HM 203 Chapter 20 (review questions)

If partners wish to maintain having protection against personal liability, it is essential to comply with all the technicalities of a limited liability partnership statute.

a. True b. False

True

Corporations have perpetual existence.

a. True b. False

True

To be a close corporation, the business must be small, with no more than 20 owners, trade its stock publicly, and have no more than $500,000 in gross annual income.

a. True b. False

False

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

a. True b. False

False

A partnership is a taxable entity, separate from the partners.

a. True b. False

False

Corporations have a distinct advantage over other forms of business organization in the area of taxation.

a. True b. False

False

A limited liability company, unlike an S corporation, can have members that are corporations, partnerships, or nonresident aliens.

a. True b. False

True

Social enterprises are organizations that pledge to behave in a socially responsible manner, even as they pursue profits.

a. True b. False

True

To form an LLC, both a charter and an operating agreement must be filed with the secretary of state in the jurisdiction where the business will operate.

a. True b. False

Flase

For those wishing to purchase a franchise, the Federal Trade Commission acts as a guardian ensuring that the business idea is sound and that the information in the Franchise Disclosure Document is accurate.

a. True b. False

False

No formal steps are necessary to create a sole proprietorship.

a. True b. False

True

Debra wanted to form a partnership with Lawrence. He agreed and they became co-owners in an equal partnership. This year, after expenses, the partnership had a profit of $200,000. How will the taxation of this profit be handled?

a. The business will pay half of the tax liability, and Debra and Lawrence will pay the other half.

b. The business itself will pay the taxes on the business's profit.

c. Since the partnership was Debra's idea, she will pay income tax on the profit on her personal tax return.

d. Debra and Lawrence must both pay tax on the business's profit.

d. Debra and Lawrence must both pay tax on the business's profit.

All the business forms listed below have limited liability EXCEPT the

a. limited liability company.

b. corporation.

c. general partnership.

d. "S" corporation.

c. general partnership.

Which of the following statements regarding social enterprises is TRUE?

a. To become a socially conscious organization, one-half of the shareholders must approve.

b. The focus of social enterprises is the motto "reduce, reuse, recycle."

c. Social enterprises are essentially nonprofit organizations.

d. A social enterprise must agree to measure its social benefit using objective third party standards.

d. A social enterprise must agree to measure its social benefit using objective third party standards.

An organization that does not pay income tax on its profits but passes it through to its owners who pay the tax at their individual rates is called a

a. flow-through tax entity.

b. business corporation.

c. tax-free business venture.

d. professional corporation.

a. flow-through tax entity.

The Federal Trade Commission requires franchisors to

a. give prospective franchisees a franchise disclosure document at least 14 business days prior to the signing of a contract or payment of any money.

b. disclose any litigation the company has ever been involved in.

c. let prospective franchisees know how many franchisees have gone out of business in the prior five years.

d. give prospective franchisees earnings information on the company.

a. give prospective franchisees a franchise disclosure document at least 14 business days prior to the signing of a contract or payment of any money.

Which is an advantage of a sole proprietorship?

a. It is very easy to form.

b. It can offer multiple classes of stock.

c. It offers its owner limited liability.

d. It can attract a wide variety of shareholders.

a. It is very easy to form.

In many ways, a limited liability company can be thought of as a cross between

a. a corporation and a franchise.

b. a joint venture and a partnership.

c. a corporation and a sole proprietorship.

d. a sole proprietorship and a social enterprise.

c. a corporation and a sole proprietorship.

A court may pierce an LLC's veil if

a. the LLC has too many members.

b. members treat the LLC like a separate organization.

c. members fail to provide adequate capital.

d. members keep their assests and the assets of the LLC separate.

c. members fail to provide adequate capital.

All of the following are characteristics of a closely held corporation EXCEPT

a. the shareholders usually restrict share transfer.

b. the corporation can typically operate without a board of directors. c. the shares are publicly traded.

d. minority shareholders are provided more protection than in regular corporations

c. the shares are publicly traded.

Which is true of an S corporation?

a. A majority of shareholders must agree the company should be an S corporation.

b. There can be only one class of stock.

c. There can be no more than 50 shareholders.

d. All of these are correct.

b. There can be only one class of stock.

Jill owns a retail business by herself and was sued by a customer who fell in the store. The customer claimed the business was negligent in caring for its floors. Which statement best describes Jill's potential liability?

a. Jill can be held personally liable to the customer since she is the owner.

b. Jill can only be liable up to the amount she initially invested in the business.

c. Jill has no potential liability to the customer.

d. Jill cannot be held personally responsible; the woman's insurance must pay for the claim.

a. Jill can be held personally liable to the customer since she is the owner.

The form of business ownership that is the MOST easily transferable is the

a. corporation.

b. close corporation.

c. sole proprietorship.

d. general partnership.

a. corporation.

Most franchisors and franchisees are

a. partnerships.

b. social enterprises.

c. corporations or LLCs.

d. sole proprietorships.

c. corporations or LLCs.

What federal agency requires that the seller of a franchise give the potential buyer a Franchise Disclosure Document (FDD) and audited financial statements?

a. the Federal Trade Commission (FTC)

b. the Securities and Exchange Commission (SEC)

c. the Interstate Commerce Commission (ICC)

d. the Franchise Sales Commission (FSC)

a. the Federal Trade Commission (FTC)

Harold and Zack have pooled their money together to buy real estate but have filed no formal papers to form a business. Harold, a lawyer, handles all the legal matters and Zack, a real estate broker, finds buyers for the property they have subdivided. Harold and Zack are engaged in a

a. limited liability company.

b. partnership.

c. close corporation.

d. professional corporation.

b. partnership.

27. The phrase "piercing the company veil" applies to which type of organization?

a. a close corporation

b. an S corporation

c. a limited liability company

d. a general partnership

c. a limited liability company

Charles and Ellen, an unmarried couple, run an ice cream store. The business is not incorporated, and they have filed no formation papers with the state. Their business is a

a. partnership.

b. sole proprietorship.

c. limited liability company.

d. franchise.

a. partnership.

When a partner leaves the partnership, whether it be voluntary or by expulsion, death or bankruptcy, it is called

a. separation.

b. dissociation.

c. termination.

d. detachment.

b. dissociation.

Daniel, his parents, and three brothers own all the stock of their family farm corporation, and each person takes an active role in managing the enterprise. This corporation, which is taxed as a corporation, is most likely a(n)

a. S corporation.

b. proprietorship.

c. professional corporation.

d. close corporation.

d. close corporation.

A social enterprise must do all of the following EXCEPT

a. register with the state as a nonprofit organization.

b. measure its social benefit using a standard set by an objective third party.

c. state in its charter that it is a benefit corporation.

d. obtain approval of its charter from two-thirds of its shareholders.

a. register with the state as a nonprofit organization.

The term "S Corporation" comes from

a. the Securities and Exchange Commission.

b. the Internal Revenue Code.

c. state corporation law.

d. the FTC rules.

b. the Internal Revenue Code.

What constitutes a social enterprise's "triple bottom line"?

a. assets, liabilites, and revenue

b. social concerns, shareholders, and sales

c. employees, customers, and profits

d. people, planet, and profits

d. people, planet, and profits