Deck 24: Sole Proprietorships, partnerships, Ltd Liability

Question 1

For most purposes,the law recognizes a partnership as an aggregate of its members.

Answer 1

False

Question 2

In winding up a limited partnership,non-partner creditors are paid be?fore the partners receive their capital contributions.

Answer 2

True

Question 3

In a family limited liability partnership,only persons related to each other may be partners.

Answer 3

False

Question 4

One of the advantages of a sole proprietorship is that the owner is not liable for the losses of the business.

Question 5

With a few exceptions,all of the rules that govern partnerships apply to limited liability partnerships.

Question 6

A limited partner who participates in the management of the partner?ship may be personally liable to the firm's creditors.

Question 7

A sole proprietor does not pay personal income taxes on the business's profits.

Question 8

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

Question 9

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

Question 10

In a limited liability limited partnership,the liability of a general part?ner is the same as the liability of a limited partner.

Question 11

In a limited liability partnership,a partner can be exempt from personal liability for partnership obligations.

Question 12

An association cannot be a partnership without an express agreement.

Question 13

A partnership for a definite term cannot be dissolved before the expiration of the term.

Question 14

A partner's dissociation terminates his or her right to participate in the management and conduct of the business.

Question 15

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

Question 16

In a limited partnership,the liability of a general part?ner is the same as the liability of a limited partner.

Question 17

In most states,a general partner is jointly and severally liable for all partnership obligations.

Question 18

A partner may pursue his or her own interest without automatically vio?lating the fiduciary duties that he or she owes to the firm.

Question 19

A general partner has the power to dissociate from a limited partnership regardless of what the partnership agreement specifies.

Question 20

A sole proprietorship automatically dissolves on the death of the owner.

Question 21

A business trust is somewhat similar to a corporation.

Question 22

Bryan organized,and owns and operates,Bryan's Heating and Air Conditioning Service in the simplest form of business organization.This is

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

Question 23

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 24

Forming a limited liability company requires filing articles of organization in a federal office.

Question 25

Most states require a limited liability company to have at least two members.

Question 26

For some purposes,a limited liability company can be seen as a legal entity apart from its owners.

Question 27

Juli owns KuppaJava Kiosks,a sole proprietorship.Juli'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 28

Clive sells Direct2U Sales Group,a sole proprietorship,to Edwina.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 29

An operating agreement is not required to form a limited liability company.

Question 30

A joint venture is treated much like a limited liability company.

Question 31

A limited liability company offers the limited liability of a corporation.

Question 32

A franchisee is a party who sells a franchise.

Question 33

The members,managers,and agents of a limited liability company are liable for its obligations by virtue of their status.

Question 34

In a limited liability company,members must participate in its management.

Question 35

An arrangement in which an owner of a formula to make a certain product licenses the formula to an outside party is a franchise.

Question 36

A limited liability company cannot be taxed as a corporation.

Question 37

A franchise exists when the owner of a trademark licenses its use to an?other party to sell goods or services.

Question 38

The dissociation of a mem?ber of a limited liability company in violation of the operating agreement is legally wrongful.

Question 39

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

Question 40

Noah and Orin do business as Personnel Partners.In most states,for purposes of suing and being sued,Personnel 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 41

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 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 42

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

A)a corporation.
B)a franchise.
C)a partnership.
D)a sole proprietorship.

Question 43

Blake is a general partner in Caring Dry Cleaners,LLLP,a limited liability limited partnership,which cannot pay its debts.Blake is personally li?able for the debts

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

Question 44

Fay is admitted to Global Trading Partners,an existing partnership.A partnership debt incurred before the date of her admission comes due.Fay is

A)not liable for the debt.
B)only liable for the debt up to the amount of his capital contribution.
C)personally liable only to the extent the other partners do not pay.
D)personally liable to the full extent of the debt.

Question 45

Fact Pattern 24-1
Brad is a general partner,and Carlos and Darlene are limited partners,in Eastside Physicians,a medical clinic and limited partnership.
Refer to Fact Pattern 24-1.Carlos's assignment of his interest in Eastside to Guaranty Credit Corporation results in

A)nothing with respect to Eastside's existence.
B)the maturity of Eastside's debts.
C)the suspension of Eastside's business.
D)the termination of Eastside's legal existence.

Question 46

Fact Pattern 24-1
Brad is a general partner,and Carlos and Darlene are limited partners,in Eastside Physicians,a medical clinic and limited partnership.
Refer to Fact Pattern 24-1.Brad's dissociation from the firm results in

A)nothing with respect to Eastside's existence.
B)the maturity of Eastside's debts.
C)the suspension of Eastside's business.
D)the termination of Eastside's legal existence.

Question 47

Maury,Neil,and Ogden want to form a limited partnership to manage their Picture This photo studio.Their firm must have

A)at least one general partner and one limited partner.
B)at least two general partners.
C)at least two limited partners.
D)no general partners.

