Ch 17 Blaw

21. A limited liability company is a citizen only of the state in which it was formed. a. True b. False

ANSWER: False

3. In a sole proprietorship, the proprietor bears the burden of any liabilities incurred by the business enterprise. a. True b. False

ANSWER: True

6. Limited legal liability can be an advantage for a small business wishing to raise capital. a. True b. False

ANSWER: True

43. Bhat and Cho do business as Day Glow Paints, a partnership. In most states, for the purposes of collecting judgments and having accounting performed, this firm would be treated as a. a combination of individuals. b. a proprietorship. c. an independent entity. d. an aggregate.

ANSWER: c

11. Only a managing partner has the right to full and complete information concerning the conduct of all aspects of partnership business. a. True b. False

ANSWER: False

27. The member of a limited liability company has the power to dissociate from the firm at any time, but may not have the right. a. True b. False

ANSWER: True

37. Without creating a separate business organization, Rey starts up Street Cruisers, a pre-owned auto sales enterprise. This enterprise is a. none of the choices. b. a corporation. c. a franchisee. d. a sole proprietorship.

ANSWER: d

40. Maeve sells New Energy, a sole proprietorship that makes and sells solar panels, to Omar. This is a. the establishment of a franchise. b. the creation of a partnership. c. none of the choices—a sole proprietorship cannot be sold. d. a transfer of the ownership of the business.

ANSWER: d

60. A limited liability company that wants to distribute profits to its members could avoid "double taxation" by electing to be taxed as a. a person. b. a corporation. c. a sole proprietorship. d. a partnership.

ANSWER: d

13. In most states, in a dispute on a partnership matter, a third party cannot sue an individual partner but must file an action against the entire firm. a. True b. False

ANSWER: False

14. A partner can be held liable for a partnership obligation only if he or she participated in, or knew about, whatever it was that gave rise to the obligation. a. True b. False

ANSWER: False

18. In a limited partnership, every partner has full responsibility for the management of the partnership. a. True b. False

ANSWER: False

19. In a limited partnership, a general partner assumes no liability for partnership debts beyond the amount of capital contributed. a. True b. False

ANSWER: False

22. Unlike a sole proprietorship or a partnership, a limited liability company cannot be held liable for a loss caused by the wrongful acts of its members. a. True b. False

ANSWER: False

23. Like a sole proprietorship or a partnership, the members of a limited liability company have unlimited liability for the firm's debts. a. True b. False

ANSWER: False

29. The Franchise Rule requires a franchisor to provide potential earnings figures to its prospective franchisees. a. True b. False

ANSWER: False

32. Because each type of franchise relationship is similar, franchise contracts tend to be similar. a. True b. False

ANSWER: False

34. A franchisor does not have good cause to terminate a franchise for a franchisee's failure to meet specified sales quotas. a. True b. False

ANSWER: False

4. Any person who does business must create a separate business organization. a. True b. False

ANSWER: False

5. When the owner of a sole proprietorship dies, the business does not dissolve—it is automatically transferred to family members or other heirs. a. True b. False

ANSWER: False

8. Among three partners, unless they agree otherwise, unanimous consent is required to manage the business of the partnership. a. True b. False

ANSWER: False

9. Generally, the law recognizes a partnership as an independent entity. a. True b. False

ANSWER: False

1. Choosing a business organizational form that limits its owners' liability may lead to greater profits for the firm. a. True b. False

ANSWER: True

10. A partner who withdraws from a partnership for a term before its expiration date can be held liable for any resulting losses. a. True b. False

ANSWER: True

12. Every act of a partner concerning partnership business binds the firm. a. True b. False

ANSWER: True

15. Dissociation terminates some of the rights of the dissociated partner, requires the firm to buy his or her interest, and alters the parties' liability to third parties. a. True b. False

ANSWER: True

16. To eliminate costly negotiations or litigation, partners may agree on how the firm's assets will be valued or divided if the partnership dissolves. a. True b. False

ANSWER: True

17. A limited liability partnership allows professionals to avoid personal liability for the malpractice of other partners. a. True b. False

ANSWER: True

2. The proprietor pays only personal income taxes on a sole proprietorship's profits. a. True b. False

ANSWER: True

20. In some states, limited partners cannot withdraw from a limited partnership. a. True b. False

ANSWER: True

24. As in a partnership, a limited liability company may pay no taxes—profits can be passed through to the members, who pay personal taxes on the profits. a. True b. False

ANSWER: True

25. If the members of a limited liability company want to reinvest profits in the business, they may opt for the firm to be taxed as a corporation. a. True b. False

ANSWER: True

26. The members of a limited liability company have considerable flexibility in managing the business of the firm. a. True b. False

ANSWER: True

28. If a limited liability company is not meeting the economic purpose for which it was established, a court may order the dissolution of the firm. a. True b. False

ANSWER: True

30. To prevent deception, all representations by a franchisor to a prospective franchisee must have a reasonable basis at the time they are made. a. True b. False

ANSWER: True

31. Case law governing franchising emphasizes the importance of good faith and fair dealing. a. True b. False

ANSWER: True

33. To protect a franchisor's reputation, a franchise contract may provide a degree of control over the franchisee's operation to the franchisor. a. True b. False

ANSWER: True

35. Because a franchisor's termination of a franchise can adversely affect a franchisee, much franchise litigation involves claims of wrongful termination. a. True b. False

ANSWER: True

7. In many instances, agency law governs the relationships among partners. a. True b. False

ANSWER: True

38. Liu, the owner of Mortgage Source, a sole proprietorship, wants to obtain additional business capital. For this enterprise, the opportunity is most likely limited to a. borrowing funds. b. bringing in partners. c. issuing stock. d. selling the business.

