Deck 21: Forms of Business Organization

Question 1

A written agreement is required to create a partnership.

Answer 1

False
Explanation: Although an explicit written agreement is not required to create a partnership,the partners are advised to create one.The written agreement ensures that the terms of the partnership will be upheld.

Question 2

An S corporation cannot have more than 75 shareholders.

Answer 2

False
Explanation: An S corporation cannot have more than 100 shareholders.

Question 3

A limited partnership is a legal entity formed by issuing stock to investors,who are the owners of the limited partnership.

Answer 3

False
Explanation: A corporation is a legal entity formed by issuing stock to investors,who are the owners of the corporation.A limited partnership is a partnership consisting of at least one general partner and at least one limited partner in which the general partners assume all liability for the partnership's debts and the limited partners assume no liability beyond their originally invested capital.

Question 4

Members of the board of directors of a corporation are appointed by the chief executive officer of the corporation.

Question 5

A corporation is not considered an entity separate from its shareholders.

Question 6

A business in which one person is in control of the management and profits is a sole proprietorship.

Question 7

A sole proprietorship requires very few legal formalities.

Question 8

Officers of a corporation are hired by the shareholders.

Question 9

A written agreement that creates a partnership is called the articles of incorporation.

Question 10

A limited partnership and a limited liability partnership refer to the same type of business organization.

Question 11

In a manager-managed LLC,the managers must be members of the LLC.

Question 12

Substantiation is a process that allows limited liability companies to register in additional states in which they want to operate.

Question 13

A voluntary association between two or more people who co-own a business for profit is called a corporation.

Question 14

An S corporation is a corporation that is taxed like a partnership.

Question 15

Cooperatives must be incorporated.

Question 16

A limited liability company (LLC)is an unincorporated business that is taxed like a partnership with the limited liability of a corporation.

Question 17

In a partnership,income of the business is personal income and business losses can be deducted from taxes.

Question 18

A limited partnership is an agreement between at least two general partners.

Question 19

Corporate income is taxed twice.

Question 20

Sole proprietorships are terminated when the sole proprietor dies.

Question 21

Which of the following is the most popular form of business ownership in the United States?

A)Sole proprietorship
B)Limited partnership
C)Corporation
D)S corporation
E)Limited liability company

Question 22

In a ________ partnership,all the partners' liability for professional malpractice is limited to the partnership.

A)general
B)limited
C)professional
D)limited liability
E)stop-loss

Question 23

Distributorships are franchises in which the franchisor manufactures a product and licenses a dealer to sell the product in a non-exclusive territory.

Question 24

Which of the following is a false statement regarding a limited liability partnership?

A)A limited liability partnership is considered a separate legal entity.
B)Limited liability partnerships are a fairly new type of business organization.
C)The business name must include "Limited Liability Partnership" or the abbreviation "LLP."
D)The parties must file a form with the secretary of the state to create a limited liability partnership.
E)Each partner pays taxes on his or her share of the income of the business.

Question 25

Which of the following is a false statement regarding a sole proprietorship?

A)A sole proprietorship requires few legal formalities.
B)A sole proprietor has complete control of the management of the business.
C)The sole proprietor keeps all the profits from the business.
D)Profits are taxed as the personal income of the sole proprietor.
E)A sole proprietor is not personally liable for the obligations of the business.

Question 26

________ are the investor-owners of a corporation.

A)Silent partners
B)Incorporators
C)Organizers
D)Limited partners
E)Shareholders

Question 27

________ is/are responsible for managing the business of a corporation.

A)Investors
B)Shareholders
C)Incorporators
D)Organizers
E)The board of directors

Question 28

Which of the following is a recognized type of partnership?

A)limited liability company
B)general partnership
C)S partnership
D)sole proprietorship
E)C partnership

Question 29

A partnership in which the partners divide profits and management responsibilities and share unlimited personal liability for the partnership's debts is called a ________.

A)general partnership
B)limited partnership
C)limited liability partnership
D)corporation
E)limited liability company

Question 30

A joint stock company is a partnership agreement in which company members hold transferable shares,whereas all the goods of the company are held in the names of the partners.

Question 31

A voluntary association between two or more persons who co-own a business for a profit is a(n)________.

