Deck 14: Small Business Organizations

Question 1

A sole proprietor owns the entire business but does not receive all of the profit.

Answer 1

False

Question 2

In a general partnership,the partners are personally liable for the debts of the partnership.

Answer 2

True

Question 3

A partner owes to the partnership and the other partners a duty of loyalty.

Answer 3

True

Question 4

Withdrawal from a partnership for a term prematurely does not constitute a breach of the partnership agreement.

Question 5

The Uniform Partnership Act governs the operation of partnerships.

Question 6

In raising capital,a sole proprietor is limited to his or her personal funds-a personal loan is not possible.

Question 7

Under no circumstances can a non-partner be regarded as an agent whose acts are binding on the partnership.

Question 8

A sole proprietorship lacks continuity on the death of the proprietor.

Question 9

A sole proprietor has unlimited liability for all obligations that arise in doing business.

Question 10

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

Question 11

On a partner's dissociation,his or her duty of loyalty to the partnership ends.

Question 12

In a limited partnership,a limited partner is personally liable to the partnership's creditors.

Question 13

A sharing of profits from the ownership of property creates a presumption that a partnership exists.

Question 14

A partner always has the power and the right to dissociate from the partnership.

Question 15

Any partnership can be dissolved by the partners' agreement.

Question 16

The simplest form of business is a sole proprietorship.

Question 17

A limited liability partnership allows its partners to avoid personal liability for the malpractice of other partners.

Question 18

Federal law permits a partnership to be treated as an entity in suits in federal courts.

Question 19

In a general partnership,all partners have equal rights in managing the partnership.

Question 20

A partner who pursues his or her own interests automatically violates the partner's fiduciary duties to the partnership.

Question 21

A limited liability company can be taxed as a partnership.

Question 22

Typically,the franchisee determines the territory to be served by the franchise.

Question 23

Some states require franchisors to provide disclosure of information to prospective franchisees.

Question 24

Normally,a dissociated member of a limited liability company (LLC)has the right to have his or her interest in the LLC bought by the other members.

Question 25

The liability of the members of a limited liability company is limited to the amount of their investments.

Question 26

The franchise relationship is defined by a contract.

Question 27

Kelly,the owner of Llama Farms,a sole proprietorship,wants to obtain additional business capital but to maintain control.This can best be accomplished by

A)borrowing funds.
B)bringing in partners.
C)issuing stock.
D)selling the business.

Question 28

Laws governing franchising are designed in part to prevent franchisors from terminating franchises without good cause.

Question 29

Good faith and fair dealing are important in terminating a franchise relationship.

Question 30

A limited liability company must be managed by non-member managers.

Question 31

For federal income tax purposes,one-member limited liability companies are automatically taxed as sole proprietorships.

Question 32

Limited liability companies (LLCs)are governed by state LLC statutes.

Question 33

Bernie wants to go into the business of construction contracting.Among the reasons that would probably convince Bernie to set up his business as a sole proprietorship would be

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

Question 34

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 his or her original investment.
D)unlimited.

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

Carl sells Direct Marketing Enterprises,a sole proprietorship,to Eve.This is a transfer of

A)a license.
B)a trade name.
C)the formula to make a product.
D)the ownership of the business.

Question 37

As with partnerships,a court can order a limited liability company to dissolve in certain circumstances.

Question 38

When a member dissociates from a limited liability company,the member's duty of loyalty continues.

Question 39

A franchisor can require a franchisee to supply equipment and furnishings for the premises of the franchise.

Question 40

Jim organized,and owns and operates,Jim's Landscaping Service in the simplest form of business organization.This is

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

Question 41

Refer to Fact Pattern 14-1.Desi and Gwen are

A)not partners,because Gwen does not have an ownership interest or manage?ment rights in eSites.
B)not partners,because the pay includes an hourly wage.
C)not partners,because the pay includes only 10 percent of the profits.
D)partners in a partnership for two years.

Question 42

Hud and Iggy form Jerry-Bilt Construction to enter into a contract to build one bridge.Under their partnership agreement,Jerry-Bilt is to dissolve when the bridge is built.Iggy signs a contract for the firm to build a second bridge.Jerry-Bilt

A)dissolves as soon as the first bridge is built.
B)dissolves as soon as the second bridge is built.
C)dissolves immediately on Iggy's signing of the second contract.
D)does not dissolve.

