Deck 4: The Legal Section

Question 1

The most common form of organization for a small business is the sole proprietorship.

Answer 1

True

Question 2

A proprietorship is easy to start and requires fewer legal documents than other forms of organization.

Answer 2

True

Question 3

A proprietor cannot lose personal assets if someone sues the company.

Answer 3

False

Question 4

There are two common forms of partnerships-limited and unlimited.

Question 5

General partnerships are not legally required to have a written partnership agreement.

Question 6

General partners have unlimited liability.

Question 7

Limited partners may not take an active role in the daily management of the company.

Question 8

A limited partnership ends if a limited partner sells his or her ownership or dies.

Question 9

The owners of a corporation are known as members.

Question 10

With an S corporation, the corporation's profits are transferred to the owners' personal tax returns.

Question 11

S corporations have fewer restrictions than do C corporations.

Question 12

Limited liability companies are often recommended for family-owned businesses.

Question 13

Laws concerning limited liability companies vary from state to state.

Question 14

A limited liability company provides limited liability for the owners but is taxed like a partnership.

Question 15

Federal taxes paid by a company might include federal income taxes, excise taxes, and social security taxes.

Question 16

A proprietor pays self-employment tax instead of social security tax on him or herself.

Question 17

Double taxation is one of the disadvantages of proprietorships.

Question 18

The most common form of organization for a small business is the

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

Question 19

Of approximately 20 million businesses in existence in 1997, more than 70% were

A) limited liability companies.
B) C corporations.
C) proprietorships.
D) partnerships.

Question 20

Proprietorships are the most common form of organization because

A) they provide limited liability.
B) they are a legal entity separate from the owner.
C) they are easy to start.
D) it is easy to raise money from outside investors.

Question 21

Disadvantages of proprietorships include

A) unlimited liability.
B) the entrepreneur must bear the entire burden of responsibility.
C) financing depends on personal assets.
D) all of the above.

Question 22

The biggest disadvantage of a sole proprietorship is

A) the large number of legal documents necessary.
B) the difficulty in starting one.
C) the unlimited liability of the entrepreneur.
D) all of the above.

Question 23

There are two common forms of partnerships-

A) public and private.
B) trade and consumer.
C) S partnerships and C partnerships.
D) general and limited.

Question 24

General partners

A) have unlimited liability.
B) are liable for the actions of other partners.
C) are fully responsible for company debts.
D) all of the above.

Question 25

Which of the following is FALSE?

A) General partnerships are not legally required to have a written partnership agreement.
B) A general partnership legally ends when a partner sells his or her ownership in the company or dies.
C) A partnership ends if a limited partner sells his or her ownership or dies.
D) A limited partner cannot take an active role in the daily management of the company.

Question 26

In limited partnerships

A) the limited partners have unlimited liability.
B) the limited partners take an active role in daily management.
C) there must be at least one general partner.
D) the limited partners may not sell their ownership in the company.

Question 27

In a limited partnership

A) a limited partner must be willing to invest money knowing that he or she will have limited control.
B) disagreements may develop between the general partner and the limited partners.
C) a limited partnership will need more legal documents than a general partnership.
D) all of the above.

Question 28

Of the following, the least common form of organization in the United States is the

A) proprietorship.
B) partnership.
C) corporation.
D) There is an equal number of each in the United States

Question 29

A certificate of limited partnership is filed with the

A) stockholders.
B) state government.
C) company's suppliers.
D) local government.

Question 30

Before forming a partnership, the partners should consider

A) how much time each will invest in the business.
B) what decisions need the agreement of all partners.
C) how much money each partner will invest.
D) all of the above.

Question 31

For a partnership, buy/sell pricing refers to how

A) much money each partner will invest.
B) additional investment money will be raised.
C) the value of the ownership interest will be determined.
D) much time each partner will invest in the business.

Question 32

Ownership in a corporation is documented by

A) stock certificates.
B) partner agreements.
C) bylaws.
D) sales tax receipts.

