Deck 23: Sole Proprietorships, partnerships, and Limited Liability Companies

Question 1

A partnership ends if one partner dissociates from the firm.

Answer 1

False

Question 2

A partner is entitled to make secret profits or put self-interest before his or her duty to the interest of the partnership.

Answer 2

False

Question 3

A sole proprietor may own and manage any type of business.

Answer 3

True

Question 4

An assignment of the interest of a limited partner dissolves a limited partnership.

Question 5

For most purposes,the law recognizes a partnership as an independent entity.

Question 6

In a limited liability partnership,a partner can be exempt from personal liability for the malpractice of other partners.

Question 7

In a limited partnership,a general partner's dissociation from the firm may lead to dissolution.

Question 8

A sharing of both profits and losses is the only requirement of a partnership.

Question 9

In choosing a form of business organization for a new enterprise,important factors include the ease of creation.

Question 10

The majority rule controls decisions on ordinary matters connected with partnership business.

Question 11

In choosing a form of business organization for a new enterprise,important factors include the liability of the owner.

Question 12

A sole proprietor must create a separate business organization to create a sole proprietorship.

Question 13

Any event that makes its unlawful for a partnership to continue its business will result in dissolution.

Question 14

If a partnership's liabilities are greater than its assets,the partners bear the losses.

Question 15

A partner is a co-owner of partnership property.

Question 16

Partnership profits must be shared in the same proportion as the partners' investment of capital in the firm.

Question 17

In a limited partnership,a limited partner has full responsibility for the partnership and for all its debts.

Question 18

In a general partnership,the acts of one partner in the ordinary course of business subjects both the partner and the firm to liability.

Question 19

Each partner in a partnership has the right to full and complete information concerning the conduct of all aspects of partnership business.

Question 20

In a sole proprietorship,the owner receives 90 percent of the profits and the government receives 10 percent.

Question 21

The members of a limited liability company enjoy limited liability.

Question 22

Foreign investors are not allowed to become limited liability company members.

Question 23

Julia owns and operates Collectable Dolls without creating a separate business organization.She receives all the profits from the doll sales.Collectable Dolls is most likely a

A)a corporation.
B)a limited liability company.
C)a partnership.
D)a sole proprietorship.

Question 24

In many states,an operating agreement is not required for a limited liability company to exist.

Question 25

Future members of a limited liability company (LLC) may enter into contracts on the entity's behalf before the LLC is formed.

Question 26

Phillipa is the sole proprietor of Fun Floral Arrangements.As a sole proprietor,on Fun Floral Arrangements' profits,Phillipa

A)does not pay income taxes.
B)pays only personal income taxes.
C)is taxed twice.
D)pays both personal and sole proprietor income taxes.

Question 27

When a limited liability company is dissolved,any member who did not wrongfully dissociate may participate in the winding up process.

Question 28

A limited liability company (LLC) formed in one state but doing business in another state is referred to in the second state as a foreign LLC.

Question 29

Robert owns Textbooks Plus,a sole proprietorship that sells textbooks.When Robert dies,Textbooks Plus will

A)be automatically dissolved.
B)pass directly to his oldest child.
C)pass directly to the state.
D)be evenly divided among all Robert's heirs.

Question 30

A limited liability company can be taxed as a corporation.

Question 31

If there is no limited liability company (LLC) agreement covering a topic under dispute,the state LLC statute will govern the outcome.

Question 32

A limited liability company is a citizen of every state in which it does business.

Question 33

A limited liability company must be managed by its members.

Question 34

A member of a limited liability company (LLC) has the power and the right to dissociate from the LLC at any time.

Question 35

Some states provide that in the absence of an agreement to the contrary each member of a limited liability company has one vote.

Question 36

State limited liability company statutes are uniform.

Question 37

The alter-ego doctrine can be applied to a limited liability company.

Question 38

Jody owns KuppaJava Kiosks,a sole proprietorship.Jody's liability is

A)limited by state statute and varies from state to state.
B)limited to the extent of capital expenditures.
C)limited to the extent of her original investment.
D)unlimited.

Question 39

Leigh wants to go into the business of construction contracting.Among the reasons that would probably convince Leigh 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 40

A limited liability company is operated in compliance with state law.

Question 41

Mead,Nero,and Olen do business as Pipe & Plumbing Services.After Mead's relationship to the firm ends,Nero and Olen agree to discontinue the business.This is

A)dissociation.
B)dissolution.
C)gross negligence.
D)simple misconduct.