A)limited liability company
B)partnership
C)corporation
D)S corporation
E)sole proprietorship

Question 32

Which of the following is true regarding corporations other than S corporations?

A)A corporation is not a separate legal entity.
B)A corporation may not be sued.
C)A corporation is created according to federal law.
D)Shareholders are typically held liable for the debts of the corporation.
E)The corporation must pay taxes on profits,and shareholders must pay taxes on dividends they receive from the corporation.

Question 33

In most states,which law governs partnerships in the absence of an express agreement?

A)The Model Business Corporation Act
B)The Revised Model Business Corporation Act
C)The Uniform Partnership Act
D)The Uniform Commercial Code
E)The United Nations Convention on Contracts for the International Sale of Goods

Question 34

________ is/are responsible for running the day-to-day business of a corporation.

A)Investors
B)Shareholders
C)Officers
D)Incorporators
E)The board of directors

Question 35

A legal entity formed by issuing stock to investors is a ________.

A)cooperative
B)corporation
C)limited partnership
D)limited liability partnership
E)general partnership

Question 36

What is a written agreement that creates a partnership called?

A)Articles of incorporation
B)Articles of partnership
C)Articles of organization
D)Partnership prospectus
E)Certificate of partnership

Question 37

In a chain-style business operation,the franchisor provides the franchisee with the formula or necessary ingredient to manufacture a product.

Question 38

A franchisor is the owner of a trade name or trademark who is a party to an arrangement whereby another party sells goods or services under the trade name or trademark.

Question 39

Which of the following is a false statement regarding a partnership?

A)It is easy to create.
B)Income of the business is personal income.
C)Business losses can be deducted from taxes.
D)Each partner is considered an agent of the partnership.
E)In most cases,partners do not have personal liability for losses.

Question 40

When a person decides to go into business on his or her own and is solely responsible for management and profits,a(n)________ is formed.

A)S corporation
B)sole proprietorship
C)single-entity partnership
D)sole entrepreneurship
E)limited liability company

Question 41

When and where was the limited liability company first recognized as a form of business organization in the United States?

A)In 1952,in New York
B)In 1968,in Washington,D.C.
C)In 1969,in California
D)In 1977,in Wyoming
E)In 2002,in Florida

Question 42

According to the Uniform Limited Liability Company Act,unless the operating agreement specifies otherwise,limited liability companies are ________.

A)member-managed
B)manager-managed
C)managed by an independent director
D)managed by a board of directors
E)managed by corporate officers

Question 43

Farmers who want to pool certain crops together to ensure that they get a high market price for their crops should form a ________.

A)business trust
B)syndicate
C)joint venture
D)joint stock company
E)cooperative

Question 44

A ________ is a business that exists because of an arrangement between the owner of a trade name or trademark and a person who sells goods or services under the trade name or trademark.

A)joint venture
B)franchise
C)limited partnership
D)syndicate
E)limited liability company

Question 45

In which of the following does the franchise operate under the franchisor's business name and act subject to the franchisor's standards and methods of business operation?

A)Distributorship
B)Manufacturing arrangement
C)Chain-style business operation
D)Marketing intermediary arrangement
E)Commercial partnership

Question 46

Which of the following is false regarding franchises?

A)The franchisee often receives help from the franchisor in starting the franchise.
B)The franchisor has the legal authority to ensure that the franchisee maintains the quality of goods and services associated with the franchise.
C)The franchisor is not liable for torts of the franchisee's employees,regardless of the amount of control exerted by the franchisor.
D)A franchise is a contractual relationship between the franchisor and the franchisee.
E)The Federal Trade Commission has a franchise rule requiring franchisors to present prospective franchisees with the material facts necessary for the franchisee to make an informed decision about entering a franchise relationship.

Question 47

A(n)________ is a business organization governed by a group of trustees who operate the trust for the beneficiaries.

A)joint enterprise
B)syndicate
C)business trust
D)S corporation
E)C corporation

Question 48

For the purposes of jurisdiction,a limited liability company is considered a citizen of ________.

A)every state in which its members reside
B)the state in which it is organized
C)the state in which it is incorporated
D)the state in which it conducts is principal business
E)the state in which the plaintiff resides

Question 49

Which of the following is a way that a corporation can avoid double taxation?

