Deck 41: Types of Business Organizations

Question 1

Unincorporated associations are generally formed to further a common purpose.

Answer 1

True

Question 2

The major advantage to investors in a corporation stems from the fact that their risk of loss is limited to the amount of their investment.

Answer 2

True

Question 3

A sole proprietor is subject to unlimited personal liability for the debts of the business.

Answer 3

True

Question 4

In a corporation, a large number of investors may pool their assets to finance a large business enterprise.

Question 5

If there is a joint venture, the fault or negligence of one venturer will not be imputed to the other venturers.

Question 6

Most courts hold that joint ventures are not subject to the same principles of law as partnerships.

Question 7

A partnership is dissolved by the death of a partner.

Question 8

The process of incorporation involves the expenditure of funds for organizational expenses.

Question 9

Partnership agreements allow individuals to conduct their business without the requirement of a formal organizational structure.

Question 10

A sole proprietor must file a certificate indicating that he or she is commencing operations and pay a single organizational fee.

Question 11

The death of a majority shareholder terminates a corporate enterprise.

Question 12

A cooperative consists of a group of two (2) or more independent persons or enterprises that cooperate for a common objective or function.

Question 13

Business corporations exist to make a profit.

Question 14

An unincorporated association cannot sue or be sued in its own name.

Question 15

Corporations are subject to a form of double taxation.

Question 16

A corporation is a separate legal entity capable of owning property, contracting, and being sued in its own name.

Question 17

A sole proprietorship must pay, at the corporate income tax rate, income taxes based on the net earnings of the sole proprietorship.

Question 18

A joint venture typically relates to the carrying out of a single enterprise or transaction.

Question 19

A corporation must have at least two shareholders.

Question 20

Partnership agreements must always be in writing.

Question 21

A major disadvantage of the sole proprietorship is:

A) no organizational fees.
B) the sole proprietor obtains all of the profits.
C) the sole proprietor is personally liable for the debts of the sole proprietorship.
D) the sole proprietor is free to make all business decisions concerning operation of the sole proprietorship.

Question 22

Under which organizational structure would the death of the owner have no legal effect?

A) a partnership
B) a corporation
C) a sole proprietorship
D) all of the above

Question 23

A franchisor or franchisee could be a sole proprietor, a partnership, a limited liability company, or a corporation.

Question 24

Freedom from liability to third persons dealing with the franchise holder is one of the main reasons that franchisors grant franchises.

Question 25

A franchise agreement in which the franchisor grants the franchisee authority to manufacture and sell products under the trademark(s) of the franchisor is known as a manufacturing or processing franchise.

Question 26

A sole proprietorship is taxed:

A) on a personal and corporate level.
B) only on the corporate level.
C) only on the personal level.
D) none of the above.

Question 27

Franchises, along with sole proprietorships, partnerships, limited liability companies, and corporations, are distinct forms of business organization.

Question 28

If the negligence of the franchisee causes harm to a third person, the franchisor is not liable because the franchisee is an independent contractor.

Question 29

The principal forms of business organization are:

A) sole proprietorships, joint ventures, and corporations.
B) unincorporated associations, partnerships, and corporations.
C) unincorporated associations, limited partnerships, and corporations.
D) sole proprietorships, partnerships, and corporations.

Question 30

A franchisor is the person to whom the franchise is granted.

Question 31

Who serve as agents of the corporation and run the "day-to-day" operations of the business?

A) officers
B) directors
C) shareholders
D) employees

Question 32

Franchising is basically contractual in nature.

Question 33

Franchisors may be found liable for the wrongful conduct of their franchisees on an apparent authority theory when the conduct of the franchisor creates an appearance of authority.

Question 34

The Federal Trade Commission has adopted a franchise disclosure rule that requires franchisors to give prospective franchisees a full disclosure statement thirty (30) days before a franchisee signs a contract or pays any money for a franchise.

Question 35

Government grants create:

A) sole proprietorships.
B) corporations.
C) partnerships.
D) unincorporated associations.

Question 36

The people in a corporation responsible for the management of the business are the:

A) partners.
B) shareholders.
C) directors.
D) licensees.

Question 37

A franchisor's freedom from liability to third parties dealing with its franchisees may be defeated upon a showing of excessive control of the franchisee's activities by the franchisor.

Question 38

Franchise agreements frequently contain an arbitration provision under which a neutral party is to make a final and binding determination whether there has been a breach of the contract sufficient to justify cancellation of the franchise.

Question 39

Franchise disclosures are not required under federal law.

Question 40

The relationship between the franchisor and the franchisee is ordinarily an arm's-length employment relationship.

Question 41

A rule requiring that a franchisor provide a disclosure statement to all prospective franchisees was adopted by the:

A) UCC.
B) Franchise Tax Board.
C) Securities and Exchange Commission.
D) Federal Trade Commission.

