Question 1

When a sole proprietor uses an assumed name, some states require that a notice of intent to transact business under an assumed name be published.

Accepted Answer

Many states require sole proprietors to file a "doing business as" (DBA) notice or a similar notice of intent to use an assumed name in a local newspaper for a certain period of time to inform the public of the owner's intent to operate under a name different from the legal business name.

Question 2

Paralegals who are assisting in providing services to a sole proprietorship should not

Accepted Answer

Paralegals are not authorized to provide legal advice, which includes advising on the income tax consequences of doing business in any form. This is considered the practice of law and is reserved for licensed attorneys. Assisting with form preparation and filing applications for certificates or identification numbers falls within the scope of tasks that paralegals can perform under the supervision of an attorney.

Question 3

The sole proprietorship is dissolved by filing a certificate of dissolution with the secretary of state.

Accepted Answer

A sole proprietorship does not require filing a certificate of dissolution with the secretary of state to be dissolved because it is not a registered entity like a corporation or LLC. Dissolution typically involves simply ceasing operations and settling any debts.

Question 4

A certificate of assumed name is filed to

Accepted Answer

A certificate of assumed name is filed to notify the public of your intent to conduct business under a name different from your legal name, often required for sole proprietorships or partnerships using a trade name.

Question 5

When hiring an employee, the sole proprietor must

Accepted Answer

A sole proprietor must obtain a federal employer identification number (EIN) when hiring an employee to comply with tax reporting requirements. This number is used to identify the business for tax purposes and is necessary for reporting taxes and other documents to the IRS. Options A, B, and D are not specifically related to the process of hiring an employee.

Question 6

The application for employer identification number must be filed with the

Accepted Answer

The application for an Employer Identification Number (EIN) must be filed with the Internal Revenue Service (IRS), as it is a federal tax identification number used to identify a business entity.

Question 7

A sole proprietorship certificate must be obtained from the secretary of state's office before a sole proprietor can begin transacting business.

Accepted Answer

A sole proprietorship does not typically require a formal certificate from the secretary of state's office to begin operations, unlike corporations or limited liability companies. However, they may need to register a fictitious name or obtain specific licenses and permits depending on local regulations.

Question 8

The sole proprietor's liability for the actions of his or her employee is best described as which of the following:

Accepted Answer

A sole proprietor is responsible for the actions taken by an employee while the employee is acting within the scope of their employment. This is known as vicarious liability. Therefore, both the sole proprietor and the employee may be held liable for torts committed by the employee in the course of business, making both B and C correct.

Question 9

The number of sole proprietorships in the United States is

Accepted Answer

Sole proprietorships are the most common business structure in the United States, outnumbering corporations due to their simplicity and ease of setup, with no formal paperwork required in most cases.

Question 10

The income of sole proprietorships in the United States is

Accepted Answer

The income of sole proprietorships in the United States is typically less than the income of corporations. Corporations, due to their ability to raise capital, scale, and access various markets, generally generate more income than sole proprietorships, which are usually smaller and have limited resources.

Question 11

Advantages to transacting business as a sole proprietorship include

Accepted Answer

Sole proprietorships are favored for their simplicity and low cost of initiation. Unlike corporations, they do not suffer from double taxation, and the sole proprietor is fully responsible for all debts and legal actions against the business, contrary to options A, B, and D.

Question 12

Disadvantages to transacting business as a sole proprietorship include

Accepted Answer

Sole proprietorships do not face double taxation or costly filing fees for formation, and they are not limited in duration by state law. However, a significant disadvantage is the personal liability the owner faces for debts and obligations of the business.

Question 13

A sole proprietorship is considered to be

Accepted Answer

A sole proprietorship is legally considered an extension of the individual owner, meaning there is no legal distinction between the owner and the business.

Question 14

The rules of ethics that apply to attorneys may apply to the paralegals who work for them.

Accepted Answer

Paralegals, while not attorneys themselves, work under the supervision of attorneys who are responsible for ensuring their conduct complies with the applicable rules of professional responsibility and ethics.

Question 15

A sole proprietor may hire any number of employees.

Accepted Answer

A sole proprietorship can hire employees as needed; there is no limit to the number of employees they can have.

Question 16

A sole proprietor may delegate management and decisions concerning the business to agents and employees.

Accepted Answer

A sole proprietor can delegate management tasks and decision-making responsibilities to agents and employees, although the sole proprietor retains ultimate legal responsibility for the business.

Question 17

Sole proprietors can attract new employees by offering shares of their business as compensation.

Accepted Answer

Sole proprietorships are owned by a single individual, and there is no division of ownership into shares, so they cannot offer shares of the business as compensation.

Question 18

Sole proprietorships are created and governed by state statute.

Accepted Answer

Sole proprietorships are not created by state statute; they are the simplest form of business owned by one person and do not require formal establishment through state statutes or regulations.

Question 19

A sole proprietor may transfer his or her business to another individual by selling all of his or her shares of stock to that individual.

Accepted Answer

A sole proprietorship does not issue shares of stock; ownership can be transferred through the sale of the business's assets and the transfer of the business name, if applicable.

Quiz 2: Sole Proprietorships