Deck 12: Business Organizations

Question 1

A third party cannot sue one of the partners of a partnership without suing all of the partners.

Answer 1

False

Question 2

The laws governing franchising are primarily designed to protect franchisors from dishonest franchisees.

Answer 2

False

Question 3

Some states require franchisors to disclose certain material facts to prospective franchisees.

Answer 3

True

Question 4

A limited liability company can be taxed as a corporation.

Question 5

An operating agreement must be formed for a limited liability company to exist.

Question 6

The validity of a provision permitting the franchisor to establish and enforce certain quality standards is questionable.

Question 7

There are many legal formalities involved in starting a sole proprietorship.

Question 8

A sole proprietorship continues after the death of the proprietor.

Question 9

In a limited partnership, a limited partner is personally liable for all partnership debts.

Question 10

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

Question 11

A partner is entitled to deal with the partnership as an adverse party or compete with it.

Question 12

In a limited liability partnership, a partner can be exempt from personal liability for the malpractice of other partners.

Question 13

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

Question 14

Normally, a franchisee determines the territory that it will serve.

Question 15

In a sole proprietorship, the proprietor shares the burden of any losses or liabilities incurred by the business enterprise with the government.

Question 16

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

Question 17

A sharing of profits and losses is the only requirement of a partnership.

Question 18

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

Question 19

State limited liability company statutes are uniform.

Question 20

If a franchisor unfairly terminates a franchise, a court will provide a franchisee with a remedy.

Question 21

A limited liability company must be managed by its members.

Question 22

When a member dissociates from a limited liability company, the other members can not continue the business.

Question 23

In certain instances of fraud, a court may "pierce the corporate veil" to hold the shareholders individually liable.

Question 24

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 25

A board of directors is the ultimate authority in every corporation.

Question 26

The daily business of a corporation is managed by officers employed by the board of directors.

Question 27

Julia owns and operates Collectable Dolls without creating a separate business organization.She receives all the profits from the doll sales.Collectable Dolls is most likely

A)a corporation.
B)a limited liability company.
C)a partnership.
D)a sole proprietorship.

Question 28

A corporation whose shares are held by relatively few persons is a close corporation.

Question 29

A corporation's officers and other employees are hired by its shareholders.

Question 30

A director is a fiduciary of a corporation.

Question 31

A member of a limited liability company (LLC)has the power and the right to dissociate from the LLC at any time.

Question 32

The minimum number of directors that must be present before a board can transact business is a quorum.

Question 33

Corporate officers can usually be removed by the board of directors without cause.

Question 34

Paradise Footwear buys a franchise from Resilient 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 rules of the National Collegiate Athletic Shoe Association.

Question 35

Phillipa is the sole proprietor of Incredible Floral Arrangements.As a sole proprietor, on Incredible's profits, Phillipa

A)does not pay income taxes.
B)pays only personal income taxes.
C)is taxed twice.
D)pays both personal and sole proprietor income taxes.

Question 36

Directors can use corporate funds and confidential information for personal advantage as long as they disclose that they are doing so.

Question 37

Cumulative voting refers to the accumulation of proposals presented annually for a shareholders' vote.

Question 38

Corporate directors and officers are insurers of business success.

Question 39

A corporation does not possess the same right of access to the courts as natural persons.

Question 40

Robert owns Textbooks Plus, a sole proprietorship that sells textbooks.When Robert dies, Textbooks Plus will

A)automatically dissolve.
B)pass directly to his oldest child.
C)pass directly to the state.
D)be evenly divided among all Robert's heirs.

Question 41

Pilar is interested in buying a franchise from Quixotic Travel & Tours Corporation.Quixotic must disclose material facts that Pilar needs to make an informed decision concerning this purchase, according to

A)no law.
B)the Petroleum Marketing Practices Act of 1979.
C)the Federal Trade Commission's Franchise Rule.
D)the Uniform Commercial Code.

Question 42

Ben, who runs a livestock breeding business, owes the Circle C Ranch $40,000.Ben agrees to pay the Circle C a percentage of his profits each month until the debt is paid.Because of this agreement, the Circle C is Ben's

A)partner.
B)creditor.
C)sole proprietor.
D)shareholder.

