Question 1

The three key elements of any partnership are:

Accepted Answer

The three key elements of any partnership include common ownership in the business, sharing the business' profits or losses, and the right to participate in managing the business. Equal ownership is not a requirement, and partnerships do not inherently provide limited liability for all partners.

Question 2

Common ownership interest in a business,sharing profits (or losses)of a business,and the right to participate in managing the operations of the business are characteristics of a(n):

Accepted Answer

Common ownership interest and sharing of profits and losses are key features of a partnership, and partners also have a right to participate in managing the operations of the business. A corporation may have common ownership through shareholding, but not necessarily shared management or profits. A sole proprietorship involves a single owner and therefore does not have common ownership or shared management. An S-corporation is a specific type of corporation that has tax advantages, but it does not necessarily have shared management or profits.

Question 3

While a sole proprietorship gives the owner maximum flexibility in running the business,it also:

Accepted Answer

A sole proprietorship can create a sense of isolation because the owner is solely responsible for all decisions and operations, without partners or a board to consult.

Question 4

The key to choosing the "right" form of ownership is:

Accepted Answer

Understanding how each form of ownership affects both business and personal circumstances is the key to choosing the right form of ownership. It is important to consider factors such as liability, taxation, management control, and ease of formation. Consulting with a knowledgeable attorney or accountant can also be helpful in making this decision. The cost factor and inability to change the form of ownership later on are also important considerations, but they should not be the only determining factors.

Question 5

Sole proprietorships characteristically are:

Accepted Answer

Sole proprietorships are easy to discontinue because they do not have a separate legal entity from the owner, so ending the business only requires the owner to stop conducting business.

Question 6

The most popular form of business ownership is the:

Accepted Answer

Sole proprietorship is the most popular form of business ownership because it is the simplest and easiest to set up. It also provides complete control and ownership to the owner. However, the owner is personally liable for all business liabilities and debts.

Question 7

If a partnership is formed without an agreement,the partnership is automatically subject to the:

Accepted Answer

When a partnership is formed without an agreement, it is subject to the default rules of the Uniform Partnership Act (UPA), which governs the formation, operation, and dissolution of general partnerships. The UPA provides a set of default rules regarding the rights and duties of partners, the sharing of profits and losses, and other important partnership issues.

Question 8

A partnership is:

Accepted Answer

A partnership is not subject to double taxation because the profits and losses flow through to the partners' personal tax returns. This means that the partnership itself does not pay taxes on its income, but rather the partners pay taxes on their share of the partnership's income.

Question 9

The Uniform Partnership Act outlines a number of general obligations that partners have such as the obligation to:

Accepted Answer

The answer of The Uniform Partnership Act outlines a number...

Question 10

Partnerships have a number of advantages over other forms of ownership,such as:

Accepted Answer

Partnerships allow for a larger pool of capital since multiple partners can invest. Additionally, partnerships do not have as much government regulation as corporations. However, partnerships do not offer limited liability for all partners and can be more difficult to form than other ownership structures.

Question 11

Juan is starting a software writing company.He is the owner and has only 3 employees.He wants a simple inexpensive form of ownership that leaves him in control and that he can quickly dissolve if he decides to change to another business.His best choice of form of ownership would be:

Accepted Answer

A sole proprietorship would be the best option for Juan as it is a simple and inexpensive form of ownership. He would have complete control and could easily dissolve the business if he decided to change to another venture. As there are only three employees, a partnership or corporation may be too complex and costly to set up and maintain. An S-corporation also may not be the best choice as it involves more paperwork and formalities.

Question 12

Probably the most important feature of a partnership agreement is:

Accepted Answer

The most important feature of a partnership agreement is that it resolves potential sources of conflict. A partnership involves two or more individuals sharing responsibility and decision making for a business, which can lead to disagreements. A well-written partnership agreement can outline how to handle disputes, determine the roles and responsibilities of each partner, and establish a plan for the dissolution of the partnership if necessary. While the other options are important, they are not the most crucial aspect of a partnership agreement.

Question 13

The most critical disadvantage of the sole proprietorship is:

Accepted Answer

The lack of legal structure in a sole proprietorship means that the owner has unlimited personal liability for business debts and obligations. This means that personal assets of the owner, such as their home and savings, could be used to pay off business debts if the business is unable to do so. This is a significant disadvantage for the owner and could result in financial devastation if the business fails.

Question 14

Which form of ownership generally has the least ability to accumulate capital?

Accepted Answer

Sole proprietorships have the least ability to accumulate capital due to the limited options for funding, such as personal savings, loans, and credit. Partnerships and corporations have more opportunities to obtain capital by issuing stocks or taking on investors. S-corporations also have the option to issue stocks, although they are limited in the number of shareholders they can have.

Question 15

When choosing a form of ownership,the entrepreneur should realize that:

Accepted Answer

The form of ownership may change as a company evolves, growing in size and revenue, to accommodate new needs, access different funding options, or provide a better legal or tax structure. This is a common practice as businesses scale and their objectives shift.

Question 16

Antonio is a limited partner and is neither active nor generally openly associated with the firm.He is the ________ partner.

Accepted Answer

A dormant partner is one who is not active in the business and is not publicly known as a partner, similar to Antonio's situation.

Question 17

A partnership agreement sets how the partners will be compensated.Normally:

Accepted Answer

Partners in a partnership are typically compensated by a share of the profits of the business, rather than a salary or wage. This is the most common arrangement outlined in a partnership agreement.

Question 18

All partnerships must have:

Accepted Answer

All partnerships must have at least one general partner who has unlimited liability and is actively involved in the management of the partnership. While there may be limited partners, dormant partners, or silent/money partners in a partnership, they are not mandatory for a partnership to exist.

Question 19

In her partnership,Ana has unlimited liability for the partnership's debts.She would be the ________ partner.

Accepted Answer

Ana would be considered the general partner because she has unlimited liability for the partnership's debts. Limited partners have limited liability and are not responsible for the partnership's debts beyond their investment. Dormant partners are inactive partners who do not participate in the management of the partnership. Nominal partners are also known as ostensible partners and have no actual involvement in the partnership, but their name is used to give the appearance of an additional partner.

Question 20

Which of the following is true about the content of a standard partnership agreement?

Accepted Answer

A standard partnership agreement usually includes provisions about how the partnership may be dissolved and how assets will be divided among the partners in the event of dissolution. Options A, B, and D are incorrect. Option A is incorrect because a standard partnership agreement does specify how profits and losses will be distributed. Option B is incorrect because the Certificate of Incorporation is a document that is only relevant for corporations, not partnerships. Option D is incorrect because a standard partnership agreement typically identifies the partners and their addresses.

Quiz 5: Choosing a Form of Ownership