Deck 41: Types of Business Organizations

Question 1

A limited liability company is treated like a partnership under federal tax law and has the limited liability feature of corporations.

Answer 1

True

Question 2

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

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

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

Question 5

Corporations are subject to a form of double taxation.

Question 6

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

Question 7

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

Question 8

A corporation must have at least two shareholders.

Question 9

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

Question 10

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

Question 11

A partnership is not dissolved by the death of a partner.

Question 12

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

Question 13

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

Question 14

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.

Question 15

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

Question 16

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

Question 17

Unincorporated associations are generally formed to further a common purpose.

Question 18

The death of a majority shareholder terminates a corporate enterprise.

Question 19

Business corporations exist to make a profit.

Question 20

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

Question 21

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 22

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

Question 23

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 24

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 25

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

Question 26

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 27

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)any of the above.

Question 28

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 29

Government grants create:

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

Question 30

A sole proprietorship is taxed:

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

Question 31

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

Question 32

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 33

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 34

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 35

A limited liability partnership:

A)is taxed like a corporation.
B)provides limited liability for all partners.
C)shields innocent partners from personal liability beyond their investment.
D)All of the above.

Question 36

Franchise disclosures are not required under federal law.

Question 37

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

Question 38

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 39

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

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

Question 40

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 41

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 42

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 43

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 44

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 45

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 46

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 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 liable but only for 50% of the outstanding debt.

Question 47

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 48

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 49

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 50

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 51

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 52

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 53

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.