Business Law Pretest Ch.19

question

In choosing a form of business organization for a new enterprise, important factors include the ease of creation.
answer

True
question

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

True
question

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

False
question

A sole proprietor must create a separate business organization to create a sole proprietorship.
answer

False
question

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

True
question

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

True
question

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

True
question

Each partner in a partnership has the right to inspect the partnership books and records.
answer

True
question

Partnership profits must be shared in the same proportion as the partners’ investment of capital in the firm.
answer

False
question

A sharing of profits and losses is the only requirement of a partnership.
answer

False
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A partner’s profit from a partnership is taxed as income to the firm.
answer

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

True
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A partner is entitled to make secret profits from the partnership’s business or the use of its property.
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False
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In a general partnership, the acts of one partner in the ordinary course of business can subject the other partners and the firm to liability.
answer

True
question

A third party cannot sue one of the partners of a partnership without suing all of the partners.
answer

False
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In a limited liability partnership, a partner can be exempt from personal liability for the malpractice of other partners.
answer

True
question

In a limited partnership, a limited partner is liable for all partnership debts.
answer

False
question

State limited liability company statutes are uniform.
answer

False
question

The members of a limited liability company enjoy limited liability.
answer

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

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

False
question

A limited liability company can be taxed as a corporation.
answer

True
question

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

True
question

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

False
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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

True
question

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

False
question

Joint venturers have the authority to enter into contracts that will bind the joint venture.
answer

True
question

A business trust resembles a corporation.
answer

True
question

A cooperative must be incorporated.
answer

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

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

False
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Some states require franchisors to provide presale disclosures to prospective franchisees.
answer

True
question

Normally, a franchisee determines the territory that it will serve.
answer

False
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The validity of a provision permitting the franchisor to establish and enforce certain quality standards is questionable.
answer

False
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In determining whether a franchisor acted in good faith in terminating a franchise relationship, a court would balance the rights of both parties.
answer

True
question

Cal sells “DownSize,” a weight-reduction program, from a Web site, in competition with Eat-Less Inc.’s product “Fit ‘n Trim.” Eat-Less files a suit against Cal, alleging in part that he is a sole proprietor, but his enterprise should be deemed a different form of business. Cal’s enterprise should most likely be considered a. a corporation because DownSize is sold online. b. a franchisee because DownSize is sold in competition to Fit ‘n Trim. c. a sole proprietorship because Cal is a sole proprietor. d. no form of business entity because Cal has no formal organization.
answer

c. a sole proprietorship because Cal is a sole proprietor.
question

Leigh wants to go into the business of construction contracting. Among the reasons that would probably convince Leigh to set up his business as a sole proprietorship would be a. its greater organizational flexibility. b. its limited liability. c. its perpetual existence. d. the ease of transferring the business to other family members.
answer

a. its greater organizational flexibility.
question

Phillipa is the sole proprietor of Incredible Floral Arrangements. As a sole proprietor, on Incredible’s profits, Phillipa a. does not pay income taxes. b. pays only personal income taxes. c. is taxed twice. d. pays both personal and sole proprietor income taxes.
answer

b. pays only personal income taxes.
question

Julia owns and operates Collectable Dolls without creating a separate business organization. She receives all the profits from the doll sales. Collectable Dolls is most likely a a. corporation. b. limited liability company. c. partnership. d. sole proprietorship.
answer

d. sole proprietorship.
question

Robert owns Textbooks Plus, a sole proprietorship that sells textbooks. When Robert dies, Textbooks Plus will a. be automatically dissolved. b. pass directly to his oldest child. c. pass directly to the state. d.be evenly divided among all Robert’s heirs.
answer

a. be automatically dissolved
question

Jody owns KuppaJava Kiosks, a sole proprietorship. Jody’s liability is a. limited by state statute and varies from state to state. b. limited to the extent of capital expenditures. c. limited to the extent of his or her original investment. d. unlimited.
answer

d. unlimited.
question

Ben, who runs a livestock breeding business, owes the Circle C Ranch $40,000. Ben agrees to pay the Circle C a percentage of his profits each month until the debt is paid. Because of this agreement, the Circle C is Ben’s a. partner. b. creditor. c. agent. d. joint venturer.
answer

