Deck 23: Sole Proprietorships, partnerships, Limited Liability Co

Question 1

The simplest form of business is a sole proprietorship.

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

An association cannot be a partnership without an express agreement.

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

Joint ownership of property in and of itself creates a partnership.

Question 13

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

Question 14

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

Question 15

The Uniform Partnership Act governs the operation of partnerships.

Question 16

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

Question 17

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

Question 18

Each partner is an agent of the partnership in carrying out the usual business of the firm.

Question 19

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

Question 20

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

Question 21

Any partnership can be dissolved by the partners' agreement.

Question 22

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

Question 23

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

Question 24

Bernie wants to go into the business of trucking refrigeration units.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 others.

Question 25

A limited liability company is not a citizen of any state.

Question 26

Most limited liability company statutes have no provisions regarding members' meetings.

Question 27

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

Question 28

Jody owns KuppaJoe 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 her capital expenditures.
C)limited to the extent of her original investment.
D)unlimited.

Question 29

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 30

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 31

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 32

A limited liability company can be taxed as a partnership.

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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 41

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

Question 42

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 43

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 44

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 45

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 46

Coco is considering forms of business organization for her confections 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 47

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 48

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 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

Fact Pattern 23-1
Desi starts up eSites, an Internet service, and leases office space in a building owned by Fred. The lease requires Desi to pay Fred a base rental of $1,250, plus 10 percent of eSites’ profits, each month. The term is two years. Desi hires Gwen to work at eSites’ tech support desk at an hourly wage of $12.50, plus a commis¬sion of 10 percent of the prof¬its. The term is also two years.

-Refer to Fact Pattern 23-1.Desi and Gwen are

A)not partners,because Gwen does not have an ownership interest or management 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 51

Denise and Elke do business as Final Curtain Decorators.In most states,for purposes of holding title to property,this partnership would be treated as

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

Question 52

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 53

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 54

Ben,who runs a livestock breeding business,owes the Circle C Ranch $40,000.Ben agrees to pay the Circle C a percentage of his profits each month until the debt is paid.Because of this agreement,the Circle C is

A)Ben's creditor and partner.
B)Ben's creditor only.
C)Ben's partner only.
D)neither Ben's creditor nor his partner.

Question 55

Dani is considering forms of business organization for her financial advisory firm.Like most states,Dani's state requires that to form a limited liability 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 56

Fact Pattern 23-1
Desi starts up eSites, an Internet service, and leases office space in a building owned by Fred. The lease requires Desi to pay Fred a base rental of $1,250, plus 10 percent of eSites’ profits, each month. The term is two years. Desi hires Gwen to work at eSites’ tech support desk at an hourly wage of $12.50, plus a commis¬sion of 10 percent of the prof¬its. The term is also two years.

-Refer to Fact Pattern 23-1.Desi and Fred are

A)not partners,because Fred does not have an ownership interest or management 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 57

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 58

Fact Pattern 23-2
Luann and Mace are partners in Networx, a computer peripherals firm.

-Refer to Fact Pattern 23-2.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 59

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 60

Fact Pattern 23-2
Luann and Mace are partners in Networx, a computer peripherals firm.

-Refer to Fact Pattern 23-2.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 61

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 62

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 63

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 64

Energy Green,LLC,is a limited liability company.Instead of distributing 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)a natural person.

Question 65

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 66

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 67

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.

Question 68

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 69

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

A)a corporation.
B)a natural person.
C)a partnership.
D)a sole proprietorship.

Question 70

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 71

Felipe is a member of Great States Transport 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 72

China Bank is a foreign entity-a firm owned and operated by investors in a foreign country.With respect to an LLC in the United States,China Bank 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.