Deck 26: Which Form of Business Organization

Question 1

Attempts by franchisors to require franchisees to buy products and equipment from the franchisor may violate the Clayton Act.

Answer 1

True

Question 2

By forming an LLP,the personal assets of partners not involved in wrongdoing by other members of the firm will be sheltered from malpractice claims against the firm.

Answer 2

True

Question 3

In a general partnership,each of the partners is an owner and has a right to share in the profits of the business.

Answer 3

True

Question 4

A corporation will be dissolved upon the death or insolvency of a shareholder.

Question 5

Franchisee-franchisor business relationships are governed by federal legislation only.

Question 6

Which of the following run the risk of unlimited personal liability?

A)Partners in a general partnership
B)Partners in a limited partnership
C)Corporate shareholders
D)Shareholders in S Corporations

Question 7

If the business involves little risk or the owners have few other assets,limited liability should be given little weight.

Question 8

Shareholders in close corporations are often restricted in the sale of their stock.

Question 9

A person's status as a shareholder in a corporation automatically gives such person a right to be an employee of the corporation.

Question 10

From a risk standpoint,a shareholder or limited partner is better off than a general partner.

Question 11

A sole proprietorship and a partnership are taxable entities,but a corporation is not.

Question 12

Anyone who buys the interest of an LLP partner is automatically a partner.

Question 13

States generally permit LLCs to have an indefinite duration.

Question 14

When a general business partnership fails,the partners:

A)lose only their investment.
B)may be required to pay partnership debts from personal assets.
C)can waive their limited liability.
D)are liable for losses equivalent to their own individual contributions.

Question 15

Like limited partnerships,all of the investors in an LLC are able to share in management.

Question 16

Identify the correct statement about sole proprietorship.

A)The owner shares responsibility with the agents and employees.
B)It may be operated under an assumed or trade name.
C)Employees of the business are not the personal employees of the owner.
D)The salaries paid to the employees are not deductible in determining taxable income.

Question 17

A partner cannot terminate an ordinary partnership at will.

Question 18

Which form of business organization most limits personal liability for its shareholders?

A)Sole proprietorship
B)General partnership
C)Corporation
D)They all share this attribute equally

Question 19

S Corporations are similar to partnerships in that corporate tax is paid.

Question 20

The formation of a general partnership requires:

A)filing appropriate paperwork with the secretary of state.
B)a formal certificate of cancellation when the partnership is terminated.
C)no express agreement.
D)that each partner be liable for losses depending on the individual partner's contribution to the enterprise.

Question 21

Publicly offered partnership interests:

A)are tax shelters for the original purchasers during the early years of ownership.
B)are of vital interest to persons hoping to actively manage a business.
C)are the primary method of creating general partnerships.
D)are generally unattractive to investors in the early years of ownership.

Question 22

Arthur and Alan decide to open a retail store and operate the business as a partnership.As they require some additional funds to get the business in operation,they ask Jayne whether she would like to invest some funds in the business and become a limited partner.Assuming that Jayne becomes and remains a limited partner,which of the following statements concerning her status is correct?

A)She may be involved in management of the business,but to a rather limited degree.
B)She will not be entitled to any share in the profits of the business.
C)She will have no personal liability for partnership debts,although she may lose the amount she invested in the business.
D)She may be considered an employee and therefore will be entitled to wages for the services she rendered to the partnership.

Question 23

If a business involves high risk,a single factor such as _____ will be so important as to outweigh other factors.

A)limited liability
B)taxation
C)formalities
D)financing

Question 24

Partnerships:

A)are not required to pay corporate franchise taxes.
B)need to pay privilege taxes to do intrastate business in another state.
C)are taxed on their operations at the same level as corporations.
D)cannot save income tax even if losses are anticipated in the early years of business.

Question 25

A "turnkey operation" refers to:

A)a franchise in which the franchisor builds and equips the place of business and leases it to the franchisee.
B)a limited liability partnership in which partners frequently rotate in and out.
C)a franchise operated by a person as his/her own personal property.
D)a franchise in which the franchisee carries out the advertisement campaigns.

Question 26

One of the major advantages of franchising for the franchisor is:

A)the absence of state or federal regulations governing this form of business conduct.
B)the ability to exert considerable control over the distribution of its products without owning the retail outlets.
C)the enhancement of competition among the retail outlets.
D)is the right to share a trade mark with the franchisee that is well known and/or highly advertised.

Question 27

"Piercing the corporate veil" implies that:

A)a corporation is held liable for money laundering.
B)corporate shareholders are stripped of their limited liability to prevent unfair results.
C)shareholders have no liability to prevent unfair results.
D)members will not be personally liable for the debts.

Question 28

In a(n)_____,shareholders directly report their share of the corporation's losses or earnings on their individual tax returns.

