Deck 14: Small Business Organizations

Question 1

Unlike most agents, each partner in a partnership has an ownership interest in the firm.

Answer 1

True

Question 2

In a general partnership, the partners are personally liable for the debts of the partnership.

Answer 2

True

Question 3

The simplest form of business is a sole proprietorship.

Answer 3

True

Question 4

A partner always has the power and the right to dissociate from the partnership.

Question 5

A sole proprietor owns the entire business but does not receive all of the profit.

Question 6

A limited liability partnership allows its partners to avoid personal liability for the malpractice of other partners.

Question 7

On a partner's dissociation, his or her right to participate in the management and conduct of the partnership business terminates.

Question 8

The departure of a partner will always end the partnership.

Question 9

The majority rule controls decisions on ordinary matters connected with partnership business.

Question 10

A sole proprietor has unlimited liability for all obligations that arise in doing business.

Question 11

A sole proprietor pays personal and business income taxes on the business's profits.

Question 12

Withdrawal from a partnership for a term prematurely does not constitute a breach of the partnership agreement.

Question 13

A sole proprietorship lacks continuity on the death of the proprietor.

Question 14

A partner owes to the partnership and the other partners a duty of loyalty.

Question 15

Under no circumstances can a non-partner be regarded as an agent whose acts are binding on the partnership.

Question 16

Federal law permits a partnership to be treated as an entity in suits in federal courts.

Question 17

A partner who pursues his or her own interests automatically violates the partner's fiduciary duties to the partnership.

Question 18

In a limited partnership, a limited partner is personally liable to the partnership's creditors.

Question 19

A sharing of profits from the ownership of property creates a presumption that a partnership exists.

Question 20

A partner's profit from a partnership is taxed as income to the firm.

Question 21

A limited liability company can be taxed as a partnership.

Question 22

Laws governing franchising are designed in part to prevent franchisors from terminating franchises without good cause.

Question 23

The federal government regulates franchising through laws that apply to specific industries.

Question 24

A limited liability company must be managed by non-member managers.

Question 25

The liability of the members of a limited liability company is limited to the amount of their investments.

Question 26

The franchise relationship is defined by a contract.

Question 27

Jody owns KuppaJava Kiosks, a sole proprietorship.Jody's liability is

A)limited by state statute and varies from state to state.
B)limited to the extent of capital expenditures.
C)limited to the extent of his or her original investment.
D)unlimited.

Question 28

As a general rule, the validity of a provision permitting the franchisor to establish and enforce certain quality standards is questionable.

Question 29

Typically, the franchisee determines the territory to be served by the franchise.

Question 30

Kari is the sole proprietor of Living Earth Garden Shop.As a sole proprietor, on the business's profits, Kari pays

A)no income taxes.
B)only personal income taxes.
C)only business income taxes.
D)both personal and business income taxes.

Question 31

Some states provide that in the absence of an agreement to the contrary each member of a limited liability company has one vote.

Question 32

Bernie wants to go into the business of construction contracting.Among the reasons that would probably convince Bernie to set up his business as a sole proprietorship would be

A)its greater flexibility.
B)its limited liability.
C)its perpetual existence.
D)the ease of transferring the business to other family members.

Question 33

When a member dissociates from a limited liability company, the member's duty of loyalty continues.

Question 34

Normally, a dissociated member of a limited liability company (LLC) has the right to have his or her interest in the LLC bought by the other members.

Question 35

For federal income tax purposes, one-member limited liability companies are automatically taxed as sole proprietorships.

Question 36

Good faith and fair dealing are important in terminating a franchise relationship.

Question 37

Limited liability companies (LLCs) are governed by state LLC statutes.

Question 38

Kelly, the owner of Llama Farms, a sole proprietorship, wants to obtain additional business capital but to maintain control.This can best be accomplished by

A)borrowing funds.
B)bringing in partners.
C)issuing stock.
D)selling the business.

Question 39

Silvano owns Textbooks Plus, a sole proprietorship that sells textbooks and other school supplies.When Silvano dies, Textbooks Plus will automatically

A)dissolve.
B)pass to Silvano's heirs.
C)pass to the state.
D)be offered for sale to its creditors and competitors.

Question 40

As with partnerships, a court can order a limited liability company to dissolve in certain circumstances.