Question 43

Noah and Orin do business as Pest Control Partners.In most states,for the purposes of suing and being sued,Pest Control Partners would be treated as

A)an aggregate of the individual partners.
B)a natural person.
C)an entity.
D)a non-existent party.

Question 44

Megan and Nicole do business as One World Realty.In acting on the firm's behalf in a deal with Property Acquisition Company,Megan fails to account for the profit.To her firm,Megan is

A)liable for breach of the duty of care.
B)liable for breach of the duty of economic sense.
C)liable for breach of the duty of loyalty.
D)not liable.

Question 45

Corbin,a partner in Doctors Medical Clinic,applies for a loan with Evermore Bank allegedly on Doctors' behalf but without the authorization of the other partners.Evermore knows that Corbin is not authorized to take out the loan.Corbin defaults on the loan.Liability for its unpaid amount is imposed on

A)Corbin and Doctors,jointly.
B)Corbin only.
C)Doctors only.
D)Evermore only.

Question 46

B2B,LLC,is a limited liability company.Among its members,a dispute arises that the operating agreement does not cover.The dispute is governed by

A)the applicable state LLC statute.
B)the federal Uniform LLC Law.
C)the principles of partnership law.
D)the state corporation statute.

Question 47

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

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 48

Refer to Fact Pattern 14-2.Mace dissociates from Networx.Luann signs a contract with Physik Drives,a wholesale component supplier,apparently on Networx's behalf.Physik does not know of Mace's dissociation.The contract is binding on

A)Luann,Mace,and Networx.
B)Luann only.
C)Networx only.
D)Physik only.

Question 49

Guy and Hanna do business as G-H Associates.If G-H is a partnership,it 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 in the presence of an express agreement.
D)under all circumstances.

Question 50

Esteban and Florian want to form a limited liability company (LLC)to manage their business,Gordian Nuts.LLC statutes have been adopted in

A)every state.
B)no state.
C)less than one-fifth of the states.
D)only Wyoming.

Question 51

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 52

Jay is a member of Kitchen Cookouts,LLC,a limited liability company.Jay is liable for Kappa's debts

A)in proportion to the total number of members.
B)to the extent of his investment in the firm.
C)to the extent that the other members do not pay the debts.
D)to the full extent.

Question 53

Kelly,Lars,and Mona agree to be partners in Neighborhood Delivery Service (NDS),splitting the profits equally.Kelly contributes 67 percent of the capital.When NDS is dissolved,its liabilities are greater than its assets.The losses are paid by

A)all of the partners in proportion to their capital contributions.
B)all of the partners in proportion to their shares of the profits.
C)Kelly because she contributed most of the capital.
D)Lars and Mona because they contributed the least of the capital.

Question 54

Rona and Savannah do business as Treasure Island Traders.Acting in good faith on the firm's behalf in a deal with Unlimited Potential,Inc.,Rona makes an honest error in overestimating the profit.To her firm,Rona is

A)liable for breach of the duty of care.
B)liable for breach of the duty of economic sense.
C)liable for breach of the duty of loyalty.
D)not liable.

Question 55

Location! Realty LLC is a limited liability company (LLC).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

Sable and Rex agree while talking on the phone to form a partnership to deal in transfers of real property,which fall under the Statute of Frauds.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 reduced to writing.
C)only if an information return is filed with the Internal Revenue Service.
D)without more.

Question 57

Refer to Fact Pattern 14-2.Luann signs a contract with Oleo Chips,a retail component supplier,apparently on Networx's behalf.The contract is binding on

A)Luann,Mace,and Networx.
B)Luann only.
C)Networx only.
D)Oleo only.

Question 58

Refer to Fact Pattern 14-1.Desi and Fred are

A)not partners,because Fred does not have an ownership interest or manage?ment rights in eSites.
B)not partners,because the lease includes a "base rental."
C)not partners,because the rent includes only 10 percent of the profits.
D)partners in a partnership for two years.