A)S corporation
B)general partnership
C)franchising
D)limited partnership

Question 29

Creating an LLP:

A)doesn't require the partners to file an LLP form with the state.
B)requires that partners maintain an adequate amount of professional liability insurance.
C)is relatively difficult to organize around an existing partnership.
D)necessitates that all existing partnerships be dissolved.

Question 30

A freeze-out:

A)occurs when a majority shareholder is "frozen out" by the management regarding such issues as a reduction or elimination of dividends.
B)can be easily reversed in court.
C)results in the minority shareholder having little influence in important corporate issues such as loss of employment.
D)occurs mostly in S Corporations.

Question 31

Which of the following is true for the dissolution of an LLC?

A)The remaining members cannot avoid liquidation even by unanimously agreeing to continue the business operations.
B)Dissolution can only be caused by bankruptcy.
C)The LLC must be set up so that it can be easily dissolved.
D)The act of dissolution terminates the LLC's business.

Question 32

Which of the following is true of an LLC?

A)It cannot sue or be sued in its own name.
B)Members of an LLC often share management power.
C)Members are personally liable for the wrongful acts of other members.
D)It cannot have more than 120 members.

Question 33

When it comes to tax liability,LLCs:

A)are required to file annual reports with the secretary of state.
B)are taxed as partnerships.
C)do not require partners to report their share of the LLC's profits on personal tax returns.
D)are taxed as corporations.

Question 34

In terms of an S corporation,which of the following requirements must be maintained so that the corporation does not lose its tax status?

A)There can be no more than 120 shareholders in an S corporation.
B)The shareholders must all be corporate shareholders or partnerships.
C)The losses and earnings are not to be reported on the shareholders' individual tax returns.
D)Shareholders must consent in writing to having the corporation taxed as a partnership.

Question 35

Which of the following is a taxable entity?

A)A corporation
B)A sole proprietorship
C)A partnership
D)An S Corporation

Question 36

The advantages of sole proprietorship and partnership taxation include:

A)The tax burden can be lessened if the shareholders are active in the operation of the business.
B)The tax burden experienced by shareholders can be reduced by keeping the dividend rate constant.
C)The owners can reduce their tax liability on their other income by the amount of they lose individually.
D)Exemption of privilege taxes for doing intrastate business in another state.

Question 37

A ______ provides the greatest ease of management.

A)close corporation
B)sole proprietorship
C)general partnership
D)limited partnership

Question 38

Smiley is heavily involved in the management of a certain business.If Smiley dies,under which of the following circumstances would the business entity be considered legally dissolved as a result of Smiley's death?

A)If the business is a corporation.
B)If the business is a partnership and Smiley is a partner in it.
C)If the business is either a partnership (and Smiley is a partner in it)or a close corporation.
D)If the business is a Subchapter S corporation.

Question 39

When a general partner sells his/her partnership interests,the purchaser:

A)is granted automatic partnership by operation of law.
B)does not become a partner until he/she is unanimously accepted by the other partners.
C)is granted partnership only after he divests all interests in other general partnerships.
D)does not become a partner until he is nominated by the director and unanimously accepted by other members.

Question 40

In the management of an LLP:

A)only some partners have a say in its management.
B)management decisions cannot be altered even by agreement.
C)new partners can join without the consent of the other partners.
D)new partners cannot join without the unanimous consent of all partners.

Question 41

What are the factors to be considered in the creation of an LLC?

Question 42

What are some of the strategies a corporation can employ to minimize taxation disadvantages?

Question 43

Which of the following is a franchisor problem?

A)Attempts to require franchisees to buy products exclusively from the franchisor may violate the Sherman Act.
B)Attempts to require adherence to prices set by the franchisor may violate the Sherman Act.
C)Cannot use insurance to cover risks due to torts committed by the franchisee.
D)The franchisee has to be made an employee of the franchisor.

Question 44

What are the advantages of franchising?

Question 45

List the factors one should consider in choosing a form of business organization.

Question 46

McDonald's runs its business through ____.

A)limited partnership
B)sole proprietorship
C)S corporation
D)franchising

Question 47

Attempts to require franchisees to buy products,equipment,and supplies exclusively from the franchisor may violate the prohibition in the ____.

A)Sherman Act
B)Franchising Act
C)Clayton Act
D)Federal Trade Commission Act

Question 48

Franchising:

A)can be conducted as a sole proprietorship or a corporation but not as a partnership.
B)typically involves a corporation as a franchisor.
C)does not include the risk of violating federal and state antitrust laws under any circumstances.
D)is not contractual.

Question 49

Explain the difference between a partnership and a limited partnership.

Question 50

The Federal Trade Commission:

A)requires franchisors to explain the termination,cancellation,and renewal provisions of the franchise contract.
B)requires franchisors to disclose the number of franchisees terminated in the last five years.
C)prohibits certain contract provisions and franchisee practices thought to be unfair to franchisors.
D)requires important restrictions on franchisees to be included in the agreement.