Question 1

A sole proprietor is free from regulatory control.

Accepted Answer

Sole proprietors are not entirely free from regulatory control. They are still subject to certain regulations and laws, such as zoning laws, health and safety regulations, and tax laws.

Question 2

Limited liability can be the most significant disadvantage of the sole proprietorship.

Accepted Answer

Limited liability is not a feature of sole proprietorships; instead, the owner has unlimited liability, meaning they are personally responsible for all the business's debts and obligations. This is considered a major disadvantage of the sole proprietorship structure.

Question 3

The unlimited liability of partners means that not only can they lose their entire investment in the business,but their personal assets are also at risk,such as their home and car.

Accepted Answer

Unlimited liability means that partners are personally responsible for all debts and obligations of the business, which means their personal assets can be used to pay off any outstanding debts.

Question 4

Requirement of unanimous consent protects partners.

Accepted Answer

Unanimous consent refers to a requirement that all partners must agree on a certain decision or action before it can be taken. This protects partners because it ensures that no partner can make unilateral decisions that could harm the partnership or other partners.

Question 5

Usually,the name of the business must be registered if it is different from the sole proprietor's name,and a licence to operate must be obtained from the appropriate level of government.

Accepted Answer

This statement is true. In most cases, if a sole proprietor wants to use a business name that is different from their personal name, they must register the name and obtain a license to operate from the government.

Question 6

The partners can change the terms of their responsibilities to each other in the partnership agreement,but not in relationship to their obligations to third parties.

Accepted Answer

The partnership agreement can define the partnership's internal workings, including the division of profits and responsibilities. However, the partnership's obligations to third parties, such as creditors or customers, are governed by external laws and cannot be altered by the partnership agreement.

Question 7

For a partnership to exist,something more than a single joint activity is required.

Accepted Answer

A partnership implies a relationship between two or more parties that involves ongoing cooperation and mutual benefit or risk, typically for the purpose of generating profits or achieving some other shared goal. This requires a level of commitment and agreement beyond that of a single joint activity or transaction.

Question 8

A partnership is less expensive to set up than a corporation.

Accepted Answer

Partnerships are generally easier and less expensive to set up compared to corporations, which require more legal documentation and fees for incorporation.

Question 9

A partnership is primarily a contractual relationship and can be created verbally or implied from conduct.

Accepted Answer

A partnership is a type of business entity that is created through a contractual relationship between two or more individuals who agree to share in the profits and losses of the business. This relationship can be formed through a written agreement, but it can also be created verbally or through the conduct of the parties involved. However, it is generally advisable to have a written partnership agreement to avoid misunderstandings or disputes in the future.

Question 10

Chan sold a business to Scott and in the process they valued the "good will" at $50 000.In the sale contract,it was agreed that this amount would be paid by Scott giving Chan 15 percent of the business profits until it was paid.This creates a partnership between them.

Accepted Answer

The agreement to pay a percentage of profits does not necessarily create a partnership; it is simply a method of payment for the goodwill. A partnership requires an intention to carry on a business together with a view to profit.

Question 11

As a general rule,sole proprietors are subject to fewer government regulations than partnerships.

Accepted Answer

Sole proprietors are the simplest form of business structure and are typically subject to fewer government regulations compared to partnerships. However, there may be industry-specific regulations that both sole proprietors and partnerships need to follow.

Question 12

Dennis,Sam,George,and Ray were partners in an accounting business,and Ray decided he wanted to retire.He sold his share of the partnership to Leonardo,but Leonardo is not a partner unless the other partners approve the change.

Accepted Answer

This statement is true. In a partnership, any changes in ownership or partners must be approved by the existing partners. Leonardo cannot become a partner unless the other partners agree to it.

Question 13

The Partnership Act allows the partners to change their liabilities and obligations to third parties.

Accepted Answer

The Partnership Act does not allow partners to change their liabilities and obligations to third parties. Partners are jointly and severally liable for the debts and obligations of the partnership. However, partners can agree among themselves to limit the extent of their liability to each other through a partnership agreement or contract.

Question 14

It is possible through a partnership agreement to create different classes of partners.

Accepted Answer

Partnership agreements can define different classes of partners, such as general partners and limited partners, each with different rights and responsibilities.

Question 15

Societies are separate legal entities,separate and apart from the members who make them up.

Accepted Answer

Societies have their own legal status and are considered separate from their members under the law. This means that they can enter into contracts, own property, and sue or be sued in their own name.

Question 16

The relationship between the partners is governed by contract law.

Accepted Answer

Partnership agreements are contracts that outline the terms and conditions of the relationship between partners. These contracts are governed by contract law.

Question 17

The sole proprietor carries on business alone and cannot employ others in the process.

Accepted Answer

This statement is false. A sole proprietor can employ others in the process of carrying on their business. However, they are personally responsible for all the obligations and debts of their business.

Question 18

Although the sole proprietor's entire personal fortune is at risk,insurance may offset that risk.

Accepted Answer

Insurance can protect a sole proprietor's personal wealth by covering losses and liabilities related to their business. Therefore, although their personal fortune may be at risk, insurance can offset that risk.

Question 19

Unlimited liability means that an investor can lose everything he has invested in a corporation.

Accepted Answer

Unlimited liability means that an investor can lose not only what they have invested but also their personal assets to cover the corporation's debts.

Question 20

A sole proprietor is not only responsible for his own conduct but also for the wrongful conduct of any employee done in the course of employment.

Accepted Answer

As the sole proprietor is the only owner of the business, he/she is responsible for the actions of employees done within the scope of their job duties. This is also known as vicarious liability.

Quiz 11: Agency and Partnership