Deck 11: Business Organizations

Question 1

If there is no limited liability company (LLC)agreement covering a topic under dispute,the state LLC statute will govern the outcome.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

The franchise relationship is defined by a contract.

Answer 3

True

Question 4

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

Question 5

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

Question 6

A sharing of profits from the ownership of property is enough to create a partnership.

Question 7

A limited partner has every right to participate in the management and operation of a limited partnership.

Question 8

The members of a limited liability company enjoy limited liability.

Question 9

A sole proprietor must create a separate business organization to create a sole proprietorship.

Question 10

In a limited partnership,a limited partner has full responsibility for the partnership and for all its debts.

Question 11

Partners are subject to personal liability for partnership obligations.

Question 12

Foreign investors cannot participate in a limited liability company.

Question 13

In choosing a form of business organization for a new enterprise,important factors include the ease of creation.

Question 14

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

Question 15

A sole proprietor may own and manage any type of business.

Question 16

In a limited liability partnership,a partner is personally liable for the malpractice of other partners.

Question 17

A partnership ends if one partner dissociates from the firm.

Question 18

A limited liability company is operated in compliance with state law.

Question 19

In choosing a form of business organization for a new enterprise,important factors include the liability of the owner.

Question 20

In many states,an operating agreement is not required for a limited liability company to exist.

Question 21

An S corporation is treated the same as a regular corporation for tax purposes

Question 22

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 the choices.

Question 23

A director must make a full disclosure of any potential conflict of interest that might arise in any corporate transaction.

Question 24

The primary document needed to incorporate a business is the articles of incorporation.

Question 25

One of the key advantages of the corporate form is the unlimited liability of its owners.

Question 26

Officers hire the directors and other executive employees.

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

Question 28

Express powers of a corporation are found in its articles of incorporation.

Question 29

A director or officer is not liable to the corporation for a bad business decision.

Question 30

To pierce the corporate veil means to ignore the corporate structure,exposing the shareholders to personal liability.

Question 31

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

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

Question 32

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 33

Shareholders are personally liable for the debts of a corporation.

Question 34

Bonds represent the borrowing of funds by firms.

Question 35

Shareholders' meetings need not occur at any certain interval.

Question 36

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 37

Shareholders must approve fundamental changes affecting the corporation before the changes can be implemented.

Question 38

The Revised Model Business Corporation Act gives a close corporation less flexibility in determining its rules of operation.

Question 39

Directors have a right to participate in all board of directors' meetings.

Question 40

Before shareholders can bring a derivative suit,they must submit a written demand to the corporation,asking the board of directors to take action.

Question 41

Ruby Red Restaurant Corporation is incorporated in South Carolina.In that state,Ruby Red is​

A)a domestic corporation.
B)a foreign corporation.
C)an alien corporation.
D)a de jure corporation.

Question 42

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

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 43

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 44

Farm2Fork,LLC,is a limited liability company.Rather than distribute its profits to its members,Energy wants to reinvest the profits in its business.For this reason,Energy may prefer to be taxed as

A)a corporation.
B)a partnership.
C)a sole proprietorship.
D)a franchise.

Question 45

Skyla and Terry want to form and do business as Unbound Games Corporation.Most statutes governing the formation and use of corporations are guided by​

A)city or county corporate codes.
B)the Entrepreneur's Corporate Handbook.
C)the federal Administrative Procedure Act.
D)the Revised Model Business Corporation Act.

Question 46

Frida and Gregor want to market a new line of fishing gear.To avoid income taxes at the corporate level,they should form​

A)a C corporation.
B)a close corporation.
C)an S corporation.
D)a private corporation.

Question 47

Bret and Courtney form Delite Day Care,Inc.Ultimate responsibility for policy decisions necessary to the management of corporate affairs rests with Delite's​

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

Question 48

Reale Properties,LP,is a limited partnership.Its limited partners include more than sixty sophisticated investors and investment professionals.Each Reale limited partner​

A)must participate in the firm's management.
B)has no right to participate in the firm's management.
C)is personally liable for all partnership debts.
D)has no liability for any partnership debts.

Question 49

Dani is considering forms of business organization for her financial advisory firm.Like most states,Dani's state requires that to form a limited liability company,she must file with a central state agency​

A)articles of certification.
B)articles of formation.
C)articles of organization.
D)no specific documents.

Question 50

Jeri and Knute are members of Lighthouse Tours LLC,a limited liability company.With respect to Lighthouse Tours's liability,as members,Jeri and Knute are shielded from​

A)all liability.
B)no liability.
C)personal liability.
D)"alter ego" liability.

Question 51

Qatar Global Investments is a foreign entity-a firm owned and operated by investors in a foreign country.With respect to a limited liability company in the United States,Qatar Global can​

A)act as a creditor,but cannot otherwise invest or participate.
B)become a member.
C)not become a member,but can participate in its operations.
D)not become a member or otherwise participate in its operations.

Question 52

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 Franchise Disclosure Document.
C)the Federal Trade Commission's Franchise Rule.
D)the implied covenant of good faith and fair dealing.