A)By forming a C corporation
B)By forming a D corporation
C)By forming an S corporation
D)By forming an F corporation
E)By forming a traditional corporation

Question 50

Which of the following is false regarding limited liability companies?

A)The limited liability company was first recognized in Wyoming.
B)Limited liability companies have the limited liability of partnerships yet must be taxed like corporations.
C)Limited liability companies must file a form with a state agency.
D)The company name must include "Limited Liability Company" or an abbreviation of those words.
E)Owners of a limited liability company are referred to as members.

Question 51

Which of the following is a correct statement regarding S corporations?

A)They are considered partnerships yet taxed like corporations as long as they follow regulations.
B)They cannot have more than 80 shareholders.
C)S corporation shareholders do not report profit on their personal income tax forms.
D)They are formed under federal law.
E)S corporation income is not taxed when it is distributed to shareholders.

Question 52

Which of the following is true regarding joint ventures?

A)Generally,joint ventures are taxed like corporations.
B)If one of the members of a joint venture dies,the joint venture is automatically terminated.
C)Members of a joint venture are agents of the other members.
D)A joint venture may be formed without drawing up a formal agreement.
E)Courts frequently apply sole proprietorship law to joint ventures.

Question 53

A ________ is a franchise in which the franchisor manufactures a product and licenses a dealer to sell the product in an exclusive territory.

A)distributorship
B)manufacturing arrangement
C)chain-style business operation
D)syndicate
E)commercial partnership

Question 54

Which of the following is a false statement regarding a manager-managed limited liability company (LLC)?

A)The managers of a manager-managed LLC have the apparent authority to enter into contracts on behalf of the LLC.
B)The managers of a manager-managed LLC have the actual authority to enter into contracts on behalf of the LLC.
C)In a manager-managed LLC,the members select a group of managers to manage the affairs of the company.
D)The managers of a manager-managed LLC must be selected from the members of the LLC.
E)The managers of a manager-managed LLC owe the LLC and its members the same fiduciary duties as the officers and directors of a corporation owe to the corporation and its shareholders.

Question 55

A ________ is a partnership agreement in which company members hold transferable shares while all the goods of the company are held in the names of the partners.

A)joint stock company
B)joint corporation
C)joint partnership
D)limited liability partnership
E)limited liability company

Question 56

What is the process that allows limited liability companies to do business in states other than the state in which they were formed?

A)Cooperation
B)Qualification
C)Venturing
D)Syndication
E)Distribution

Question 57

Which of the following is false regarding cooperatives?

A)Unincorporated cooperatives are treated like partnerships.
B)In unincorporated cooperatives,members share joint liability for the cooperative's actions.
C)Members of incorporated cooperatives enjoy limited liability just as do the shareholders of a corporation.
D)Cooperatives are usually formed as syndicates.
E)A cooperative is usually formed to market products.

Question 58

Which of the following is a group that comes together for the explicit purpose of financing a specific large project?

A)A business trust
B)A joint venture
C)A syndicate
D)A franchise
E)An enterprise

Question 59

In a ________,the franchisor provides the franchisee with the formula or necessary ingredient to manufacture a product.

A)distributorship
B)manufacturing arrangement
C)chain-style business operation
D)syndicate
E)limited liability partnership

Question 60

Which of the following establishes how a franchise agreement will be terminated?

A)The franchise agreement
B)The Uniform Franchise Termination Act
C)The Franchisor-Franchisee Protection Act
D)The Franchisee Protection Act
E)The Uniform Commercial Code

Question 61

In a limited partnership,who assumes no liability for the partnership beyond the capital they have invested?

A)General partners
B)Limited partners
C)Special partners
D)General partners,limited partners,and special partners
E)General partners and special partners,but not limited partners

Question 62

Which of the following was the result on appeal in Colette Bohatch v.Butler & Binion,the case in the textbook in which the plaintiff,the partner in a law firm,sued after she was expelled from the partnership following her complaint that one of the other partners was overbilling a client?

