to create a trust,plus certainty of the identity of the property and beneficiaries.
C)Intention to create a trust,consent of the beneficiaries and agreement of the trustee.
D)Consideration,knowledge on the part of the beneficiaries and certainty of duration.

Question 18

Which of the following statements about a corporation is NOT true?

A)A corporation can sue and be sued.
B)A corporation has perpetual succession.
C)There are onerous administrative and reporting requirements.
D)Share transfer requirements are complex.

Question 19

A partnership is the relationship that exists between persons carrying on a business in common with a view to profit.

Question 20

Although a company is a distinct legal entity,it is not separate from its shareholders.

Question 21

A franchise is a specialised business entity.

Question 22

Which of the following is an accurate description of an implied trust?

A)The trustee has the power to choose the beneficiaries and the amounts to be paid to them.
B)The parties clearly intended to create a trust,but did not express that intention.
C)Each beneficiary is identified in the trust deed and has an equal share in the trust.
D)A person has become the legal owner of property as the result of a breach of fiduciary duty.

Question 23

Under an express trust,the beneficiary is able to exercise discretion as to who should benefit and how much they should get.

Question 24

A franchisor is liable for the debts of a franchisee.

Question 25

A trustee is a person who benefits under the trust.

Question 26

Which of the following is an advantage of a franchise for the franchisee?

A)Rapid expansion.
B)Virtually instant reputation and goodwill.
C)Total control over the business.
D)Fewer staff problems.

Question 27

Which of the following is NOT one of the duties of a trustee?

A)Preserve the trust property.
B)Indemnify the beneficiaries for any losses.
C)Act in accordance with the trust.
D)Avoid conflict of interest and personal benefit.

Question 28

Which of the following is an advantage of a franchise for the franchisor?

A)Virtually instant reputation and goodwill.
B)Benefiting from the marketing efforts of the other party.
C)Benefiting from the financial expertise of the other party.
D)Rapid expansion.

Question 29

Which of the following statements about a trustee is NOT true?

A)The liability of a trustee is unlimited unless a company is appointed to operate the business of the trust.
B)Any person capable of holding the title to property is capable of being a trustee.
C)The trustee is responsible for all losses on trust investments.
D)The trustee is entitled to full indemnity out of the trust property for their expenses and costs.

Question 30

Which of the following statements about a trading trust is NOT true?

A)Business information can remain private.
B)Assets can be protected from creditors.
C)Simple and cheap to establish.
D)Control of business assets can be maintained.

Question 31

The Franchising Code of Conduct regulates franchise agreements.

Question 32

An identified beneficiary with an equal share is said to belong to a(n):

A)implied trust.
B)specific trust.
C)fixed trust.
D)resulting trust.

Question 33

Which of the following statements about business names is NOT true?

A)Registration grants monopoly rights but not proprietary rights.
B)A business name must be registered in every state the business trades in.
C)Registration provides a registry so that business owners can be identified.
D)Registration is not necessary if the entity is a registered company trading in the company name.

Question 34

Franchises are regulated by the Competition and Consumer Act 2010 (Cth).

Question 35

Which of the following is an accurate description of a constructive implied trust?

A)The trustee has the power to choose the beneficiaries and the amounts to be paid to them.
B)The parties clearly intended to create a trust,but did not express that intention.
C)Each beneficiary is identified in the trust deed and has an equal share in the trust.
D)A person has become the legal owner of property as the result of a breach of fiduciary duty.

Question 36

Which of the following describes a trust in which the trustee has the power to choose beneficiaries along with the amount of proceeds they are to be paid?

A)Fixed trust.
B)Trading trust.
C)Discretionary trust.
D)Constructive trust.

Question 37

Which of the following statements about a franchise is NOT true?

A)The franchisee retains the goodwill of the business on expiry of the agreement.
B)The franchisor provides training and support to the franchisee.
C)The franchisor has significant control over the franchised business.
D)A franchisee is self-employed.

Question 38

Which of the following statements about a unit trust is NOT true?

A)There is a fixed entitlement to income.
B)Unit holders are protected by limited liability.
C)There is a fixed capital entitlement.
D)Units are transferrable.

Question 39

Franchises are regulated by the common law of contract.

Question 40

Discuss the trust concept.

Question 41

The purpose of business name registration is to prevent consumers being confused.

Question 42

Trading under an unregistered business name is an offence under the Business Names Registration Act 2011 (Cth).

Question 43

What is the purpose of registering a business name?

Question 44

Visit your State or Territory's business affairs site and prepare a step-by-step guide to registering a business name.

Question 45

Which of the following is NOT a means of protection of a registered business name?

A)Passing off.
B)Breach of the Business Names Registration Act 2011 (Cth).
C)A breach of trade mark.
D)Misleading and deceptive conduct under the Competition and Consumer Act 2010 (Cth).