Question 1

[Tutoring Concerns] André and Sasha want to go into business together and plan on offering a tutoring service to high school and college students. André proposes that they share control of the business and split profits equally and not bother with a written agreement. Sasha, however, is concerned about being able to pay their debts, since they will have to rent tutoring space, and purchase computers and supplies. She is also concerned about parents and students who may sue if their test scores do not improve. She tells André that she just bought a new boat and car, and that she does not want her assets to be in jeopardy. She tells André that they should form a corporation to shield their personal assets. André, however, tells Sasha that their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would result in a tax being imposed twice.
-What type of arrangement did André propose when he suggested that they share control of the business and split profits equally, not bothering with a written agreement?

Accepted Answer

André proposed a partnership, which is characterized by shared control and profits, and does not necessarily require a written agreement, though it is advisable.

Question 2

Which of the following statements is true regarding joint ventures?

Accepted Answer

Joint ventures do not automatically terminate upon the death of a participant. Instead, the continuation or termination of the joint venture upon such an event depends on the terms set out in the joint venture agreement. This flexibility is one of the characteristics that distinguish joint ventures from partnerships, where the death of a partner can lead to automatic dissolution unless otherwise agreed.

Question 3

Aimee's ice cream is known all across the United States for its very smooth and creamy mint flavoring. If Aimee's provides the secret formula to Ben and Jerry's Ice Cream to manufacture the mint flavor, this is a type of ________

Accepted Answer

This is a manufacturing arrangement because Aimee's is providing the secret formula to another company (Ben and Jerry's) to manufacture a specific product (the mint flavor). This involves the sharing of product specifications or formulas for the purpose of manufacturing.

Question 4

A ________ is a partnership agreement in which company members hold transferable share while all the goods of the company are in the names of the partners?

Accepted Answer

A joint stock company is characterized by its structure where members (shareholders) own transferable shares, yet the company's assets are owned collectively by all partners. This allows for a blend of partnership and corporate structures, facilitating both shared ownership and investment flexibility.

Question 5

A(n) ________ is an organization formed by individuals who usually pool their resources to gain an advantage in the market.

Accepted Answer

A cooperative is an organization formed by individuals who pool their resources to gain an advantage in the market, often to buy or sell products at more favorable prices or to share services.

Question 6

[Daria's Bakery] Daria decided to open her own bakery. She decided she did not need a lawyer to advise her on different forms of ownership. Unfortunately, Daria had not paid attention in business law class. She proceeded to simply open her business called Daria's Bakery. Eli told Daria that he wanted to order some cookies for his girlfriend, Kirsten, but that Kirsten had allergies to peanuts. Daria told him not to worry because she would make up a special batch just for him. Daria had hired some assistants because she was so busy. She told an assistant, Kate, to make up several batches of cookies for different customers including Eli and told her to leave out the peanuts in Eli's batch because of the allergy. Kate, however, forgot about the peanut allergy and proceeded to make Eli's cookies with peanuts. Eli picked up the cookies and gave one to Kirsten in the car. Kirsten became violently ill, vomited in Eli's car, and had to have her stomach pumped. Eli and Kirsten sought recovery from Daria who told them that Kirsten's doctor bill and Eli's car cleaning bill were business debts, that the business was new and not making any money at the moment, and that she had no personal liability. Following the incident involving Eli and Kirsten, Daria discussed her problems with the bakery with her parents. Daria's parents would like to invest in her business and share in any profits, but they do not want to share in the management responsibilities.
-Which of the following would be an appropriate form of business organization for Daria and her parents, such that her parents could invest but not participate in management?

Accepted Answer

A limited partnership allows for investors (limited partners) to contribute financially to the business without being involved in management decisions, which suits Daria's parents' wishes.

Question 7

[Tutoring Concerns] André and Sasha want to go into business together and plan on offering a tutoring service to high school and college students. André proposes that they share control of the business and split profits equally and not bother with a written agreement. Sasha, however, is concerned about being able to pay their debts, since they will have to rent tutoring space, and purchase computers and supplies. She is also concerned about parents and students who may sue if their test scores do not improve. She tells André that she just bought a new boat and car, and that she does not want her assets to be in jeopardy. She tells André that they should form a corporation to shield their personal assets. André, however, tells Sasha that their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would result in a tax being imposed twice.
-Which of the following is true regarding André's assertion regarding taxes?

Accepted Answer

André is correct insofar as the corporation would be required to pay taxes on its profits, and the shareholders would also be required to pay taxes on dividends. This is known as double taxation, which is a characteristic feature of corporations.

Question 8

An example of a syndicate would be:

Accepted Answer

A syndicate is typically a group of individuals or organizations that come together to pursue a shared interest or goal that requires a substantial amount of capital or resources, such as acquiring a sports team.

Question 9

Fernando and Juanita have decided to start a new business. They have joined forces to have a food truck that serves fresh fruit smoothies at the local ball park. This type of business is known as a(n) ________.

Accepted Answer

A joint venture is when two or more parties come together to undertake a specific business project, in this case, Fernando and Juanita teaming up to start a food truck business.

Question 10

Trampoline Park, Inc. is licensed to sell the new Tramp-o-matic trampoline that is manufactured by SMPB Manufacturing. What type of arrangement is this?

Accepted Answer

A distributorship involves a manufacturer (SMPB Manufacturing) granting a seller (Trampoline Park, Inc.) the right to sell its product (Tramp-o-matic trampoline), which is the arrangement described.

Question 11

Which of the following is a business organization governed by a group of trustees who operate the trust for the beneficiaries?

Accepted Answer

A business trust is a form of business organization that is governed by a group of trustees for the benefit of its beneficiaries, distinguishing it from other types of business structures like corporations or partnerships.