A)That as a matter of public policy,the law firm was liable to her for damages.
B)That under federal law,the law firm was liable to her for damages because she was given insufficient notice of her expulsion.
C)That under state law,the law firm was liable to her for damages because she was given insufficient notice of her expulsion.
D)That she was properly expelled because the partner about whom she complained was senior to her in seniority.
E)That the law firm had a right to expel her regardless of her status as a whistleblower.

Question 63

Peanut Allergy.Kitty,who had a love of baking,decided to open her own bakery.She decided that she did not need and did not want to pay for a lawyer to advise her on different forms of ownership.Unfortunately,Kitty had not paid attention in business law class.She proceeded,with little thought,to simply open her business called Kitty's Baking.Bobby came in to order some cookies for his girlfriend,Bitsy,who was allergic to peanuts.Bobby told Kitty that he needed some cookies for Bitsy but that Bitsy had allergies to peanuts.Kitty told him not to worry because she would make up a special batch just for him.Kitty had hired some assistants because she was so busy.She told an assistant,Cathy,to make up several batches of cookies for different customers including Bobby and to leave out the peanuts in Bobby's order.Cathy,however,forgot the instruction and proceeded to make Bobby's cookies with crushed peanuts.Bobby picked up the cookies and gave one to Bitsy in the car while they were on the way to the movie in Bobby's new car.Bitsy became violently ill,vomited in Bobby's car,and had to have her stomach pumped.Bobby and Bitsy sought recovery from Kitty who told them that Bitsy's doctor bill and Bobby's car cleaning bill were business debts,that the business was new and not making any money at the moment,and that she had no personal liability.Following the incident involving Bobby and Bitsy,Kitty discussed with her parents her problems with the bakery.Kitty's parents would like to invest in her business and share in any profits,but they do not want to share in the management responsibilities.What type of business did Kitty initially set up?

A)A limited liability company
B)A sole proprietorship
C)An individual proprietorship
D)A traditional corporation
E)An S corporation

Question 64

Typically,the articles of organization of a limited liability company (LLC)include all but the following information?

A)The number of shares of stock (both common and preferred)the LLC is authorized to issue is included.
B)The name of the business is included.
C)The principal business address of the LLC is included.
D)The name and address of a registered agent for service is included.
E)Information regarding how the company's management will be structured is included.

Question 65

Chocolate Chips.Molly makes great chocolate chip cookies and sells them.She calls them "Molly's Famous Chocolate Chips." Some of her friends are interested in selling her cookies.They want to use her name and identify the cookies as "Molly's Famous Chocolate Chips." Molly says,however,that she does not have enough time to bake any more cookies.She agrees,for a price,to allow her friends to use her recipe and her name.Suzette,one of Molly's friends who was selling the cookies,was not being sufficiently careful and negligently put a harmful ingredient into the cookie dough resulting in a customer,Fred,becoming ill.Fred threatens to sue both Suzette and Molly.Molly is so exasperated that she cancels all the franchise contracts on the basis of aggravation although the franchise agreements provided that so long as requirements were met,the franchise agreements were good for a period of two years,Molly took the position that the cookies involved a personal service and that she could not be held liable for discontinuation.Will Molly likely be held liable to Fred?

A)Yes,but only if Suzette has officially filed for bankruptcy protection.
B)Yes,but only if Suzette is insolvent.
C)Yes,because the cookies had her name on them.
D)No,because she was a franchisor.
E)It is unclear and depends on whether she exercised too much authority in the day-to-day affairs of Suzette's business.

Question 66

A limited partnership is an agreement between at least ________ general partner(s)and ________ limited partner(s).

A)1; 2
B)2; 1
C)1; 1
D)2; 2
E)3; 3

Question 67

In a limited partnership,who has no part in the management of the business?

