Question 1

A ________ partnership is composed of at least one general partner and at lease one limited partner.

Accepted Answer

The question describes a limited partnership, which is composed of at least one general partner who has unlimited liability and at least one limited partner who has limited liability. A general partnership (choice A) is composed of two or more general partners who share equally in the profits and losses and have unlimited personal liability for the debts and obligations of the partnership. A silent partnership (choice C) is not a legal partnership form and refers to an informal agreement between two or more parties where one provides capital and the other manages the business. A passive partnership (choice D) is also not a legal partnership form and refers to a situation where an investor provides capital to a business but does not participate in its management.

Question 2

All of the following are advantages of a partnership except:

Accepted Answer

Partnerships actually have the least ability to accumulate capital compared to other forms of ownership, such as corporations.

Question 3

A special type of limited partnership in which all partners who, in many states must be considered to be professionals, are limited partners.

Accepted Answer

An LLP is a special type of limited partnership in which all partners who, in many states, must be considered to be professionals, are limited partners. This type of partnership provides limited liability protection for all partners, unlike a general partnership where all partners have unlimited liability.

Question 4

The most common form of business ownership that is also the simplest to create is the:

Accepted Answer

A sole proprietorship is the easiest and most common form of business ownership. It is owned and run by one person, and requires no formal legal documents to be established.

Question 5

In a general partnership:

Accepted Answer

In a general partnership, each partner is jointly and severally liable for the partnership's debts and obligations. This means that each partner is responsible for the actions of the other partners and can be held legally liable for any agreements or decisions made by any one of the partners.

Question 6

Which form of ownership generally has the least ability to accumulate capital?

Accepted Answer

Sole proprietorship is the form of ownership that generally has the least ability to accumulate capital as the business owner has limited resources and is solely responsible for funding the business. Partnerships and corporations have the ability to pool together resources and accumulate capital through multiple investors and shareholders. S corporations, while similar to partnerships, still have the ability to raise capital through issuing stock.

Question 7

The "Das Spelunker" corporation, formed in Germany and conducting business in the U.S., is considered to be a(n) ________ corporation.

Accepted Answer

The answer of The "Das Spelunker" corporation, formed in Germany...

Question 8

Probably the most important reason to have a partnership agreement is that:

Accepted Answer

While all of the options listed are important considerations for a partnership agreement, the most crucial reason to have one is to address and resolve potential sources of conflict that could disrupt the partnership and ultimately lead to its dissolution. A well-crafted partnership agreement will establish clear guidelines and expectations for the partners, including decision-making, ownership percentages, profit-sharing, and dispute resolution methods. This can help prevent disagreements from escalating into full-blown disputes and ultimately protect the partnership's success.

Question 9

In a partnership, the ________ partner(s) has (have) unlimited liability for the partnership's debts.

Accepted Answer

In a partnership, the general partner(s) has (have) unlimited liability for the partnership's debts, meaning they will be personally responsible for any debts the partnership cannot pay. Limited partners, on the other hand, have limited liability and are only responsible for the money they have invested in the partnership. Dormant and nominal partners are not involved in the day-to-day operations of the partnership and do not have liability for its debts.

Question 10

Which of the following issues would a typical partnership agreement address?

Accepted Answer

A typical partnership agreement will address all of the above issues - the contributions of each partner to the business, how the partnership profits (or losses) will be distributed, and how a partner can sell her ownership in the business. It may also address other important issues such as decision-making authority, dispute resolution, and the management structure of the partnership.

Question 11

A partnership agreement defines how the partners will be compensated. Normally,

Accepted Answer

Typically, in a partnership agreement, partners are not entitled to salaries or wages but instead receive a share of the profits of the business. This incentivizes partners to work towards maximizing profits for the business.

Question 12

Acme Corporation is chartered in Delaware, but its primary area of operation is in South Carolina. In South Carolina, Acme would be considered a(n) ________ corporation.

Accepted Answer

Acme Corporation is chartered in Delaware which means it is a foreign corporation in South Carolina where it operates as its primary area of operation.

Question 13

Marco is opening a new computer repair shop. He is owner and sole employee. He has paid the appropriate fees and licensing costs and begun his business. This is an example of a(n):

Accepted Answer

Marco is the sole owner and employee, indicating that he is operating as a sole proprietorship.

Question 14

The key to choosing the right form of ownership is:

Accepted Answer

Understanding the characteristics of each form of ownership and knowing how they will impact your business and personal circumstances is crucial in making the right choice. Envisioning where your business will be in 10 years is important, but it should not be the only factor in choosing a form of ownership. S corporation and limited liability company may offer liability protection, but they may not be the best choice for every business depending on other factors like taxes, management structure, and ownership flexibility. The form of ownership is not merely a technicality as it can have significant legal and financial implications for the business and its owners.

Question 15

A ________ partner is a person who makes financial investments in a partnership, does not take an active role in managing the business, and whose liability for the partnerships' debts is limited to the amount they have invested.

Accepted Answer

A limited partner fits the given definition - they invest money in the partnership but do not participate in the management of the business, and their liability is limited to the amount they have invested. "Master" or "dormant" are not commonly used terms to describe partnerships or partnerships roles, and although "silent" can be used to describe a partner who does not actively participate in the management of the business, it does not specify the limited liability aspect.

Question 16

A special type of partnership in which all partners, who in many states must be professionals, are limited partners is called:

Accepted Answer

A limited liability partnership is a type of partnership in which partners have limited personal liability for business debts and obligations. This type of partnership is often used by professional service firms, such as law or accounting firms, to protect individual partners from the malpractice of other partners.

Question 17

Which of the following is required to form a partnership?

Accepted Answer

A general partner is required to form a partnership as they are responsible for the management and operations of the business. While having limited partners, secret partners, or silent partners may be beneficial, they are not required for the formation of a partnership.

Question 18

Which of the following is not true of a limited liability partnership?

Accepted Answer

The answer of Which of the following is not true...

Question 19

Which of the following issues would influence an entrepreneur's choice of a form of business ownership?

Accepted Answer

All of these issues can play a major role in an entrepreneur's decision on which form of business ownership to choose. Tax considerations may push an entrepreneur towards a specific type of ownership, like an S corporation. Management succession plans may influence which type of business structure is best suited for passing the business down to family members or other successors. Liability exposure will play a role in selecting a structure with limited liability protection.

Question 20

The most critical disadvantage of the sole proprietorship is:

Accepted Answer

The unlimited personal liability of the owner in a sole proprietorship means that the owner's personal assets are at risk if the business incurs debts or legal liabilities. This can be a significant disadvantage, as it exposes the owner to potentially devastating financial losses.

Quiz 5: Forms of Business Ownership