Question 12

McDonalds, Sonic, Burger King, and Kentucky Fried Chicken are examples of a(n) ________ because the franchise operate under the franchisor's business name and act subject to the franchisor's standards and methods of business operation.

Accepted Answer

These are examples of a chain-style business operation, where the franchisees operate under the franchisor's business name and follow the franchisor's specific standards and methods of business operation.

Question 13

In China, which of the following is defined as "an organization which possesses civil legal capacity for civil acts and which, according to the law, independently enjoys civil rights and assumes civil obligations"?

Accepted Answer

In China, a "legal person" is defined as an organization that has civil legal capacity, meaning it can independently enjoy civil rights and assume civil obligations according to the law. This concept is fundamental in Chinese law for distinguishing entities that can engage in legal transactions and be held accountable for their actions.

Question 14

Radonna has just secured a license to sell Sonic products in her town of Normandy, Missouri. This agreement between Radonna and Sonic is known as a(n) ________.

Accepted Answer

This agreement is known as a franchise, where Radonna has obtained the rights to sell Sonic products in her specific location under the Sonic brand name.

Question 15

[Daria's Bakery] Daria decided to open her own bakery. She decided she did not need a lawyer to advise her on different forms of ownership. Unfortunately, Daria had not paid attention in business law class. She proceeded to simply open her business called Daria's Bakery. Eli told Daria that he wanted to order some cookies for his girlfriend, Kirsten, but that Kirsten had allergies to peanuts. Daria told him not to worry because she would make up a special batch just for him. Daria had hired some assistants because she was so busy. She told an assistant, Kate, to make up several batches of cookies for different customers including Eli and told her to leave out the peanuts in Eli's batch because of the allergy. Kate, however, forgot about the peanut allergy and proceeded to make Eli's cookies with peanuts. Eli picked up the cookies and gave one to Kirsten in the car. Kirsten became violently ill, vomited in Eli's car, and had to have her stomach pumped. Eli and Kirsten sought recovery from Daria who told them that Kirsten's doctor bill and Eli's car cleaning bill were business debts, that the business was new and not making any money at the moment, and that she had no personal liability. Following the incident involving Eli and Kirsten, Daria discussed her problems with the bakery with her parents. Daria's parents would like to invest in her business and share in any profits, but they do not want to share in the management responsibilities.
-Which of the following is a true statement regarding Daria's statement that she had no personal liability?

Accepted Answer

Daria was incorrect because, by simply opening her business without forming a specific business entity like a corporation or a limited liability company (LLC), she likely started a sole proprietorship by default. In a sole proprietorship, the owner is personally liable for all debts and obligations of the business.

Question 16

[Tutoring Concerns] André and Sasha want to go into business together and plan on offering a tutoring service to high school and college students. André proposes that they share control of the business and split profits equally and not bother with a written agreement. Sasha, however, is concerned about being able to pay their debts, since they will have to rent tutoring space, and purchase computers and supplies. She is also concerned about parents and students who may sue if their test scores do not improve. She tells André that she just bought a new boat and car, and that she does not want her assets to be in jeopardy. She tells André that they should form a corporation to shield their personal assets. André, however, tells Sasha that their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would result in a tax being imposed twice.
-Is André correct in his assertion that by sharing control of the business and splitting profits equally there could be no personal liability for debts?

Accepted Answer

André is incorrect because in a general partnership, which is what their arrangement would default to without a formal agreement or corporation setup, partners share control and profits but also have joint and several liability for the debts of the business. This means their personal assets could be at risk for the debts of the business.

Question 17

[Daria's Bakery] Daria decided to open her own bakery. She decided she did not need a lawyer to advise her on different forms of ownership. Unfortunately, Daria had not paid attention in business law class. She proceeded to simply open her business called Daria's Bakery. Eli told Daria that he wanted to order some cookies for his girlfriend, Kirsten, but that Kirsten had allergies to peanuts. Daria told him not to worry because she would make up a special batch just for him. Daria had hired some assistants because she was so busy. She told an assistant, Kate, to make up several batches of cookies for different customers including Eli and told her to leave out the peanuts in Eli's batch because of the allergy. Kate, however, forgot about the peanut allergy and proceeded to make Eli's cookies with peanuts. Eli picked up the cookies and gave one to Kirsten in the car. Kirsten became violently ill, vomited in Eli's car, and had to have her stomach pumped. Eli and Kirsten sought recovery from Daria who told them that Kirsten's doctor bill and Eli's car cleaning bill were business debts, that the business was new and not making any money at the moment, and that she had no personal liability. Following the incident involving Eli and Kirsten, Daria discussed her problems with the bakery with her parents. Daria's parents would like to invest in her business and share in any profits, but they do not want to share in the management responsibilities.
-Daria initially set up which type of business?

Accepted Answer

A sole proprietorship is a business owned and operated by one person. Daria is the sole owner and operator of Daria's Bakery, so she has set up a sole proprietorship.

Question 18

Which of the following is a group that comes together for the explicit purpose of financing a specific large project?

Accepted Answer

A syndicate is a group of individuals or organizations that come together to finance a specific large project, pooling resources to achieve a common goal that would be difficult or impossible for them to achieve independently.

Question 19

Which of the following establishes how a franchise agreement will be terminated?

Accepted Answer

The franchise agreement itself establishes how a franchise agreement will be terminated, including conditions and procedures for termination.

Question 20

Delly and Telum are in a franchise agreement. They have a dispute as to their franchise agreement. Which of the following law(s) relates specifically to franchises?

Accepted Answer

The Uniform Commercial Code (UCC) and contract law are specifically relevant to franchises because they govern the sale of goods and services and the agreements (contracts) between parties, which are central to franchise operations.

Quiz 35: Forms of Business Organization