question

A sole proprietor owns the entire business but doe not receive all of the profit.

answer

F

question

In choosing a form of business organization for a new enterprise, important factors include the liability of the owner.

answer

T

question

The parties to a franchise arrangement may be two corporations.

answer

T

question

A sole proprietor has unlimited liability for all obligations that arise in doing business.

answer

T

question

In raising capital, a sole proprietor is limited to his or her personal funds—a personal loan is not possible.

answer

F

question

The laws governing franchising are primarily designed to protect franchisors from dishonest franchisees.

answer

F

question

Franchisors are not required to disclose certain material facts to prospective franchisees.

answer

F

question

A franchisor may retain stringent control over the training of personnel involved the operation of a franchise.

answer

T

question

A franchisor can set the retail prices for the goods that a franchisee sells.

answer

F

question

Most franchise agreements provide that notice of termination of a franchise is not necessary.

answer

F

question

Good faith and fair dealing are important in terminating a franchise relationship.

answer

T

question

For most purposes, most states treat a partnership as an aggregate of its members.

answer

F

question

Joint ownership of property does not in and of itself create a partnership.

answer

T

question

A partnership agreement can include almost any terms that the partners wish.

answer

T

question

The majority rule controls decisions on ordinary matters connected with partnership business.

answer

T

question

Property acquired by the partnership is the property of the partners individually.

answer

F

question

A partner is entitled to make secret profits or put self-interest before his or her duty to the interest of the partnership.

answer

F

question

In a general partnership, the acts of one partner in the ordinary course of business subjects the other partners to personal liability.

answer

T

question

A partnership ends if one partner dissociates from the firm.

answer

F

question

If a partnership's liabilities are greater than its assets, the partners bear the losses.

answer

T

question

Ewa, the owner of First-Rate Bild-It, is a sole proprietor. What are the chief characteristics, advantages, and disadvantages of this form of business organization? Ewa wants to obtain additional capital to expand First-Rate, but she does not want to lose control of the firm. As a sole proprietor, what is her best option to attain these goals?

answer

A sole proprietorship is the simplest form of business organization. In a sole proprietorship, the owner and the business are the same. Anyone who creates a business without designating a specific form for its organization is doing business as a sole proprietorship. An advantage of the sole proprietorship is its greater organizational flexibility over other forms of business organization. The owner makes all of the decisions and can operate the enterprise without any formalities. A significant disadvantage of this form of organization, however, is that unlike most other forms of business organization, there are no limits on the li¬ability of the owner for the debts and obligations of the firm. Another dis¬advantage of the sole proprietorship form of doing business is indicated by Ewa's dilemma in this question. The ability of a sole proprietor to raise capital while maintaining control, and retaining the same form, is limited chiefly to borrowing funds. Bringing in partners would convert the business to a partnership. Issuing stock would require incorporating or establishing another form of business. Selling the business would sacrifice all control. The only way to obtain additional business capital without accumulating it through business profit is by borrowing funds. PAGES: 380-381

question

Irwin was the manager of Highlights Grill, a sports bar and restaurant. Irwin opened a bank account in Highlights's name, signing the account signature card as "owner." Jody, who was often at Highlights and had free access to its office, told others that she was "an owner" and "a partner." She also opened a bank account in Highlights's name, and signed the account signature card as "owner." Irwin told Kelton, the owner of Natural Cheeses, Inc., that Jody was a member of a partnership that owned Highlights. On this basis, Natural Cheeses delivered its goods to Highlights on credit. In fact, Highlights was owned by a corporation. When the unpaid account totaled more than $10,000, Natural Cheeses filed a suit against Jody to collect. On what basis might Jody be liable for the debt?

answer

The theory under which Jody would most likely be liable for Highlights's debt to Natural Cheeses is partnership by estoppel. The first requirement of this theory is a representa¬tion, by a nonpartner or by another with the nonpartner's consent, that the nonpartner is a partner. The second requirement is reliance on that representation. In this case, Natural Cheeses could prove both elements. Both Irwin and Jody made representations with respect to Jody's status in relation to Highlights—they both signed bank cards as "owner," Jody was often at Highlights and had free access to its office, Jody told others that she was a "partner" in the business, which is what Irwin also told Kelton. As for the reliance element, Natural Cheeses extended credit to Highlights only because Natural Cheeses believed that Highlights was owned by a partnership.

