Question 1

A limited liability company that wants to distribute profits to its members could avoid "double taxation" by electing to be taxed as

Accepted Answer

A limited liability company (LLC) can avoid double taxation by electing to be taxed as a partnership. This means that the company will not be taxed at the entity level and its profits will be passed through to its members, who will report the income on their individual tax returns. This way, the LLC can avoid the corporate tax on its profits and the members can avoid paying tax twice on the same income.

Question 2

Rena establishes and operates Sweet Homes,a construction-contracting outfit,as a sole proprietorship.In the course of doing business,the outfit fails to pay some of its debts.To satisfy the obligations,the firm's creditors can go after

Accepted Answer

As a sole proprietorship, there is no legal separation between Rena and Sweet Homes. Therefore, the firm's creditors can go after both the firm's assets and Rena's personal assets to satisfy the obligations.

Question 3

Olav starts Power Cells to make and sell batteries.Later,Olav contracts with Quinn to invest additional capital in the firm in exchange for 25 percent of the profits.Olav and Quinn are not partners in Power Cells because

Accepted Answer

Olav and Quinn are not partners in Power Cells because they do not have joint control over the business. Quinn is simply an investor who has provided additional capital in exchange for a percentage of profits, but he is not involved in the day-to-day operations or decision-making of the company.

Question 4

Bea is one of three partners in Commercial Custodial Service.With respect to Bea's interest in the firm,when she dies,her heirs are most likely entitled to

Accepted Answer

When a partner in a partnership dies, their share is typically bought out by the remaining partners or the partnership itself. In this case, Bea's heirs would be entitled to the buyout price paid by the firm for her interest. They would not automatically receive her capital contribution or a portion of the value of her interest, as the partnership agreement would dictate the terms of her departure.

Question 5

Brea and Colin do business as Dig Excavators.In acting on the firm's behalf,Brea makes an honest error in underestimating the cost of a certain project.In this situation,to her firm,Brea is liable for a breach of the duty of

Accepted Answer

The answer of Brea and Colin do business as Dig...

Question 6

Bhat and Cho do business as Day Glow Paints,a partnership.In most states,for the purposes of collecting judgments and having accounting performed,this firm would be treated as

Accepted Answer

Partnerships are generally treated as independent entities for the purposes of collecting judgments and having accounting performed. This means that the partnership is considered a separate legal entity from its individual partners, with its own tax identification number, bank accounts, and other legal and financial responsibilities.

Question 7

Vern is one of three partners in Waffles Food Truck.Concerning all aspects of the partnership business,Vern is entitled to information

Accepted Answer

Vern is entitled to information on a complete basis because he is a partner in the business and has a right to access and review all aspects of the partnership's operations and financials. This includes information such as profits and losses, business expenses, contracts, inventory, and any other relevant information to the business.

Question 8

Bayside Restaurant LLC is a limited liability company.Its sole member is Conrad.For federal income tax purposes,unless the firm indicates otherwise,it will automatically be taxed as

Accepted Answer

A limited liability company (LLC) with only one member is automatically considered a disregarded entity for federal income tax purposes, meaning it is taxed as a sole proprietorship unless it elects to be taxed as a corporation. Since Conrad is the sole member, the LLC would be taxed as a sole proprietorship by default.

Question 9

Dain is a limited partner in Eco Baits,a pest control service organized as a limited partnership,which cannot pay its debts.Dain is liable for the debts

Accepted Answer

Limited partners, such as Dain, are liable for the debts of the partnership only to the extent of their capital contribution. This means Dain's financial responsibility for the debts of Eco Baits is limited to the amount of money or property he has invested in the firm.

Question 10

Fizz and Guy are partners in Home Decor,a furniture store.Fizz dissociates from the business.This ends Fizz's

Accepted Answer

When a partner dissociates from a partnership, they lose the right to participate in the management and operations of the business. However, they may still have the right to have their interest purchased and may retain duties related to past events.