Question 42

Louise Feldspar obtained the exclusive right to sell TastyCrunchy Chicken in a specified area. Under the agreement, Feldspar was permitted to use the TastyCrunchy name and logo for her restaurant and she agreed to comply with TastyCrunchy's restaurant requirements. She purchased her equipment, as well as the chicken she served, from the firm. She agreed to devote a certain percentage of her revenues to promoting the TastyCrunchy operation in local media. The operation was successful from the start, and Feldspar has had no problem meeting the sales quotas imposed by TastyCrunchy. The past year TastyCrunchy informed Feldspar that it intended to open a new restaurant on an interstate highway that had just been completed in her exclusive area of trade. Because her operation would be competition for the new store, Feldspar's right to sell TastyCrunchy products and use the name TastyCrunchy was revoked. What can Louise do?

Question 43

Normally in a franchise operation:

A) both the franchiser and the franchisee will be liable to third persons for contracts that are breached by the franchisee.
B) only the franchisor will be liable to third persons for contracts that are breached by the franchisee.
C) only the franchisee will be liable to third persons for contracts that are breached by the franchisee.
D) neither the franchisor nor the franchisee will be liable to third persons for contracts that are breached by the franchisee.

Question 44

Sally Gomez is interested in starting a new business. Although Gomez has developed her business plan and is ready to implement her ideas, she lacks the necessary finances to begin her new business. Along with a lack of finances, Gomez worries about the potential liability involved with starting a new business. Gomez would hate to lose all that she has personally accumulated to date in the event of a successful lawsuit against her. She is considering a sole proprietorship, a partnership, or a corporation as the organizing structure of her new venture. Which type of business would best serve Gomez's needs at this given time?

Question 45

The FTC franchise disclosure statement must contain:

A) the business experience of the franchisor and its brokers.
B) any current and past litigation against the franchisor.
C) the grounds for termination of the franchise.
D) all of the above.

Question 46

The Petroleum Marketing Practices Act gives gas station __________ the opportunity to continue in business by purchasing the entire premises used in selling motor fuel when the franchisor decides to sell the property and not renew a lease.

A) franchisees
B) licensors
C) joint venturers
D) partners

Question 47

An unincorporated association:

A) cannot sue in its own name.
B) cannot be sued in its own name.
C) does not have any legal existence apart from the members who compose it.
D) all of the above.

Question 48

A parents' group in a small town formed an association to run a little league baseball team. Tom and Mary were members of the association, which was never incorporated. Tom was elected president of the association and ordered some bats and uniforms for the team. When the uniforms were not paid for, the baseball supply company sued Tom and Mary for the contract price. Regarding the liability of Mary:

A) Mary is liable because she is a member of an unincorporated association.
B) Mary is not liable because members of an unincorporated association have no personal liability.
C) Mary is liable if she authorized or ratified the purchase.
D) Mary is not liable regardless of whether she authorized the purchase.

Question 49

To protect themselves against liability, franchisors often require individual franchisees to:

A) take out fraud insurance.
B) register with the attorney general.
C) publicly disclose their own separate business identities.
D) disavow any connection with the franchisor.

Question 50

In a joint venture, the parties:

A) combine their labor or property for a single undertaking and share profits and losses equally.
B) combine their labor or property for a continuing business and share profits and losses equally.
C) assume no personal liability beyond the risk of losing their initial investment.
D) none of the above.

Question 51

An arrangement in which the owner of a trademark licenses others, under specified conditions or limitations, to use the trademark in purveying goods or services is a(n):

A) corporation.
B) limited partnership.
C) unincorporated association.
D) none of the above.

Question 52

In the absence of a fixed duration provision, a joint venture will ordinarily terminate:

A) upon completion of the project.
B) at the will of any participant.
C) as specified in the joint venture agreement.
D) all of the above.

Question 53

Arnold was the sole shareholder, president, and chief executive officer of Algernon Enterprises, Inc. Acting on behalf of Algernon, Arnold negotiated the credit purchase of inventory from Amax. The contract was signed in the name of Algernon Enterprises. Algernon never paid the sums due on the contract, and Arnold and the corporation were sued. Is Arnold personally liable to Amax?

Question 54

Theoretically, the relationship between a franchisor and a franchisee is one of:

A) parent and subsidiary.
B) an "arm's-length" relationship between two (2) independent contractors.
C) an "arm's-length" relationship between two (2) partners.
D) an "arm's-length" relationship between two (2) joint tenants.

Question 55

Holders of automobile dealership franchises are protected from bad faith termination of their dealerships by the:

A) Sherman Antitrust Act.
B) Robinson-Patman Franchise Act.
C) Automobile Dealers' Day in Court Act.
D) Franchise Holder Protection Act.

Question 56

Under the FTC disclosure rule, a franchisor must pay a __________ penalty of as much as __________ for each violation when it is shown that a sale of a franchise subject to the FTC rule was made, the franchisor knew or should have known of the disclosure rule, and no disclosure statement was given to the buyer.

A) civil; $10,000
B) criminal; $10,000
C) civil; $25,000
D) criminal; $25,000