b. creditor.
question

Will and Jay form Northwest Air Express, a general partnership. The essential elements of this partnership do not include a. a sharing of profits and losses. b. a joint ownership of the business. c. an equal right to management in the business. d. goodwill.
answer

d. goodwill.
question

Bo and Clancy decide to do business as Marketing & Promotion Services. To be a partnership, this association can result from an agreement that is a. express, but not from an agreement that is implied. b. implied, but not from an agreement that is express. c. express or implied. d. written, but not otherwise express or implied.
answer

c. express or implied.
question

Sweet Stuff is a general partnership that sells candy, cards, and flowers. Sweet Stuff has ten partners. Jill and Amy each have a 25 percent interest in the firm. The other partners each have a 10 percent interest. In management matters a. each partner has one equal vote. b. each partner votes in proportion to his or her interest. c. only the two partners with the largest interests have votes. d. only a partner charged with managing the firm has a vote.
answer

a. each partner has one equal vote.
question

Cody is a partner in Delta Accounting Service. Cody can inspect a. all of Delta’s books and records. b. Delta’s books and records only as the firm’s management permits. c. Delta’s books and records only for a reasonable purpose. d. Delta’s books and records relating to Cody’s capital contribution only.
answer

a. all of Delta’s books and records.
question

Mabel and Nicol do business as One World Realty. In acting on the firm’s behalf in a deal with Property Acquisition Company, Mabel fails to account for the profit. To her firm, Mabel is a. liable for breach of the duty of care. b. liable for breach of the duty of economic sense. c. liable for breach of the duty of loyalty. d. not liable.
answer

c. liable for breach of the duty of loyalty.
question

Hollister and Gladys do business as partners in Frothy Confections. For federal income tax purposes, Frothy Confections would be treated as a. a pass-through entity. b. a natural person. c. a tax-paying entity. d. a partnership by estoppel.
answer

a. a pass-through entity.
question

Newt is considering forms of business organization for Newton Design, an architectural firm. An advantage of a limited liability partnership is that partners can avoid personal liability for a. their own wrongful acts. b. only other partners’ malpractice. c. only partnership obligations that exceed capital contributions. d. only partnership obligations that fall within capital contributions
answer

b. only other partners’ malpractice.
question

Fern and Gray want to form a limited partnership to manage two restaurants, Café Latte and Deli Delite. In most states, a limited partnership will be created when a. a certificate of limited partnership is filed. b. a partnership agreement is executed. c. the business for which the firm is formed actually begins. d. the partners make their capital contributions.
answer

a. a certificate of limited partnership is filed.
question

Lucy is a limited partner in Metro Contractors, a limited partnership, which cannot pay its debts. Lucy is personally liable for the debts a. in proportion to the number of partners in the firm. b. to no extent. c. to the extent of her capital contribution. d. to the full extent.
answer

c. to the extent of her capital contribution.
question

Venture Capital, LP, is a limited partnership. Its limited partners include more than 150 sophisticated investors and investment professionals. A Venture limited partner loses his or her limited liability if he or she a. acts as the firm’s manager. b. does not participate in the firm’s management. c. invests in Unified Fund, one of Venture’s competitors. d. votes on the firm’s sale or dissolution.
answer

a. acts as the firm’s manager.
question

Dani is considering forms of business organization for her financial advisory firm. Like most states, Dani’s state requires that to form a limited liability company, she must file with a central state agency a. articles of certification. b. articles of formation. c. articles of organization. d. no specific documents.
answer

c. articles of organization.
question

Coco is considering forms of business organization for her concessions business?Coco’s Cupcakes. Most states require that a limited liability company have a. no minimum number of members. b. at least one member. c. at least two members. d. at least three members, including at least one general partner.
answer

b. at least one member.
question

Location! Realty LLC is a limited liability company. Like other LLCs, for federal jurisdictional purposes, Location! Realty is most likely a citizen of a. all states. b. every state in which its members are citizens. c. no state. d. only the state in which it was formed.
answer

b. every state in which its members are citizens.
question

Jordana is a member of Klondike Coffee, LLC, a limited liability company. Jordana is liable for Klondike’s debts a. in proportion to the total number of members. b. to the extent of her capital contribution. c. to the extent that the other members do not pay the debts. d. to the full extent.
answer