Question 43

Inez and Jason are the shareholders and directors of Kleen Kustodial Corporation.Lily and Moe are Kleen's officers.As in other corporations, the responsibility for the overall management of Kleen rests with

A)the board of directors.
B)the officers.
C)the owners.
D)the shareholders.

Question 44

Chocolate Sundry LLC's members and managers are Devlin, Effie, and Flavia.After Devlin's relationship to the firm ends, Effie and Flavia agree to discontinue the business.This is

A)illegal.
B)optional.
C)required.
D)wrongful.

Question 45

Jordana is a member of Klondike Coffee, LLC, a limited liability company.Jordana is liable for Klondike's debts

A)in proportion to the total number of members.
B)to the extent of her investment in the firm.
C)to the extent that the other members do not pay the debts.
D)to the full extent.

Question 46

Flip, Gordo, Haruko, and Inez are the member of Regional Gymnastics LLC.With respect to the management of the firm, the members can decide in their operating agreement to be

A)a member-managed LLC only.
B)a manager-managed LLC only.
C)a member-managed LLC or a manager-managed LLC.
D)none of the choices.

Question 47

George is the founder of Excellent Exotics Corporation.Wilson is a shareholder and director, and Bill is an officer.The daily business operations of Excellent Exotics are overseen by

A)Bill.
B)Wilson.
C)George.
D)George and Wilson.

Question 48

Myron and Norah would like to form Originals, Inc., to do business in the art market.Generally, the articles of incorporation for a corporation do not include

A)the name of the corporation.
B)the functions of the corporation.
C)the structure of the organization.
D)the minutes of the organizational meeting.

Question 49

RayAnn is a corporate officer for Timmy's Trees, Inc.As a corporate officer, RayAnn is

A)the head of the board of directors.
B)involved in the daily business operations of Timmy's Trees.
C)not involved in the daily business operations of Timmy's Trees.
D)in charge of selecting members of the board of directors.

Question 50

Mabel and Nicol do business as One World Realty.In acting on the firm's behalf in a deal with Property Acquisition Company, Mabel fails to account for the profit.To her firm, Mabel 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 51

Lucy is a limited partner in Metro Contractors, a limited partnership, which cannot pay its debts.Lucy is personally liable for the debts

A)in proportion to the number of partners in the firm.
B)to no extent.
C)to the extent of her capital contribution.
D)to the full extent.

Question 52

Kristal is a member of Laboratory CSI Services, LLC, a limited liability company.Kristal can participate in the firm's management

A)only to the extent that she assumes liability for the firm's debts.
B)only to the extent of her investment in the firm.
C)to any extent.
D)to no extent.

Question 53

Fern and Gray want to form a limited partnership to manage two restaurants, Café Latte and Deli Delite.In most states, a limited partnership will come into existence when

A)a certificate of limited partnership is filed.
B)a partnership agreement is executed.
C)the business for which the firm is formed actually begins.
D)the partners make their capital contributions.

Question 54

Jumbo Juice Inc.offers entrepreneurs the opportunity to operate a franchise under the Jumbo Juice trade name.For any projected earnings figures Jumbo Juice provides to potential franchisees, the franchisor must have

A)a hypothetical basis.
B)a reasonable basis.
C)an actual basis.
D)no basis.

Question 55

Wiley incorporates his business as Wiley Wire Corporation in Texas to profit from sales of fencing wire.Wiley and the members of his family constitute the shareholders.Wiley Wire Corporation is

A)a sole proprietorship.
B)a limited liability company.
C)a partnership.
D)a close corporation.

Question 56

Hollister and Gladys do business as partners in Frothy Confections.For federal income tax purposes, Frothy Confections would be treated as

A)a "pass-through" entity.
B)a natural person.
C)a tax-paying entity.
D)a partnership by estoppel.

Question 57

Newt is considering forms of business organization for Newton Design, an architectural firm.An advantage of a limited liability partnership is that partners can avoid personal liability for

A)their own wrongful acts.
B)other partners' malpractice.
C)supervising a party who commits a wrongful act.
D)their own negligence.