question

Limited liability companies (LLCs) are governed by a federal LLC statute.

answer

F

question

The owners of a limited liability company enjoy limited liability.

answer

T

question

A limited liability company can sue or be sued, enter into contracts, and hold title to property.

answer

T

question

A limited liability company is a citizen of every state in which it does business.

answer

F

question

The members of a limited liability company (LLC) are personally liable for the wrongful acts or omissions of the LLC.

answer

F

question

For federal income tax purposes, one-member limited liability companies are automatically taxed as sole proprietorships.

answer

T

question

Most states apply their limited liability company (LLC) statutes to an LLC formed in another state.

answer

F

question

If there is no limited liability company (LLC) agreement covering a topic under dispute, the state LLC statute will govern the outcome.

answer

T

question

A limited liability company must be managed by its members.

answer

F

question

Most limited liability company statutes specify how members' voting rights must be apportioned.

answer

F

question

A member of a limited liability company (LLC) has the power and the right to dissociate from the LLC at any time.

answer

F

question

Generally, a dissociated member of a limited liability company (LLC) has the right to have his or her interest in the LLC bought out by the other members.

answer

T

question

When a limited liability company is dissolved, any member who did not wrongfully dissociate may participate in the winding up process.

answer

T

question

State law governs the formation of a limited partnership.

answer

T

question

A limited liability partnership may exempt its partners from personal liability for any partnership obligation.

answer

T

question

In a limited partnership, a general partner has full responsibility for the partnership and for all its debts.

answer

T

question

In a limited partnership, limited partners have essentially the same right as general partners to participate in management.

answer

F

question

In a limited partnership, a general partner's dissociation from the firm may lead to dissolution.

answer

T

question

Some states have passed laws prohibiting the withdrawal of general partners from a limited partnership.

answer

T

question

In a limited liability limited partnership, the liability of a general part¬ner is the same as the liability of a limited partner.

answer

T

question

Jack and Keri want to form Local Motion, LLC, a limited liability company, to offer metro delivery and transport services. With respect to the management of Local Motion, what are the members' options?

answer

The members of a limited liability company (LLC) can appoint a group that does not include any of the LLC's members to run the firm. In that case, it would be a manager-managed LLC. A group may be appointed to include only members, in which case the firm would be a member-managed LLC. In fact, unless the members agree otherwise, all members are considered to participate in the management of the firm. Another choice is to designate members and nonmembers.

question

Ron is a limited partner, and Steve is a general partner of Total Financial Management, a limited partnership. Steve manages the firm. Ron has some expertise in the area and believes that he could do a better job than Steve at managing, but he abstains from becoming actively involved. Why might he choose to keep away from management activities?

answer

There is no law that expressly bars the participation of limited partners in the management of a limited partnership. Limited partners are, however, normally exempt from personal liability for partnership debts, torts, breaches of contract, and breaches of trust. This exemption rests primarily on the limited partner's not participating in the management of the partnership. Thus, it is the threat of personal liability that deters their participation.

question

When a corporation earns profits, it must distribute them to shareholders.

answer

F

question

A corporation is referred to as a domestic corporation by its home state.

answer

T

question

A publicly held corporation is a private corporation.

answer

T

question

An S corporation is treated the same as a regular corporation for tax purposes

answer

F

question

The first step in the incorporation process is to select a state in which to operate.

answer

T

question

The primary document needed to incorporate a business is the articles of incorporation.

answer

T

question

A new corporation's name can be deceptively similar to, but not the same, as the name of an existing corporation doing business within the state.

answer

F

question

Implied powers of a corporation are expressed in state statutes.

answer

F

question

Express powers of a corporation are found in its articles of incorporation.

answer

T

question

When the corporate privilege is abused for personal benefit, the courts will require the owners to assume personal liability.

answer

T

question

Many states permit a corporate board to have fewer than three directors.

answer

T

question

In most states, one individual cannot be both an officer and a director.

answer

F

question

The board of directors normally can remove a corporate officer at any time with or without cause.

answer

T

question

A director or officer is not liable to the corporation for a bad business decision.