Question 41

Jay is a member of Kitchen Cookouts, LLC, a limited liability company.Jay is liable for Kappa'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 42

Fact Pattern 14-1?Desi starts up eSites, an Internet service, and leases office space in a building owned by Fred.The lease requires Desi to pay Fred a base rental of $1,250, plus 10 percent of eSites' profits, each month.The term is two years.Desi hires Gwen to work at eSites' tech support desk at an hourly wage of $12.50, plus a commission of 10 percent of the profits.The term is also two years.
Refer to Fact Pattern 14-1.Desi and Gwen are

A)not partners, because Gwen does not have an ownership interest or management rights in eSites.
B)not partners, because the pay includes an hourly wage.
C)not partners, because the pay includes only 10 percent of the profits.
D)partners in a partnership for two years.

Question 43

Greta is a member of Hovercraft LLC.As a member, Greta is

A)a manager or officer, but not an owner.
B)an investor, but not a manager, officer, or owner.
C)an owner.
D)a participant, but not an investor, manager, officer, or owner.

Question 44

Flannery and Gustavo agree while talking on the phone to form a partner-ship-The Home Source-to deal in transfers of real property.To be enforceable, their agreement must

A)be filed in the appropriate state office.
B)be in writing.
C)involve the exchange of valid consideration.
D)not involve a third party.

Question 45

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

A)a corporation.
B)a sole proprietorship.
C)a partnership.
D)none of these choices.

Question 46

Rona and Savannah do business as Treasure Island Traders.Acting in good faith on the firm's behalf in a deal with Unlimited Potential, Inc., Rona makes an honest error in overestimating the profit.To her firm, Rona 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 47

Fact Pattern 14-2?Luann and Mace are partners in Networx, a computer peripherals firm.
Refer to Fact Pattern 14-2.Mace dissociates from Networx.Luann signs a contract with Physik Drives, a wholesale component supplier, apparently on Networx's behalf.Physik does not know of Mace's dissociation.The contract is binding on

A)Luann, Mace, and Networx.
B)Luann only.
C)Networx only.
D)Physik only.

Question 48

Fact Pattern 14-1?Desi starts up eSites, an Internet service, and leases office space in a building owned by Fred.The lease requires Desi to pay Fred a base rental of $1,250, plus 10 percent of eSites' profits, each month.The term is two years.Desi hires Gwen to work at eSites' tech support desk at an hourly wage of $12.50, plus a commission of 10 percent of the profits.The term is also two years.
Refer to Fact Pattern 14-1.Desi and Fred are

A)not partners, because Fred does not have an ownership interest or management rights in eSites.
B)not partners, because the lease includes a "base rental."
C)not partners, because the rent includes only 10 percent of the profits.
D)partners in a partnership for two years.

Question 49

Coco is considering forms of business organization for her concessions business⎯Coco's Cupcakes.Most states require that a limited liability company have

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

Question 50

Location! Realty LLC is a limited liability company (LLC).Like other LLCs, for federal jurisdictional purposes, Location! Realty is most likely a citizen of

A)all states.
B)every state in which its members are citizens.
C)no state.
D)only the state in which it was formed.

Question 51

Bryn, Cornell, and Duke are general partners in Equity Lending, a consumer credit, mortgage, and investment firm.Bryn's dissociation from the firm results in

A)the automatic termination of the firm's legal existence.
B)the partnership's buyout of Bryn's interest in the firm.
C)the immediate maturity of all partnership debts.
D)Bryn's purchase of her interest in the partnership from the firm.

Question 52

Hud and Iggy form Jerry-Bilt Construction to enter into a contract to build one bridge.Under their partnership agreement, Jerry-Bilt is to dissolve when the bridge is built.Iggy signs a contract for the firm to build a second bridge.Jerry-Bilt

A)dissolves as soon as the first bridge is built.
B)dissolves as soon as the second bridge is built.
C)dissolves immediately on Iggy's signing of the second contract.
D)does not dissolve.

Question 53

Fact Pattern 14-2?Luann and Mace are partners in Networx, a computer peripherals firm.
Refer to Fact Pattern 14-2.Luann signs a contract with Oleo Chips, a retail component supplier, apparently on Networx's behalf.The contract is binding on

A)Luann, Mace, and Networx.
B)Luann only.
C)Networx only.
D)Oleo only.

Question 54

Luke and Maya form Northwest Air Express, a general partnership.The essential elements of this partnership do not include

A)a sharing of profits and losses.
B)a joint ownership of the business.
C)an equal right to management in the business.
D)goodwill.