Question 53

Niki owns O.K.Oil Corporation.Niki uses O.K.'s funds to pay her personal expenses,creates Pure Fuel Corporation to engage in the same business as O.K.,transfers O.K.'s assets to Pure Fuel,and petitions O.K.into bankruptcy.This most likely warrants​

A)a bonus to Niki for financial maneuvers.
B)a discharge for O.K.in bankruptcy.
C)a pierce of O.K.'s corporate veil.
D)a review of Pure Fuel's articles of incorporation.

Question 54

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 55

Like the bylaws of other corporations,the bylaws of Farmland Equipment,Inc.,​

A)establish the operating name of the corporation.
B)establish the value and classes of corporate stock.
C)were adopted at its first organizational meeting.
D)were submitted for approval to the public official in charge.

Question 56

Mead,Nero,and Olen do business as Pipe & Plumbing Services.After Mead's relationship to the firm ends,Nero and Olen​

A)must dissolve the partnership.
B)can continue to do business.
C)must dissociate from the firm.
D)can refuse to purchase Mead's interest in the partnership.

Question 57

Wild & Scenic River Tours,Inc.,is a corporation.Wild & Scenic has the implied power to​

A)issue stocks and bonds.
B)execute contracts and negotiable instruments.
C)buy and sell (or lease)property.
D)perform all acts reasonably appropriate and necessary to accomplish its corporate purposes.

Question 58

Charlie is the founder of Dream Job Apps Corporation.Eloise is a shareholder and director,and Francie is an officer.The day-to-day business operations of Dream Job Apps are overseen by​

A)Charlie.
B)Eloise.
C)Francie.
D)Charlie and Eloise.

Question 59

Kirby is a manager of Jumpstart Fitness LLC,a limited liability company.Kirby owes fiduciary duties to

A)Jumpstart and its members.
B)Jumpstart's suppliers.
C)Jumpstart's customers.
D)all of the choices.

Question 60

Ed,Jon,and Phoebe do business as Reliable Movers.Phoebe develops a debilitating illness and can no longer work.Phoebe​

A)may dissociate from the partnership.
B)may not dissociate from the partnership without Ed and Jon's consent.
C)must pay damages to Ed and Jon for the loss of her work.
D)may terminate the partnership.

Question 61

International Exports,L.P.,is a limited partnership,with $100,000 in declared but unpaid profits.International's creditors include Friendly Credit Corporation for $5,000 and Gwen,one of International's limited partners,also for $5,000.When Harry,one of International's general partners,decides to retire,the other general partners vote to liquidate and dissolve the firm.The limited partners,who are not asked their opinions,want International to continue in business and file a suit against the general partners to compel this result.Can the court order International to continue? If not,what is the priority of the distribution of International's assets on its dissolution?

Question 62

Ricardo is a shareholder of Speedy Bikes Company (SBC).When the directors fail to undertake an action to redress a wrong suffered by SBC,Ricardo files a suit on the firm's behalf.Any damages recovered by Ricardo's suit will normally go to​

A)Ricardo.
B)SBC.
C)SBC's directors.
D)the state in which SBC is incorporated.

Question 63

Zero Sum Games Corporation has forty-three shareholders.The minimum number that must be present at a meeting for a shareholders' vote is​

A)all of the shareholders.
B)a quorum.
C)a proxy.
D)three of the shareholders.

Question 64

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 65

Reba is a director of Quantum Mechanix Corporation.Reba's rights,as a director,do not include a right to​

A)indemnification.
B)inspection.
C)participation.
D)self-dealing.

Question 66

Genna is a director of Fab Stuff Corporation.Without informing Fab,Genna starts up Evertrendy,Inc.,to compete with Fab.Genna is liable for breach of​

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

Question 67

VeriVisual Company makes HD 3D film and video equipment.VeriVisual is like most corporations in that its officers are hired by the firm's​

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

Question 68

Naomi and Ogden are shareholders of MediCare Residences,Inc.As shareholders,they must approve​

A)conducting a merger.
B)deciding to pursue new business opportunities.
C)terminating a managerial employee.
D)negotiating a contract between management and labor.

Question 69

Raul is chairman of the board of Swif-Vac Corporation.Pinky,a consumer,is injured while using a Swif-Vac product.Pinky sues Swif-Vac,and Raul individually.Swif-Vac may pay Raul's legal fees under​

A)the director's right to certification.
B)the director's right to compensation.
C)the director's right to indemnification.
D)no circumstances.

Question 70

Heidi and Ian are directors and shareholders of Globe Software,Inc.Heidi's written authorization to Ian to vote Heidi's shares at a Globe shareholders' meeting is​

A)a close corporation.
B)a fiduciary.
C)a proxy.
D)a quorum.

Question 71

Gladys is a shareholder of Frozen Yogurt,Inc.As a shareholder,Gladys must approve​

A)amending the bylaws.
B)declaring a corporate dividend.
C)hiring a chief executive officer.
D)issuing additional shares.

Question 72

Sophie and Tiny incorporate their beverage-container business as U-Twist Products,Inc.The first board of directors may be appointed by the firm's​

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