Question 42

Sweet Selections is a general partnership that sells candy,cards and flowers.Sweet Selections has ten partners.Jill and Amy each have a 25 percent interest in the partnership.All the other members have a 10 percent interest.To pass a management decision

A)a majority of the partners must agree to the decision.
B)both Jill and Amy must agree to the decision.
C)Jill or Amy must agree to the decision.
D)30 percent of the partners must agree to the decision.

Question 43

Coco is considering forms of business organization for her concessions business-Coco's Cupcakes.Most states require that a limited liability company have at least

A)no minimum number of members.
B)at least one member.
C)at least two members.
D)at least three members,including at least one general partner.

Question 44

Tom and Bill are partners in Tough Trucks Towing.James is not a partner.In dealing with Fred,James holds himself out to be a partner in Tough Trucks Towing and Fred contracts to have Tough Trucks Towing tow some vehicles for him.If Tough Trucks fails to tow the vehicles,a court may conclude that

A)a partnership by estoppel exists and James is liable to Fred.
B)no partnership exists and James is not liable to Fred.
C)a partnership by estoppel exists and Fred has all partnership rights.
D)no partnership exists,but Tom and Bill are liable to Fred.

Question 45

Greta is a member of Hovercraft LLC.As a member,Greta is

A)a manager or officer,but not an owner.
B)an investor,but not a manager,officer,or owner.
C)an owner.
D)a participant,but not an investor,manager,officer,or owner.

Question 46

Hollister and Gladys do business as partners in Frothy Confections.For federal income tax purposes,Frothy Confections would be treated as

A)a pass-through entity.
B)a natural person.
C)a tax-paying entity.
D)a partnership by estoppel.

Question 47

Parker and Oscar sign a partnership agreement to do business as "Parker's Plumbing" without specifying a duration.This partnership is terminable

A)at any time by either partner.
B)only after a reasonable term.
C)only if Parker dissociates from the firm.
D)only if Oscar dissociates from the firm.

Question 48

Venture Capital,LP,is a limited partnership.Its limited partners include more than 150 sophisticated investors and investment professionals.A Venture limited partner loses his or her limited liability if he or she

A)acts as the firm's manager.
B)does not participate in the firm's management.
C)invests in Unified Fund,one of Venture's competitors.
D)votes on the firm's sale or dissolution.

Question 49

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

A)express,but not from an agreement that is implied.
B)implied,but not from an agreement that is express.
C)oral,written,or implied by conduct.
D)written,but not from an agreement that is oral or implied.

Question 50

Fay is a member of Garden Groves LLC.Like other members of limited liability companies,Fay's liability for Garden Groves's obligations resembles the liability of

A)none of the choices.
B)an owner of a sole proprietorship.
C)a partner of a partnership.
D)a shareholder of a corporation.

Question 51

Will and Jay form Northwest Air Express,a general 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 52

Doral,Esteban,and Fiona are general partners in Centreville Dentistry,a dental clinic.Their agreement states 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.Doral's assignment of his interest in the clinic to Hometown Lenders results in

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

Question 53

Cody is a partner in Delta Accounting Service.Cody can inspect

A)all of Delta's books and records.
B)Delta's books and records only as the firm's management permits.
C)Delta's books and records only for a reasonable purpose.
D)Delta's books and records relating to Cody's capital contribution only.

Question 54

Edgar,Jon and Phoebe do business as Reliable Movers.Phoebe develops a debilitating illness and can no longer work.Phoebe

A)may dissociate from the partnership.
B)may not dissociate from the partnership without Edgar and Jon's consent.
C)must pay damages to Edgar and Jon for the loss of her work.
D)may terminate the partnership.

Question 55

Location! Realty LLC is a limited liability company.Like other LLCs,for federal jurisdictional purposes,Location! Realty is most likely a citizen of

A)all states.
B)every state in which its members are citizens.
C)no state.
D)only the state in which it was formed.

Question 56

Ryder and Sergei are partners in Timberline Gear,which sells mountain- and rock-climbing equipment.Ryder manages the business.Unless the partnership agreement states otherwise,Ryder is

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

Question 57

Energy Unlimited,LP,is a limited partnership to which its partners,in-cluding Fink,have contributed capital.Energy's creditors include Graves Engineering,Inc.On Energy's dissolution,its assets will be distributed to pay

A)Fink and Graves proportionately.
B)Fink first.
C)Graves first.
D)neither Fink nor Graves.

Question 58

Connie,Drew,and Ellen are the general partners of Foreign Auto Repair,a lim-ited partner-ship.Connie dies.The partnership can

A)continue only after a distribution of its assets.
B)continue only as a general partnership.
C)continue only if Drew and Ellen consent.
D)not continue because Connie's death dissolves the firm.