Question 11

Otto is a general partner in Port Exports,a limited partnership.By participating in the firm's management,Otto is liable for its obligations

Accepted Answer

As a general partner, Otto is liable for the obligations of the partnership to the full extent of his personal assets. This means that if the partnership is unable to fulfill its obligations, Otto can be held personally responsible for the debts and liabilities of the partnership.

Question 12

Gift Shop is operated as a partnership,with five partners.Han has a one-third interest in the firm.Each of the other partners has a one-sixth interest.Ingre is the senior partner.With respect to ordinary management decisions

Accepted Answer

In a partnership, unless the partnership agreement states otherwise, major management decisions require a majority vote. As Han has a one-third interest and the other four partners have a combined two-thirds interest, Han cannot unilaterally make decisions. Ingre's seniority does not give her an overriding decision-making power either. Therefore, a majority of the partners must agree on ordinary management decisions.

Question 13

To gain an advantage in a business deal,Masonry LLC engages in fraud.Nicol,a member of Masonry,significantly contributes to the firm's misconduct.For any resulting damages,a court is most likely to hold Nicol

Accepted Answer

Nicol is a member of Masonry LLC and significantly contributed to the firm's misconduct. Therefore, the court is most likely to hold Nicol personally liable for any resulting damages. As a member of the LLC, Nicol has personal responsibility and liability for the actions of the firm.

Question 14

A business organizational form that limits its owners' liability allows the firm to lawfully

Accepted Answer

A business organizational form that limits its owners' liability allows the firm to take risks without exposing the owners' personal assets to potential loss or legal action. However, it does not give the business the right to act recklessly or engage in misconduct.

Question 15

As the promoter of Glassworks LLC,Hans enters into a contract with Interstate Transport Company.Once formed,Glassworks can

Accepted Answer

Once Glassworks LLC is formed, it can adopt the contract through a novation, which involves replacing the original party (Hans) with the new entity (Glassworks) in the contract, thereby assuming the rights and obligations.

Question 16

Nora and Owen do business as Property & Profit,a real estate investment partnership.In acting on the firm's behalf,Nora takes advantage of an opportunity to make a secret profit.To her firm,Nora is liable for a breach of

Accepted Answer

Nora breached the duty of loyalty by taking advantage of the opportunity for personal gain without disclosing it to her partnership.

Question 17

Deb and Elle are partners in Foundations,a counseling clinic.Deb manages the business.For this service,unless the partnership agreement states otherwise,she is entitled to pay in proportion to her

Accepted Answer

In a partnership, unless stated otherwise in the partnership agreement, partners are not entitled to compensation for managing the business beyond their share of the profits.

Question 18

Olin is a partner in Precision Plumbing.When the partners decide to dissolve the firm,Olin collects and distributes the assets.This results in

Accepted Answer

When Olin collects and distributes the assets upon dissolution of the firm, it signifies the termination of the firm's legal existence.

Question 19

Jana and Kwan are partners in Lawyers LLP,a limited liability partnership.Jana supervises the firm's associate Milo,who negligently fails to appear in court on behalf of Norm,a client.Liability to Norm rests only with

Accepted Answer

In a limited liability partnership (LLP), partners are not personally liable for the negligent acts of other partners or employees not under their direct supervision. However, a partner who directly supervises an employee who commits a negligent act can be held personally liable alongside the employee. Therefore, Jana (who supervised Milo) and Milo (who committed the negligent act) can be held liable for the failure to appear in court on behalf of Norm.

Question 20

Neva is a partner in Orchard Farm.Neva gives notice to quit the firm,which otherwise continues to do business.This is

Accepted Answer

Neva's notice to quit the firm is an example of dissociation, where a partner voluntarily withdraws from the partnership. It is a common practice and is legal as long as it is carried out according to the terms of the partnership agreement. Dissolution, on the other hand, refers to the complete end of the partnership business.

Quiz 17: Business Organizations