answer

T

question

Directors are entitled to use confidential corporate information for their personal advantage.

answer

F

question

A director does not need to disclose any conflict of interest before voting on a proposed transaction.

answer

F

question

Shareholders must approve fundamental changes affecting the corpora¬tion before the changes can be implemented.

answer

T

question

A shareholder's right to inspect corporate books and records is unlimited.

answer

F

question

Before shareholders can bring a derivative suit, they must submit a written demand to the corporation, asking the board of directors to take action.

answer

T

question

In certain instances of fraud, a court may "pierce the corporate veil" to hold the shareholders individually liable.

answer

T

question

The simplest form of business is a sole proprietorship.

answer

T

question

A franchise contract may use only one type of business organiza¬tion—the sole proprietorship.

answer

F

question

A franchise is a contractual arrangement.

answer

T

question

A sole proprietorship lacks continuity on the death of the proprietor.

answer

T

question

In a sole proprietorship, the proprietor shares the burden of any losses or liabilities incurred by the business enterprise with the government.

answer

F

question

Laws governing franchising are designed in part to prevent franchisors from terminating franchises without good cause.

answer

T

question

Some states require franchisors to provide presale disclosures to pro¬spective franchisees.

answer

T

question

Typically, the franchisee determines the territory to be served by the franchise.

answer

F

question

A franchisor can require a franchisee to purchase certain supplies from the franchisor at an established price.

answer

T

question

The duration of a franchise is a matter to be determined between the parties.

answer

T

question

Normally, a franchisee receives a windfall on the termination of a franchise.

answer

F

question

Good faith and fair dealing are not important in terminating a franchise relationship.

answer

F

question

Withdrawal from a partnership for a term prematurely does not consti¬tute a breach of the partnership agreement.

answer

F

question

In a general partnership, all partners have equal rights in managing the partnership.

answer

T

question

A partner owes to the partnership and the other partners a duty of loyalty.

answer

T

question

A partner who pursues his or her own interests automatically violates the partner's fiduciary duties to the partnership.

answer

F

question

In a general partnership, the partners are personally liable for the debts of the partnership.

answer

T

question

A partner always has the power and the right to dissociate from the partnership.

answer

F

question

On a partner's dissociation, his or her duty of loyalty to the partnership ends.

answer

T

question

Any event that makes its unlawful for a partnership to continue its business will result in dissolution.

answer

T

question

A limited liability company can be taxed as a partnership.

answer

T

question

A limited liability company (LLC) formed in one state but doing business in another state is referred to in the second state as a foreign LLC.

answer

T

question

A limited liability company is not a citizen of any state.

answer

F

question

A limited liability company as an entity is not liable for the wrongful acts or omissions of its members.

answer

F

question

The liability of the members of a limited liability company is limited to the amount of their investments.

answer

T

question

A limited liability company that has only one member cannot be taxed.

answer

F

question

In many states, an operating agreement is not required for a limited liability company to exist.

answer

T

question

A limited liability company must be managed by non-member managers.

answer

F

question

Normally, a dissociated member of an limited liability company (LLC) has the right to force the LLC to dissolve.

answer

F

question

When a member dissociates form a limited liability company, the member's duty of loyalty continues.

answer

F

question

A limited liability partnership allows its partners to avoid personal liability for the malpractice of other partners.

answer

T

question

In a limited partnership, a limited partner has full responsibility for the partnership and for all its debts.

answer

F

question

A limited partner who gives a general partner ad¬vice on matters relating to the management of the partnership cannot be liable as a general partner.

answer

F

question

Only a limited partnership's limited partners have a fiduciary obligation to the other partners.

answer

F

question

In a limited partnership, with the exception of the right to participate in management, limited partners have essentially the same rights as general partners.

answer

T

question

Some states have passed laws prohibiting the withdrawal of limited partners from a limited partnership.

answer

T

question

An assignment of the interest of a limited partner dissolves a limited partnership.

answer

F

question

A general partner has the power to dissociate from a limited partnership regardless of what the partnership agreement specifies.

answer

F

question

In a limited liability limited partnership, the liability of a general partner is limited to the amount of capital he or she has invested in the partnership.

answer

T

question

A corporation is a legal entity created and recognized by federal law.