Question 58

Will and Jay 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 59

Homer's Remodeling, LLC, is a limited liability company.Among the members, a dispute arises that is not covered by their operating agreement or an LLC statute.The dispute is most likely governed by the principles of

A)corporate law.
B)partnership law.
C)sole proprietorship law.
D)franchise law.

Question 60

Venture Capital, LP, is a limited partnership.Its limited partners include more than 150 sophisticated investors and investment professionals.A Venture limited partner must

A)act as the firm's manager.
B)not participate in the firm's management.
C)cannot invest in Unified Fund, one of Venture's competitors.
D)assume liability for all partnership debts.

Question 61

Coast-to-Coast Distribution, Inc., is a direct-mail distribution company.Like most corporations, Coast-to-Coast's executive employees include its

A)board of directors.
B)incorporators.
C)officers.
D)shareholders.

Question 62

Rosa and Sean are directors of Tech, Inc.Rosa's written authorization to Sean to vote Rosa's shares at a Tech shareholders' meeting is

A)a violation of the duty of care.
B)a preemptive right.
C)a proxy.
D)a quorum.

Question 63

Josh is a director of Sippy Soups, Inc.Josh opposes a contract that is in Sippy's best interest because Josh would like to enter into the contract for his personal benefit.Josh is liable for a breach of

A)no duty or rule.
B)the business judgment rule.
C)the duty of care.
D)the duty of loyalty.

Question 64

Open & Shutt Gates Corporation has a board of ten directors.Open & Shutt's bylaws do not state any quorum requirements.Normally, a quorum for Open & Shutt would consist of

A)two directors.
B)six directors.
C)nine directors.
D)ten directors.

Question 65

Owen plans to open Owen's Pets Store, a pet sales and pet supplies outlet, and to hire Quimby and Ruth.Owen will invest only his own money.He does not expect to make any profit for at least two years and to make almost no profit for the first three years, but he hopes to expand eventually.Which form of business organization would be most appropriate What are the chief characteristics, advantages, and disadvantages of this form of business organization If Owen wants to obtain additional capital to expand the business, but does not want to lose control of the firm, what is his best option

Question 66

Rafi, a director of Super Service Station Corporation, does not attend a board meeting for three years.During that time, Twyla, Super's president, makes improper loans that cost the company $100,000.Rafi is most likely

A)liable for negligence.
B)liable for violation of the business judgment rule.
C)not liable because missing meetings is an honest mistake.
D)not liable because missing meetings is only poor judgment.

Question 67

Odell is a director of Price Rite, Inc.As a director, with respect to the corporation, Odell is

A)a fiduciary.
B)a forum.
C)a proxy.
D)a quorum.

Question 68

Nina is a director of Omega, Inc.Under the standard of due care owed by directors of a corporation, Nina's decisions must be

A)ambiguous and questionable.
B)arguable and defensible.
C)informed and reasonable.
D)perfect and unassailable.

Question 69

Mitch is a director and officer of Numero Uno, Inc.Mitch makes a marketing decision that results in a dramatic decrease in profits for Numero Uno and its shareholders.The shareholders accuse Mitch of breaching his fiduciary duty to the corporation.What is Mitch's best defense against this accusation Later, the Numero Uno board considers a resolution for the firm to compete with One-of-a-Kind Corporation.Mitch is a director and shareholder of One-of-a-Kind.What is Mitch's responsibility in this situation

Question 70

DeFazio's Italian Restaurants, Inc., holds a shareholders' meeting.Corporate business matters are presented at the meeting in the form of

A)resolutions.
B)proxies.
C)articles of incorporation.
D)bylaws.

Question 71

Thor Power Products Corporation permits its directors to be elected by cumulative voting.This

A)allows minority shareholders to be represented on the board.
B)assures directors that they will be selected by their peers.
C)guarantees Thor's executive officers of the final choice.
D)ensures against persons who may "cloud" the corporate direction.

Question 72

Rhea is a director of Spex Corporation, which makes and sells sunglasses and other eyewear.As a Spex director, Rhea sits on the board, which is

A)the ultimate authority in Spex.
B)subject to the Spex incorporators.
C)subject to the Spex officers.
D)subject to the Spex shareholders.