Deck 19: The Entrepreneurs Options

Question 1

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

Answer 1

False

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

A third party cannot sue one of the partners of a partnership without suing all of the partners.

Question 9

In a general partnership, the acts of one partner in the ordinary course of business can subject the other partners and the firm to liability.

Question 10

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

Question 11

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

Question 12

The members of a limited liability company enjoy limited liability.

Question 13

Each partner in a partnership has the right to inspect the partnership books and records.

Question 14

In a limited partnership, a limited partner is liable for all partnership debts.

Question 15

In a sole proprietorship, the proprietor shares the burden of any losses or liabilities incurred by the business enterprise with the government.

Question 16

A partner is entitled to make secret profits from the partnership's business or the use of its property.

Question 17

State limited liability company statutes are uniform.

Question 18

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

Question 19

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

Question 20

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

Question 21

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

Question 22

A cooperative must be incorporated.

Question 23

Normally, a franchisee determines the territory that it will serve.

Question 24

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

Question 25

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 26

Some states require franchisors to provide presale disclosures to prospective franchisees.

Question 27

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

Question 28

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

Question 29

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 30

The laws governing franchising are primarily designed to protect franchisors from dishonest franchisees.

Question 31

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

Question 32

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 33

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

Question 34

The validity of a provision permitting the franchisor to establish and enforce certain quality standards is questionable.

Question 35

In determining whether a franchisor acted in good faith in terminating a franchise relationship, a court would balance the rights of both parties.

Question 36

A business trust resembles a corporation.

Question 37

Cal sells "DownSize," a weight-reduction program, from a Web site, in competition with Eat-Less Inc.'s product "Fit 'n Trim." Eat-Less files a suit against Cal, alleging in part that he is a sole proprietor, but his enterprise should be deemed a different form of business. Cal's enter?prise should most likely be considered

A) a corporation because DownSize is sold online.
B) a franchisee because DownSize is sold in competition to Fit 'n Trim.
C) a sole proprietorship because Cal is a sole proprietor.
D) no form of business entity because Cal has no formal organization.

Question 38

A limited liability company can be taxed as a corporation.

Question 39

Phillipa is the sole proprietor of Incredible Floral Arrangements. As a sole proprietor, on Incredible's 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 40

Joint venturers have the authority to enter into contracts that will bind the joint venture.

Question 41

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 42

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 43

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 most likely governed by the principles of

A) corporate law.
B) partnership law.
C) sole proprietorship law.
D) joint venture law.

Question 44

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 45

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 46

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 47

Sweet Stuff is a general partnership that sells candy, cards, and flowers. Sweet Stuff has ten partners. Jill and Amy each have a 25 percent interest in the firm. The other partners each have a 10 percent interest. In management matters

A) each partner has one equal vote.
B) each partner votes in proportion to his or her interest.
C) only the two partners with the largest interests have votes.
D) only a partner charged with managing the firm has a vote.

Question 48

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 49

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 50

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 51

Jordana is a member of Klondike Coffee, LLC, a limited liability company. Jordana is liable for Klondike's debts

A) in proportion to the total number of members.
B) to the extent of her capital contribution.
C) to the extent that the other members do not pay the debts.
D) to the full extent.

Question 52

Flip is a member of Great States Trucking LLC. Flip ceases to be associated with the carrying on of the firm's business, but not in violation of the operating agreement. This is

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

Question 53

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 Ben's

A) partner.
B) creditor.
C) agent.
D) joint venturer.

Question 54

Jumbo Jumpin' Jelly Beans, LLC, is a limited liability company. Unless indi?cated otherwise on Jumbo's federal tax form, the firm will be taxed as

A) a cooperative.
B) a corporation.
C) a joint venture.
D) a partnership.

Question 55

Lucy is a limited partner in Metro Contractors, a limited partnership, which cannot pay its debts. Lucy is personally liable for the debts

A) in proportion to the number of partners in the firm.
B) to no extent.
C) to the extent of her capital contribution.
D) to the full extent.

Question 56

Fern and Gray want to form a limited partnership to manage two restaurants, Café Latte and Deli Delite. In most states, a limited partnership will be created when

A) a certificate of limited partnership is filed.
B) a partnership agreement is executed.
C) the business for which the firm is formed actually begins.
D) the partners make their capital contributions.

Question 57

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 58

Mabel and Nicol do business as One World Realty. In acting on the firm's behalf in a deal with Property Acquisition Company, Mabel fails to account for the profit. To her firm, Mabel 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 59

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 60

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) express or implied.
D) written, but not otherwise express or implied.

Question 61

Jumbo Juice Inc. offers entrepreneurs the opportunity to operate a franchise under the Jumbo Juice trade name. For any projected earnings figures Jumbo Juice provides to potential franchisees, the franchisor must have

A) a hypothetical basis.
B) a reasonable basis.
C) an actual basis.
D) no basis.

Question 62

CheezBurger Heaven, Inc., conducts a chain-style franchise. This involves the transfer to Clive, one of its franchisees, of

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

Question 63

Paradise Footwear buys a franchise from Reliant 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 rules of the National Collegiate Athletic Association.

Question 64

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-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 65

Doc's Sports Club enters into a franchise agreement with Elite Fitness Centers that provides for termination at any time for "cause." Doc's fails to meet Elite's "Friends and Family" membership sales quota. Is this "cause" for termination? Explain.

Question 66

Jin, Karlo, and other consumers form Metro Purchasing Cooperative. This form of business organization makes it possible for these individuals to

A) avoid personal liability for the acts of the cooperative.
B) obtain an exemption from state laws governing corporations.
C) pay no taxes on their business income.
D) pool their resources to gain an advantage in the market.

Question 67

Peyton, Qiana, and River form a syndicate to buy a professional basketball franchise. This syndicate could be set up as

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

Question 68

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 69

Exotic Stuff Company and First Pier, Inc., form a business organiza?tion to engage in importing and exporting. Its property is held in the names of the members and its shareholders have personal liability. This business or?ganization is

A) a business trust.
B) a joint stock company.
C) a joint venture.
D) a syndicate.

Question 70

Pilar is interested in buying a franchise from Quixotic Travel & Tours Corporation. Quixotic must disclose material facts that Pilar needs to make an informed decision concerning this purchase, according to

A) no law.
B) the Petroleum Marketing Practices Act of 1979.
C) the Federal Trade Commission's Franchise Rule.
D) the Uniform Commercial Code.

Question 71

Frooty Drinks, Inc., and Great Gulp Bottling Company have a processing-plant franchise arrange?ment. This involves the transfer of

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

Question 72

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?