Question 55

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

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

Question 56

Megan and Nicole do business as One World Realty.In acting on the firm's behalf in a deal with Property Acquisition Company, Megan fails to account for the profit.To her firm, Megan 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 57

Noah and Orin do business as Pest Control Partners.In most states, for the purposes of suing and being sued, Pest Control 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 58

Kelly, Lars, and Mona agree to be partners in Neighborhood Delivery Service (NDS), splitting the profits equally.Kelly contributes 67 percent of the capital.When NDS is dissolved, its liabilities are greater than its assets.The losses are paid by

A)all of the partners in proportion to their capital contributions.
B)all of the partners in proportion to their shares of the profits.
C)Kelly because she contributed most of the capital.
D)Lars and Mona because they contributed the least of the capital.

Question 59

Esteban and Florian want to form a limited liability company (LLC) to manage their business, Gordian Nuts.LLC statutes have been adopted in

A)every state.
B)no state.
C)less than one-fifth of the states.
D)only Wyoming.

Question 60

Corbin, a partner in Doctors Medical Clinic, applies for a loan with Evermore Bank allegedly on Doctors' behalf but without the authorization of the other partners.Evermore knows that Corbin is not authorized to take out the loan.Corbin defaults on the loan.Liability for its unpaid amount is imposed on

A)Corbin and Doctors, jointly.
B)Corbin only.
C)Doctors only.
D)Evermore only.

Question 61

Sasha contracts to buy a franchise from TrustMe Financial Consultants Inc.The contract is silent on the issue of territorial rights.When TrustMe allows a competing franchise to be established near Sasha's office, she suffers a significant loss in profits.This is most likely a violation of

A)no law.
B)the ban on certain types of anticompetitive agreements.
C)the Federal Trade Commission's Franchise Rule.
D)the implied covenant of good faith and fair dealing.

Question 62

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 63

FreezE Yogurt Corporation provides its prospective franchisees with projected earnings figures based on actual data.FreezE Yogurt must also disclose

A)the number and percentage of franchisees that achieved the figures.
B)hypothetical examples of potential earnings.
C)an answer to the entrepreneur's question, "How much will I make?"
D)none of the choices.

Question 64

Real Events Promotion Corporation licenses Stadium Souvenirs, Inc., to sell Real Events caps, sweatshirts, and similar goods.This is

A)a franchise.
B)an entrepreneur.
C)a principal-agent relationship.
D)a sole proprietorship.

Question 65

Felipe is a member of Great States Trucking LLC.Felipe's relationship to Great States ends, but the firm continues to do business.This is

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

Question 66

Tumble Gymnastics & Karate, Inc., grants a franchise to Stefan to operate a Tumble gym.Tumble may require Stefan to pay the franchisor a percentage of the business's

A)annual sales or volume.
B)weekly payroll expense.
C)monthly overhead savings.
D)none of these choices.

Question 67

Pizza & Cookies, LLC, is a limited liability company.Among its members, a dispute arises that the operating agreement and the state LLC statute do not cover.The dispute is governed by

A)no law.
B)the federal Uniform LLC Law.
C)the principles of partnership law.
D)the state corporation statute.

Question 68

Ewa, the owner of Face-2-Face Enterprises, is a sole proprietor.What are the chief characteristics, advantages, and disadvantages of this form of business organization? Ewa wants to obtain additional capital to expand Face-2-Face, but she does not want to lose control of the firm.As a sole proprietor, what is her best option to attain these goals?

Question 69

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 otherwise, 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 70

A franchise agreement between Software2 Company and Games3, Inc., is silent on a time for termination of the franchise.Software2 may

A)never terminate.
B)terminate at any time.
C)terminate on reasonable notice.
D)terminate on three days notice.

Question 71

Sylvester buys a franchise from Resistance Athletic Shoes Inc.This relationship, like all other franchise relationships, is governed by

A)contract law.
B)no law.
C)the Franchise Disclosure Document, or FDD.
D)the Uniform Commercial Code.

Question 72

Cecilia's Day Spa, LLC, is a member-managed limited liability company.If the law in Cecilia's state is like the law in most states, unless the members have agreed otherwise, voting rights are apportioned according to

A)capital contributions.
B)participation in management.
C)the number of members.
D)transactions with the firm.