A)General partners
B)Limited partners
C)Special partners
D)General partners,limited partners,and special partners
E)General and special partners,but not limited partners

Question 68

Community Fair.Craig and Melinda are searching for a one-time business opportunity that will enable them to make a sufficient amount of cash to take a really great vacation to Galapagos.They live in a rather small rural community that has not,to date,had a community fair.Craig and Melinda decide to sponsor a fair on a weekend in October and to arrange for exhibits and awards,beauty contests,pie eating contests,food vendors,and amusement rides.The profit to Craig and Melinda will come from ticket sales and from charges to food vendors for the privilege of setting up shop.Apart from some minor skirmishes between Craig and Melinda regarding management rights,preparations go fairly well.When the weekend of the fair arrives,things initially go fairly smoothly.Unfortunately,however,one of the beauty contestants slipped on the runway.An argument broke out during the pie eating contests resulting in angry contestants throwing pies and injuring spectators.Finally,an elderly lady,who was angry because she did not win the prize for the best honey,jabbed the volunteer judge with her cane.All injured parties threaten to sue Craig and Melinda.Craig tells Melinda that she should bear the larger percentage of any damages because the idea for the fair was initially hers,and she obtained all necessary permits.Melinda,on the other hand,tells Craig that he should be wholly responsible for any damages because he was put in charge of all competitions.They can reach no agreement regarding winding up the project and splitting the meager profits,and angrily go their separate ways with no resolution.As she is leaving,Melinda shouts to Craig that as her agent he should have done a better job with security.Which of the following is the type of business organization that best fits Craig and Melinda's project?

A)A partnership
B)A double proprietorship
C)A business trust
D)A joint venture
E)A distributorship

Question 69

Tutoring Concerns.Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students.Wally proposes that they share control of the business and split profits equally and not bother with a written agreement.Sally,however,is concerned about being able to pay their debts because they will have to rent tutoring space and purchase computers and supplies.She is also concerned about parents and students who may sue if the students' test scores do not improve.She tells Wally that she just bought a new boat and car,and that she does not want her assets to be in jeopardy.She tells Wally that they should form a corporation to shield their personal assets.Wally,however,says their personal assets are not in danger with his proposal because they are a business and that,furthermore,forming a corporation would likely result in double taxation.What type of arrangement did Wally propose with his suggestion that they share control of the business and split profits equally?

A)A joint sole proprietorship
B)A partnership
C)A corporation
D)An S corporation
E)A limited partnership

Question 70

Tutoring Concerns.Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students.Wally proposes that they share control of the business and split profits equally and not bother with a written agreement.Sally,however,is concerned about being able to pay their debts because they will have to rent tutoring space and purchase computers and supplies.She is also concerned about parents and students who may sue if the students' test scores do not improve.She tells Wally that she just bought a new boat and car,and that she does not want her assets to be in jeopardy.She tells Wally that they should form a corporation to shield their personal assets.Wally,however,says their personal assets are not in danger with his proposal because they are a business and that,furthermore,forming a corporation would likely result in double taxation.What type of arrangement,if any,would avoid double taxation for the Wally and Sally's endeavor?

A)An S corporation
B)A limited liability company
C)A corporation
D)An S corporation,a limited liability company,or a corporation
E)An S corporation or a limited liability company,but not a corporation

Question 71

Peanut Allergy.Kitty,who had a love of baking,decided to open her own bakery.She decided that she did not need and did not want to pay for a lawyer to advise her on different forms of ownership.Unfortunately,Kitty had not paid attention in business law class.She proceeded,with little thought,to simply open her business called Kitty's Baking.Bobby came in to order some cookies for his girlfriend,Bitsy,who was allergic to peanuts.Bobby told Kitty that he needed some cookies for Bitsy but that Bitsy had allergies to peanuts.Kitty told him not to worry because she would make up a special batch just for him.Kitty had hired some assistants because she was so busy.She told an assistant,Cathy,to make up several batches of cookies for different customers including Bobby and to leave out the peanuts in Bobby's order.Cathy,however,forgot the instruction and proceeded to make Bobby's cookies with crushed peanuts.Bobby picked up the cookies and gave one to Bitsy in the car while they were on the way to the movie in Bobby's new car.Bitsy became violently ill,vomited in Bobby's car,and had to have her stomach pumped.Bobby and Bitsy sought recovery from Kitty who told them that Bitsy's doctor bill and Bobby's car cleaning bill were business debts,that the business was new and not making any money at the moment,and that she had no personal liability.Following the incident involving Bobby and Bitsy,Kitty discussed with her parents her problems with the bakery.Kitty's parents would like to invest in her business and share in any profits,but they do not want to share in the management responsibilities.Which of the following would be a form of business organization for Kitty and her parents such that her parents could invest but not participate in management?

