Question 1

Publicly offered partnership interests:

Accepted Answer

Publicly offered partnership interests generally are designed to serve as tax shelters for the original purchasers during the early years of ownership and are generally unattractive to investors during their later years.

Question 2

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?

Accepted Answer

Limited partners who do not participate in management and shareholders in a corporation may lose their investment if the business fails.However,they have no further liability to creditors of the business or to victims of torts that are attributable to the business.

Question 3

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

Accepted Answer

It is possible that a single factor such as limited liability will be so important as to outweigh other factors.However,if the business involves little risk or the owners have few other assets,this factor should be given little weight.

Question 4

Partnerships:

Accepted Answer

Partnerships and individual proprietorships are not required to pay corporate franchise taxes.

Question 5

A "turnkey operation" refers to:

Accepted Answer

From the franchisee's standpoint,especially if he or she has had little or no experience in the business being franchised,the most important services of the franchisor are likely to be advertising,training in the business,and advice after the business is under way.Some franchisors also assist with financing.They may build and equip the place of business and lease it to the franchisee-a so-called turnkey operation.

Question 6

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

Accepted Answer

Through franchising,the franchisor can gain considerable control over the distribution of its products or services without owning the retail outlets.By carefully controlling the number and location of outlets,the franchisor can reduce competition among them and perhaps encourage them not to carry competitive products.

Question 7

"Piercing the corporate veil" implies that:

Accepted Answer

Sometimes courts strip corporate shareholders of their limited liability to prevent unfair results.This concept is known as "piercing the corporate veil."

Question 8

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

Accepted Answer

S corporations,or Subchapter S corporations,represent an important variation that should be considered by certain closely held corporations.They are taxed very much like a partnership in that no corporate tax is paid.Instead,shareholders directly report their share of the corporation's losses or earnings on their individual tax returns.

Question 9

Creating an LLP:

Accepted Answer

LLPs are relatively easy to organize around an existing partnership.The partners need merely file an LLP form with the state and then maintain an adequate amount of professional liability insurance.

Question 10

A freeze-out:

Accepted Answer

A minority shareholder in a close corporation has little power and,thus,may be "frozen out" (left out of important opportunities)by the majority regarding such issues as a reduction or elimination of dividends as well as a loss of employment.

Question 11

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

Accepted Answer

States frequently require limited liability companies to have a stated duration (generally no more than 30 years).Further,the LLC must be set up so that it can be easily dissolved.Otherwise it will not qualify for the single tax treatment available to partnerships under the federal tax laws.Thus,dissolution generally is caused by the death,retirement,bankruptcy,or dissolution of any member.However,the mere act of dissolution does not necessarily terminate the LLC's business.The remaining members may avoid liquidation by unanimously agreeing to continue the business operations.

Question 12

Which of the following is true of an LLC?

Accepted Answer

Unlike limited partnerships,all of the investors in an LLC are able to share in management and,unlike S corporations,there are no restrictions on the number of members an LLC can have.

Question 13

When it comes to tax liability,LLCs:

Accepted Answer

All 50 states have statutes that permit businesses to operate limited liability companies (LLCs).These statutes grant LLCs the taxation benefits of partnerships and the limited liability advantages of corporations.

Question 14

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

Accepted Answer

Several requirements must be maintained or the Subchapter S corporation loses its tax status.One of them is that shareholders must consent in writing to having the corporation taxed as a partnership.

Question 15

Which of the following is a taxable entity?

Accepted Answer

A corporation is a taxable entity.On the other hand,a partnership and a sole proprietorship are not treated as taxable entities.S corporations are also taxed very much like a partnership in that no corporate tax is paid.

Question 16

The advantages of sole proprietorship and partnership taxation include:

Accepted Answer

Partnerships and individual proprietorships are not required to pay corporate franchise taxes.Also,they do not need to pay privilege taxes to do intrastate business in another state.

Question 17

A ______ provides the greatest ease of management.

Accepted Answer

A sole proprietorship provides the greatest ease of management.There,the proprietor is free,within the limits of the law,to unilaterally determine the destiny of the organization.

Question 18

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?

Accepted Answer

The business of a partnership may be continued when a partner dies,becomes insolvent,or wishes to retire.Nevertheless,the law treats the partnership as dissolved.

Question 19

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

Accepted Answer

General partners can sell their partnership interests but the purchaser does not become a partner unless he or she is accepted unanimously by the other general partners into what is essentially a new partnership.

Question 20

In the management of an LLP:

Accepted Answer

As with general partnerships,all of the partners in an LLP have equal say in its management.Of course,this can be altered by agreement.New partners cannot join the LLP without the unanimous consent of the current partners.

Quiz 26: Which Form of Business Organization