b. to the extent of her capital contribution.
question

Jumbo Jumpin’ Jelly Beans, LLC, is a limited liability company. Unless indicated otherwise on Jumbo’s federal tax form, the firm will be taxed as a. a cooperative. b. a corporation. c. a joint venture. d. a partnership.
answer

d. a partnership.
question

Homer’s Remodeling, LLC, is a limited liability company. Among the members, a dispute arises that their operating agreement does not cover. No statute applies. The dispute is most likely governed by the principles of a. corporate law. b. partnership law. c. sole proprietorship law. d. joint venture law.
answer

b. partnership law.
question

Kristal is a member of Laboratory CSI Services, LLC, a limited liability company. Kristal can participate in the firm’s management a. only to the extent that she assumes liability for the firm’s debts. b. only to the extent of her investment in the firm. c. to any extent. d. to no extent.
answer

c. to any extent.
question

Flip is a member of Great States Trucking LLC. Flip ceases to be associated with the carrying on of the firm’s business, but not in violation of the operating agreement. This is a. dissociation. b. dissolution. c. winding up. d. wrongful.
answer

a. dissociation.
question

Chocolate Sundry LLC’s members and managers are Devlin, Effie, and Flavia. After Devlin’s relationship to the firm ends, Effie and Flavia agree to discontinue the business. This is a. illegal. b. optional. c. required. d. wrongful.
answer

b. optional.
question

Peyton, Qiana, and River form a syndicate to buy a professional basketball franchise. This syndicate could be set up as a. a joint venture. b. a corporation. c. a sole proprietorship. d. a limited liability company.
answer

b. a corporation.
question

Exotic Stuff Company and First Pier, Inc., form a business organization to engage in importing and exporting. Its property is held in the names of the members and its shareholders have personal liability. This business organization is a. a business trust. b. a joint stock company. c. a joint venture. d. a syndicate.
answer

b. a joint stock company.
question

Jin, Karlo, and other consumers form Metro Purchasing Cooperative. This form of business organization makes it possible for these individuals to a. avoid personal liability for the acts of the cooperative. b. obtain an exemption from state laws governing corporations. c. pay no taxes on their business income. d. pool their resources to gain an advantage in the market.
answer

d. pool their resources to gain an advantage in the market.
question

Frooty Drinks, Inc., and Great Gulp Bottling Company have a processing-plant franchise arrangement. This involves the transfer of a. a license. b. a trade name. c. the formula to make a certain product. d. the ownership of the business.
answer

c. the formula to make a certain product.
question

CheezBurger Heaven, Inc., conducts a chain-style franchise. This involves the transfer to Clive, one of its franchisees, of a. a license. b. a trade name. c. the formula to make a product. d. the ownership of the business.
answer

b. a trade name.
question

Leo buys an exclusive territory in which he is authorized to set up a plant to make Midwest Dairy, Inc., products. After receiving the formula, Leo begins making Nice-brand ice cream and other Midwest products. This is a. a chain-style franchise. b. a distributorship franchise. c. a manufacturing franchise. d. no franchise.
answer

c. a manufacturing franchise.
question

Paradise Footwear buys a franchise from Reliant Athletic Shoes Inc. This relationship, like all other franchise relationships, is governed by a. contract law. b. no law. c. the Franchise Disclosure Document, or FDD. d. the rules of the National Collegiate Athletic Association.
answer

a. contract law.
question

Jumbo Juice Inc. offers entrepreneurs the opportunity to operate a franchise under the Jumbo Juice trade name. For any projected earnings figures Jumbo Juice provides to potential franchisees, the franchisor must have a. a hypothetical basis. b. a reasonable basis. c. an actual basis. d. no basis.
answer

b. a reasonable basis.
question

Pilar is interested in buying a franchise from Quixotic Travel & Tours Corporation. Quixotic must disclose material facts that Pilar needs to make an informed decision concerning this purchase, according to a. no law. b. the Petroleum Marketing Practices Act of 1979. c. the Federal Trade Commission’s Franchise Rule. d. the Uniform Commercial Code.
answer

c. the Federal Trade Commission’s Franchise Rule.

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