Question 48

Dale and Eiger are partners in First-Place Athletic Supplies,which sells sports equipment.Dale manages the business.Unless the partnership agreement states otherwise,Dale is

A)entitled to compensation in proportion to his effort's effect on sales.
B)entitled to compensation in proportion to his personal income needs.
C)entitled to compensation in proportion to the effort he expends.
D)not entitled to compensation for his effort.

Question 49

Clu,Dolf,and Elton do business as Fertile Valley Farm,a partnership.Clu's relationship to the firm ends,but it continues to do business.Clu's ceasing to be involved with the farm is termed

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

Question 50

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

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

Question 51

Bluto is considering forms of business organization for Consult Me!,his Web site consult?ing firm.Most states require that a limited liability com?pany have at least

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

Question 52

Vijay is a member of Watchit,LLC,a limited liability company.Vijay is li?able for Watchit'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

Fact Pattern 24-1
Brad is a general partner,and Carlos and Darlene are limited partners,in Eastside Physicians,a medical clinic and limited partnership.
Refer to Fact Pattern 24-1.Eastside is dissolved and its assets are collected,liquidated,and distributed.This results in

A)nothing with respect to Eastside's existence.
B)the maturity of Eastside's debts.
C)the suspension of Eastside's business.
D)the termination of Eastside's legal existence.

Question 54

Mabel and Nicol do business as One World Realty.Mabel acts on the firm's behalf in a deal with Property Acquisition Company,but fails to account to One World 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 55

Energy Resources,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 choose to be taxed as

A)a corporation.
B)a franchise.
C)a partnership.
D)a sole proprietorship.

Question 56

Bo and Clancy decide to do business as Dynamo Production Associates.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 57

Wild Horses Ranch is a family limited liability partnership (FLLP).In an FLLP,all of the partners must be

A)natural persons only.
B)natural persons or persons acting as fiduciaries for natural persons.
C)persons acting as fiduciaries for natural persons only.
D)related.

Question 58

Grady and Hedy do business as Island Tours.For federal income tax purposes,Island Tours would be treated as

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

Question 59

Daisy is considering forms of business organization for Daisy's Designs,an ar?chitectural firm.An advantage of a limited liability partnership is that partners can avoid personal liability for

A)all partnership obligations that exceed capital contributions.
B)any partnership obligation.
C)only partnership obligations that fall within capital contributions.
D)other partners' wrongdoing.

Question 60

Sabin and Tyler agree while talking on the phone to form a partner?ship to open a coffee kiosk.Their partnership agreement is legally binding

A)only if a third person knows of the agreement.
B)only if the agreement is reduced to writing.
C)only when their first customer buys a cup of their coffee.
D)without more.

Question 61

Omega Corporation and Precise Code,Inc. ,two software firms,wish to combine their research and development capabilities to make a special,limited edition computer game.The most appropriate legal en?tity for this project might be

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

Question 62

Petra,Queenie,and Randell want to form Sales-to-Infinity,LLC (limited li?ability company).What should they provide in their operating agreement? With respect to the management of Sales-to-Infinity,what are the their options? If they fail to draft an operating agreement or do not include some important details,what determines these terms?

Question 63

Owen,Paula,Quinn,and Rita combine to finance the building of Super Stores,a shopping mall.Their selected form of business organization is an in?vestment group,or

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

Question 64

Events Promotion Corporation licenses trademarks to Fan Fave Souvenirs,Inc. ,to use in selling caps,sweatshirts,and t-shirts emblazoned with team logos during sporting events.The arrangement between these parties is

A)a business trust.
B)a cooperative.
C)a franchise.
D)a joint venture.

Question 65

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 other?wise,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 66

Waste Management Services,LLC,is a member-managed limited liability company.If the law in Waste's state is like the law in most states,unless the members have agreed otherwise,voting rights are apportioned accord?ing to

A)capital contributions.
B)participation in management.
C)seniority.
D)transactions with the firm.

Question 67

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 68

Flip is a member of Great States Trucking LLC.Flip's relationship to Great States ends,but the firm continues to do business.Flip's ending his relationship with the firm is termed

A)dissociation.
B)dissolution.
C)required.
D)wrongful.

Question 69

Worldwide Realtors,Inc. ,sells a franchise to XL Sales Company.XL is

A)a franchisee.
B)a franchisor.
C)an agent.
D)a principal.

Question 70

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

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

Question 71

Downwind Land Corporation and EZ Investments Company transfer their property to Financial Managers,Inc. ,which manages the property and distributes the profits to Downwind and EZ.This form of a business organization is

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

Question 72

Build-Rite Construction Corporation and Deals-R-Us,Inc. ,combine their efforts to build an office and retail complex.Their form of business organization is

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