A)General partnership
B)Limited partnership
C)Managed partnership
D)Combined partnership
E)Family-based partnership

Question 72

Chocolate Chips.Molly makes great chocolate chip cookies and sells them.She calls them "Molly's Famous Chocolate Chips." Some of her friends are interested in selling her cookies.They want to use her name and identify the cookies as "Molly's Famous Chocolate Chips." Molly says,however,that she does not have enough time to bake any more cookies.She agrees,for a price,to allow her friends to use her recipe and her name.Suzette,one of Molly's friends who was selling the cookies,was not being sufficiently careful and negligently put a harmful ingredient into the cookie dough resulting in a customer,Fred,becoming ill.Fred threatens to sue both Suzette and Molly.Molly is so exasperated that she cancels all the franchise contracts on the basis of aggravation although the franchise agreements provided that so long as requirements were met,the franchise agreements were good for a period of two years,Molly took the position that the cookies involved a personal service and that she could not be held liable for discontinuation.Is Molly correct that she was entitled to cancel all franchise agreements?

A)No,she was not entitled to cancel any franchise agreements.
B)No,while she was arguably justified in canceling Suzette's franchise agreement,she was not justified in canceling other franchise agreements because no breach of the other franchise agreements had occurred.
C)No,she could only cancel all franchises after a judgment was entered against her,and that had not yet occurred.
D)Yes,because a personal service type of franchise was involved,she could cancel all the franchises at will.
E)Yes,she can cancel the franchises but only if she can establish that her profits were less than had been expected.

Question 73

Tutoring Concerns.Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students.Wally proposes that they share control of the business and split profits equally and not bother with a written agreement.Sally,however,is concerned about being able to pay their debts because they will have to rent tutoring space and purchase computers and supplies.She is also concerned about parents and students who may sue if the students' test scores do not improve.She tells Wally that she just bought a new boat and car,and that she does not want her assets to be in jeopardy.She tells Wally that they should form a corporation to shield their personal assets.Wally,however,says their personal assets are not in danger with his proposal because they are a business and that,furthermore,forming a corporation would likely result in double taxation.Is Wally correct that forming a corporation would likely result in double taxation?

A)Yes,because the corporation would be required to pay tax on its profits,and the shareholders would also be required to pay taxes on dividends.
B)No,Wally is incorrect because all businesses are taxed in the same manner.
C)No,Wally is incorrect but only because the law involving taxation of corporations does not apply until there are at least 10 shareholders.
D)No,Wally is incorrect but only because the law involving taxation of corporations does not apply until there are at least 75 shareholders.
E)Yes,Wally is correct but only because his proposal does not involve a writing and the filing of paperwork with the secretary of their state.

Question 74

In a limited partnership,who assumes unlimited personal liability for the debts of the partnership?

A)General partners
B)Limited partners
C)Special partners
D)General partners,limited partners,and special partners
E)General partners and special partners,but not limited partners

Question 75

Tutoring Concerns.Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students.Wally proposes that they share control of the business and split profits equally and not bother with a written agreement.Sally,however,is concerned about being able to pay their debts since they will have to rent tutoring space and purchase computers and supplies.She is also concerned about parents and students who may sue if the students' test scores do not improve.She tells Wally that she just bought a new boat and car,and that she does not want her assets to be in jeopardy.She tells Wally that they should form a corporation to shield their personal assets.Wally,however,says their personal assets are not in danger with his proposal because they are a business and that,furthermore,forming a corporation would likely result in double taxation.Is Wally correct that with his proposal that because they share control of the business and split profits equally,they will not have any personal liability for debts?

A)Yes,he is correct so long as they do not reach an agreement in writing.
B)Yes,he is correct because they will be considered a partnership regardless of whether any agreement is in writing.
C)Yes,because so long as they have nothing in writing,their arrangement will be considered a joint venture.
D)No,he is incorrect because members of the corporate form chosen would be personally liable for debt.
E)No,he is incorrect because partners have personal liability for debt.

Question 76

Under the Uniform Limited Liability Company Act,a limited liability company will dissolve after the passage of ________ consecutive days during which the company has no members.