answer

F

question

Corporate profits can be subject to double taxation.

answer

T

question

A holding company is a company whose business activity consists of holding shares in another company.

answer

T

question

A corporation cannot be held liable for the criminal acts of its employees.

answer

F

question

A corporation formed in another country but doing business in the United States is referred to in the United States as an alien corporation.

answer

T

question

An agreement between shareholders to restrict the transfer of a closely held corporation's stock is illegal.

answer

F

question

For liability purposes, some courts treat professional corporations somewhat like a partnership.

answer

T

question

The articles of incorporation serve as a primary source of authority for a corporation.

answer

T

question

Each incorporator must have an interest in the corporation.

answer

F

question

To pierce the corporate veil means to ignore the corporate structure, exposing the shareholders to personal liability.

answer

T

question

Shareholders are the ultimate authority in every corporation.

answer

F

question

Many qualifications are required for directors.

answer

F

question

Directors have a right to participate in all board of directors' meetings.

answer

T

question

Officers hire the directors and other executive employees.

answer

F

question

Directors are not obligated to refrain from self-dealing.

answer

F

question

A director must make a full disclosure of any potential conflict of interest that might arise in any corporate transaction.

answer

T

question

Shareholders' meetings need not occur at any certain interval.

answer

F

question

Every shareholder is entitled to examine specified corporate records.

answer

T

question

When a third party harms a corporation, only the shareholders can bring a suit in the corporation's name against that party.

answer

F

question

Shareholders are personally liable for the debts of a corporation.

answer

F

question

Heather applied for a promotion, but her manager promoted a co-worker because the manager knew Heather was seven months pregnant. The manager did not want to promote someone who would probably be taking time off of work for childbirth and child care. The manager has acted legally to protect the company's interests.

answer

F

question

It is currently legal for a private employer to use lie detector tests as part of its usual hiring process.

answer

F

question

Some courts have held that employee handbooks create binding contract terms.

answer

T

question

Whistleblowers are employees who disclose illegal behavior on the part of their employers.

answer

T

question

If an employee is an employee at will, the traditional rule was the employer could fire the employee for a good reason, a bad reason, or no reason at all.

answer

T

question

Rob agrees to act as an agent for Diane in selling her car. Diane has a duty of loyalty to Rob.

answer

F

question

Jolene hired Lacy to find a buyer for her house. Adam was interested in buying the house. If both Jolene and Adam agree, Lacy, a real estate agent, may represent both parties.

answer

T

question

Victoria is the director of marketing for Big Corporation. Victoria needed to negotiate an out-of-town contract on behalf of Big. Big has a legal duty to reimburse Victoria for the hotel expenses she incurs negotiating the contract.

answer

T

question

Kaiya is a sales representative of TriColor. Kaiya owes a fiduciary duty to TriColor.

answer

T

question

It does not create an agency relationship between Minott Mills and Douthett Co. for Minott Mills to contract to sell 500 yards of fabric to Douthett Co.

answer

T

question

Esday, Inc. hired Mark to be a financial analyst. Because of the equal dignities rule, the employment contract between Esday and Mark must be in writing.

answer

F

question

If ambiguity is present as to the principal's intent, the court will look to the principal's subjective intent.

answer

F

question

If someone acts without authority, a "principal" can decide later to be bound by the actions as long as the "agent" indicates to the third party that he is acting for a principal, the "principal" knows all the material facts of the transaction, and the "principal" accepts the benefit of at least part of the transaction.

answer

F

question

Erica's supervisor told her to arrange for a conference room at the Kelly Inn. Erica has express authority to contract for the room.

answer

T

question

An employer is generally liable for the intentional wrongful acts of his or her employees.

answer

F

question

If estoppel applies, the principal would be prevented from asserting that no agency relationship existed.

answer

T

question

Maylin has the authority to delegate her tasks as agent for Brian unless he has expressly restricted her from doing so.

answer

F

question

Corporations have perpetual existence.

answer

T

question

The most common form of business ownership is the corporation.

answer

F

question

A partnership is a separate, taxable entity.

answer

F

question

Limited liability is a major advantage of a partnership as compared to a corporation.

answer

F

question

Generally, a joint venture is a partnership created for one limited purpose.

answer

T

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