Question 59

Dani is considering forms of business organization for her financial advisory firm.Like most states,Dani's state requires that to form a limited liabil-ity company,she must file with a central state agency

A)articles of certification.
B)articles of formation.
C)articles of organization.
D)no specific documents.

Question 60

Newt is considering forms of business organization for Newton Design,an ar-chitectural firm.An advantage of a limited liability partnership is that partners can avoid personal liability for

A)their own wrongful acts.
B)only other partners' malpractice.
C)only partnership obligations that exceed capital contributions.
D)only partnership obligations that fall within capital contributions.

Question 61

Farm2Fork,LLC,is a limited liability company.Rather than dis-tribute its profits to its members,Energy wants to reinvest the profits in its business.For this reason,Energy may prefer to be taxed as

A)a corporation.
B)a partnership.
C)a sole proprietorship.
D)none of the choices.

Question 62

Homer's Remodeling,LLC,is a limited liability company.Among the mem-bers,a dispute arises that their operating agreement does not cover.No statute applies.The dispute is governed by the principles of

A)corporate law.
B)partnership law.
C)sole proprietorship law.
D)none of the choices.

Question 63

Simone is a manager of Rolling Hills Resort LLC,a limited liability company.Rolling Hills is formed in a state that does not explicitly create fiduciary duties for LLC managers but does require the exercise of good business judgment.Unless a court rules otherwise,Simone owes fiduciary duties to

A)Rolling Hills's members.
B)Rolling Hills's suppliers.
C)Rolling Hills's customers.
D)none of the choices.

Question 64

Qatar Global Investments is a foreign entity-a firm owned and operated by investors in a foreign country.With respect to a limited liability company in the United States,Qatar Global 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 65

Owen plans to open Owen's Pets Store,a pet sales and pet supplies outlet,and to hire Quimby and Ruth.Owen will invest only his own money.He does not ex-pect to make any profit for at least two years and to make almost no profit for the first three years,but he hopes to expand eventually.Which form of business organization would be most appropriate? What are the chief characteristics,advantages,and disadvantages of this form of busi-ness organization? If Owen wants to obtain additional capital to expand the business,but does not want to lose control of the firm,what is his best option?

Question 66

Kirby is a manager of Jumpstart Fitness LLC,a limited liability company.Jumpstart is formed in a state that imposes fiduciary duties on LLC managers.Kirby owes these duties to

A)Jumpstart's members.
B)Jumpstart's suppliers.
C)Jumpstart's customers.
D)none of the choices.

Question 67

Kristal is a member of Laboratory CSI Services,LLC,a limited liability company.Kristal can participate in the firm's management

A)only to the extent that she assumes liability for the firm's debts.
B)only to the extent of her investment in the firm.
C)to any extent.
D)to no extent.

Question 68

Jeri and Knute are members of Lighthouse Tours LLC,a limited liability company.With respect to Lighthouse Tours's liability,as members,Jeri and Knute are shielded from

A)all liability.
B)no liability.
C)personal liability.
D)"alter ego" liability.

Question 69

StartUp Investors,LLC,is a limited liability company without a written operating agreement.Among the mem-bers,a dispute arises concerning the division of profits.Under most LLC statutes,the profits will be

A)distributed according to the members' proportionate shares of ownership in the firm.
B)divided equally among the members.
C)forfeited to the state.
D)reinvested in the business until the dispute is resolved.

Question 70

Chocolate Sundry LLC's members and managers are Devlin,Effie,and Flavia.After Devlin's relationship to the firm ends,Effie and Flavia agree to discontinue the business.This is

A)illegal.
B)optional.
C)required.
D)wrongful.

Question 71

Mit-E Mart LLC was formed in New Jersey.Mit-E Mart's members are Odel,who is a citizen of New Jersey,and Pola,who is a citizen of New York.For federal diversity jurisdictional purposes,Mit-E is a citizen of

A)all states.
B)New Jersey and New York.
C)New Jersey only.
D)no state.

Question 72

International Exports,L.P.,is a limited partnership,with $100,000 in de-clared but unpaid profits.International's creditors include Friendly Credit Corporation for $5,000 and Gwen,one of International's limited partners,also for $5,000.When Harry,one of International's general partners,de-cides to retire,the other general partners vote to liquidate and dissolve the firm.The limited partners,who are not asked their opinions,want Interna-tional to continue in business and file a suit against the general partners to compel this result.Can the court order International to continue? If not,what is the priority of the distribution of International's assets on its dissolution?