Question 59

Sustainable Café LLC is a limited liability company.Like any other LLC,unless Sustainable Café chooses otherwise,the firm will be taxed as

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

Question 60

Clu,Dolf,and Elton do business as Fertile Valley Farm.Clu's relationship to the firm ends,but it continues to do business.This is

A)dissociation.
B)dissolution.
C)winding up.
D)wrongful.

Question 61

Leo buys an exclusive territory in which he is authorized to set up a plant to make Midwest Dairy,Inc.,products.After receiving the formula,Leo begins making Nice Ice-brand ice cream and other Midwest products.This is

A)a chain-style franchise.
B)a distributorship franchise.
C)a manufacturing franchise.
D)no franchise.

Question 62

Tumble Gymnastics & Karate,Inc.,grants a franchise to Stefan to operate a Tumble gym.Tumble may require Stefan to pay the franchisor a percentage of the business's

A)annual sales or volume.
B)weekly payroll expense.
C)monthly overhead savings.
D)none of the choices.

Question 63

Cecilia's Day Spa,LLC,is a member-managed limited liability company.If the law in Cecilia's state is like the law in most states,unless the members have agreed otherwise,voting rights are apportioned according to

A)capital contributions.
B)participation in management.
C)the number of members.
D)transactions with the firm.

Question 64

A franchise agreement between Software² Company and Games³,Inc.,is silent on a time for termination of the franchise.Software² may

A)never terminate.
B)terminate at any time.
C)terminate on reasonable notice.
D)terminate on three days notice.

Question 65

Felipe is a member of Great States Trucking LLC.Felipe's relationship to Great States ends,but the firm continues to do business.This is

A)dissociation.
B)dissolution.
C)winding up.
D)wrongful.

Question 66

Sally and Tom decide to go into business,selling discounted merchandise through their Web site "e-Buy." They sign a partnership agreement that requires Sally to contribute $12,000 and Tom to contribute $8,000 in capital to start the firm.The agreement also states that only Sally will have the authority to bind the partnership in deals with third parties,but the agreement says nothing about the management of the firm or a division of profits.Without Sally's knowledge,Tom tells United Computer Products,Inc.,that he represents the firm and signs a contract with United to buy hard drives for resale on e-Buy.In the first year,e-Buy makes a profit of $50,000.What are the partners' rights with respect to the management of the firm Is the partnership bound to the contract with United Do the partners split the first year's profits If so,how much is each entitled to

Question 67

Ewa,the owner of Face-2-Face Enterprises,is a sole proprietor.What are the chief characteristics,advantages,and disadvantages of this form of business organization Ewa wants to obtain additional capital to expand Face-2-Face,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 68

CPA Accounting,LLC,is a limited liability company.If the law in CPA's state is like the law in most states,unless the members have agreed otherwise,participants in the firm's management will be considered to include

A)all members.
B)no member.
C)one member.
D)two members,including at least one general partner.

Question 69

Real Events Promotion Corporation licenses Stadium Souvenirs,Inc.,to sell Real Events caps,sweatshirts,and similar goods.This is

A)a franchise.
B)an entrepreneur.
C)a principal-agent relationship.
D)a sole proprietorship.

Question 70

Echo enters into an agreement with Deep Pan Pies,Inc.,to operate a franchise in Centre City.Later,Deep grants franchises to others within the city.Echo files a suit to close them.If the court rules in Echo's favor it will most likely be on the ground that

A)Deep violated the an?titrust laws.
B)Deep violated the implied covenant of good faith and fair dealing.
C)Echo paid a franchise fee.
D)Echo was the first Deep franchisee in Centre City.

Question 71

Sylvester buys a franchise from Resistance Athletic Shoes Inc.This relationship,like all other franchise relationships,is governed by

A)contract law.
B)no law.
C)the Franchise Disclosure Document,or FDD.
D)the Uniform Commercial Code.

Question 72

Pizza & Cookies,LLC,is a limited liability company.Among its members,a dispute arises that the operating agreement and the state LLC statute do not cover.The dispute is governed by

A)no law.
B)the federal Uniform LLC Law.
C)the principles of partnership law.
D)the state corporation statute.