Question 33

There are two types of corporations that entrepreneurs may consider-

A) general and limited.
B) S corporations and C corporations.
C) trade and commercial.
D) member and stockholder.

Question 34

The owners of a corporation are called

A) partners.
B) members.
C) stockholders.
D) managers.

Question 35

A ______ is a legal entity separate from its owners.

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

Question 36

If a corporation owner signs a personal guarantee when borrowing money for the business,

A) the bank may seize personal assets if the business does not repay the loan.
B) the corporate structure will still protect personal assets.
C) this would be illegal.
D) the owner guarantees that the business will not fail.

Question 37

The bank has the right to seize personal assets of a corporation owner if the owner signed a

A) stock certificate.
B) copy of the bylaws.
C) personal guarantee.
D) corporate charter.

Question 38

Which of the following is TRUE?

A) The officers of a corporation attend meetings and vote on issues presented.
B) The owners of a corporation have control over most operating decisions.
C) Corporation owners may sell their stock without affecting the legal existence of the company.
D) All of the above.

Question 39

Corporations

A) must have a board of directors and hold annual meetings.
B) must record the minutes of the meetings.
C) may be required to complete more paperwork than a proprietorship if the company expands into other states.
D) all of the above

Question 40

The discussions and votes during a corporation meeting are called the

A) articles of incorporation.
B) the bylaws.
C) the minutes.
D) agreements.

Question 41

S corporations

A) have fewer restrictions than C corporations.
B) can have individual or other corporations as stockholders.
C) can only sell common stock.
D) all of the above.

Question 42

The investors in a limited liability company are known as

A) partners.
B) stockholders.
C) members.
D) managers.

Question 43

"Members" are the owners of a(n)

A) partnership.
B) C corporation.
C) S corporation.
D) LLC.

Question 44

Which of the following is FALSE?

A) Investors in a limited liability company have limited liability.
B) The profits of an LLC are transferred to the owners' personal tax returns.
C) LLCs are generally less flexible than corporations.
D) All of the above.

Question 45

Limited liability companies

A) are often recommended for family-owned businesses.
B) should not be used for start-ups.
C) are illegal in many states.
D) can only be established by proprietors.

Question 46

With a limited liability company,

A) the profits of the company are split among the investors and shown on their personal tax returns.
B) good legal advice is necessary.
C) members must file articles of organization and an operating agreement.
D) all of the above.

Question 47

A legal agreement between two parties to operate for a specific purpose and for a limited period of time is known as a(n)

A) LLC.
B) joint venture.
C) limited partnership.
D) S corporation.

Question 48

Excise taxes must be paid by the

A) liquor industry.
B) firearms industry.
C) retailers of motor fuel.
D) all of the above.

Question 49

Social security tax is paid by

A) the employer.
B) the employee.
C) both the employer and the employee.
D) the customer.

Question 50

Companies must pay ____ unemployment tax on their employees.

A) federal
B) state
C) both federal and state
D) none of the above

Question 51

The rate for state unemployment tax

A) is the same in every state.
B) may increase or decrease depending on the number of claims against the company.
C) is set by the federal government.
D) is the same as the sales tax rate.

Question 52

A proprietor pays self-employment tax based on the

A) amount of money taken for personal expenses.
B) net profit of the company.
C) social security taxes paid on employees.
D) sales volume of the company.

Question 53

Part or all of a corporation's profit may be given to the stockholders in the form of

A) taxes.
B) liabilities.
C) dividends.
D) debt.

Question 54

Because the corporation pays taxes on the company profit and the stockholders pay taxes on dividends, this is known as

A) double taxation.
B) self-employment tax.
C) excise tax.
D) use tax.

Question 55

Which of the following is taxed on both dividends and profits?

A) Proprietorships
B) Partnerships
C) C corporations
D) S corporations

Question 56

Which of the following is not a disadvantage of a general partnership?

A) Unlimited liability
B) Shared responsibility
C) Each partner is liable for the actions of other partners.
D) Each partner is responsible for 100 percent of company debts.