A)30
B)60
C)90
D)121
E)180

Question 77

Chocolate Chips.Molly makes great chocolate chip cookies and sells them.She calls them "Molly's Famous Chocolate Chips." Some of her friends are interested in selling her cookies.They want to use her name and identify the cookies as "Molly's Famous Chocolate Chips." Molly says,however,that she does not have enough time to bake any more cookies.She agrees,for a price,to allow her friends to use her recipe and her name.Suzette,one of Molly's friends who was selling the cookies,was not being sufficiently careful and negligently put a harmful ingredient into the cookie dough resulting in a customer,Fred,becoming ill.Fred threatens to sue both Suzette and Molly.Molly is so exasperated that she cancels all the franchise contracts on the basis of aggravation although the franchise agreements provided that so long as requirements were met,the franchise agreements were good for a period of two years,Molly took the position that the cookies involved a personal service and that she could not be held liable for discontinuation.What type of arrangement did Molly make with her friends?

A)A franchise that was a production-style business operation
B)A franchise that was a distributorship
C)A franchise that was a manufacturing arrangement
D)A franchise that was a manufacturing distributorship
E)A joint venture

Question 78

Which of the following was the result in Cousins Subs Systems,Inc.v.Michael R.McKinney,the case in the textbook in which defendant McKinney asserted in a counterclaim that he was entitled to terminate an agreement requiring that he operate submarine sandwich shops because Cousins Subs Systems,Inc.failed to meet promises it verbally made to him?

A)That based on principles of equity,McKinney could rely on oral statements in contradiction of the written agreement involved.
B)That the oral agreements could be relied upon by McKinney because they supplemented,rather than contradicted,the written agreement.
C)That the alleged oral agreements contradicted the written agreement signed by McKinney and would not,therefore,be considered.
D)The alleged oral statements should be considered by the jury in order to determine the actual agreement between the parties.
E)That the written agreement failed to set forth fair principles,but that the alleged oral agreements would be disregarded in favor of a form contract contained in the state's franchise law.

Question 79

Which of the following is true of a joint stock company?

A)It is a mixture of a corporation and a partnership.
B)It is a mixture of a corporation and a joint venture.
C)It is a mixture of a partnership and a sole proprietorship.
D)It is a mixture of a limited liability company and a sole proprietorship.
E)It is a mixture of a limited liability company and a joint venture.

Question 80

Peanut Allergy.Kitty,who had a love of baking,decided to open her own bakery.She decided that she did not need and did not want to pay for a lawyer to advise her on different forms of ownership.Unfortunately,Kitty had not paid attention in business law class.She proceeded,with little thought,to simply open her business called Kitty's Baking.Bobby came in to order some cookies for his girlfriend,Bitsy,who was allergic to peanuts.Bobby told Kitty that he needed some cookies for Bitsy but that Bitsy had allergies to peanuts.Kitty told him not to worry because she would make up a special batch just for him.Kitty had hired some assistants because she was so busy.She told an assistant,Cathy,to make up several batches of cookies for different customers including Bobby and to leave out the peanuts in Bobby's order.Cathy,however,forgot the instruction and proceeded to make Bobby's cookies with crushed peanuts.Bobby picked up the cookies and gave one to Bitsy in the car while they were on the way to the movie in Bobby's new car.Bitsy became violently ill,vomited in Bobby's car,and had to have her stomach pumped.Bobby and Bitsy sought recovery from Kitty who told them that Bitsy's doctor bill and Bobby's car cleaning bill were business debts,that the business was new and not making any money at the moment,and that she had no personal liability.Following the incident involving Bobby and Bitsy,Kitty discussed with her parents her problems with the bakery.Kitty's parents would like to invest in her business and share in any profits,but they do not want to share in the management responsibilities.Which of the following is true regarding Kitty's statement that she had no personal liability?

A)She was correct.
B)She was correct,but only if she can establish that she has paid all her business taxes on time.
C)She was correct,but only if she can establish that she has at least 5 employees.
D)She was incorrect.
E)She was incorrect,unless she signed an agreement with a financial institution in order to get a loan for the business and agreed in the document that she would not accept personal liability for any losses.