ANSWER: a

39. Beri owns and operates City Delivery Service as a sole proprietorship. When she dies, the business will automatically a. dissolve. b. transfer to Bev's heirs. c. reform with its employees as the owners. d. transfer to its creditors.

ANSWER: a

45. Gift Shop is operated as a partnership, with five partners. Han has a one-third interest in the firm. Each of the other partners has a one-sixth interest. Ingre is the senior partner. With respect to ordinary management decisions a. a majority of the partners must agree. b. Han rules. c. Ingre decides. d. unanimous consent is required.

ANSWER: a

46. Vern is one of three partners in Waffles Food Truck. Concerning all aspects of the partnership business, Vern is entitled to information a. on a complete basis. b. only on an "as needed" basis. c. only for a reasonable purpose. d. only related to the partner's capital contribution.

ANSWER: a

48. Fizz and Guy are partners in Home Decor, a furniture store. Fizz dissociates from the business. This ends Fizz's a. right to participate in the partnership business. b. right to have his interest in the partnership purchased by the firm. c. duty of care with respect to events that occurred before dissociation. d. all of the choices.

ANSWER: a

51. Neva is a partner in Orchard Farm. Neva gives notice to quit the firm, which otherwise continues to do business. This is a. dissociation. b. dissolution. c. unethical. d. illegal.

ANSWER: a

53. Jana and Kwan are partners in Lawyers LLP, a limited liability partnership. Jana supervises the firm's associate Milo, who negligently fails to appear in court on behalf of Norm, a client. Liability to Norm rests only with a. Jana and Milo. b. Jana. c. Milo. d. Jana and Kwan.

ANSWER: a

61. Accounting LLC is a member-managed limited liability company. Unless the members have agreed otherwise, all decisions with respect to the firm's business are made by a. majority vote. b. the firm's board. c. the senior members. d. the firm's chief executive officer.

ANSWER: a

65. Donuts Whole Inc. offers an entrepreneur the opportunity to operate a franchise bakery under the Donuts Whole trade name. Before a franchise contract is signed, Donuts Whole must explain a. the contract's termination provisions. b. the nature and operation of a franchise. c. the laws governing franchising. d. all of the choices.

ANSWER: a

67. Mai-Lin's Martial Arts, Inc., grants a franchise to Naomi to operate a Mai-Lin's school. Mai-Lin's may require Naomi to pay the franchisor a percentage of her a. annual sales or volume of business. b. weekly payroll expense. c. monthly overhead savings. d. income from unrelated business activities.

ANSWER: a

70. Bob buys a Club Fitness, Inc., franchise, which the franchisor later terminates. In determining whether the termination was proper, a court will generally a. balance the rights of both parties. b. emphasize the right of Club to its business operation. c. focus on the right of Bob to be dealt with fairly. d. underscore the interest of consumers in affordability.

ANSWER: a

36. Carl starts up, and assumes the financial risk of, DataWorks, a new marketing enterprise. As a sole proprietorship, Carl's enterprise must meet legal requirements relating to a. all of the choices. b. state business licenses. c. the same legal formalities as a partnership or limited liability company. d. obtaining others' approval for any decision concerning the business.

ANSWER: b

57. As the promoter of Glassworks LLC, Hans enters into a contract with Interstate Transport Company. Once formed, Glassworks can a. forego an adoption process and simply enforce the contract. b. adopt the contract through a novation. c. obtain the benefits of the deal without obligation. d. pierce Interstate's "corporate veil" to hold Hans liable on the contract.

ANSWER: b

58. To gain an advantage in a business deal, Masonry LLC engages in fraud. Nicol, a member of Masonry, significantly contributes to the firm's misconduct. For any resulting damages, a court is most likely to hold Nicol a. personally absolved. b. personally liable. c. liable but only to the extent of the member's investment in the firm. d. liable but only to the extent of any amount that the firm cannot pay.

ANSWER: b

62. Sam buys a franchise from Taco Loco Inc. This relationship, like all other franchise relationships, is governed by a. contract law. b. all of the choices. c. the federal Franchise Rule. d. applicable state law.

ANSWER: b

64. eSports Inc. offers entrepreneurs the opportunity to operate a franchise under the eSports trade name as the owner of a game-playing venue. To possible franchisees, eSports makes earnings claims. For those claims, the franchisor a. can have a hypothetical basis. b. must have a reasonable basis. c. must have an actual basis. d. can have any or no basis.

ANSWER: b

66. Ang enters into an agreement with Burgers Inc. to operate a franchise. Their contract does not grant Ang exclusive territorial rights. Later, Burgers allows a competing franchise to be established nearby, causing Ang to suffer a significant loss in profits. In Ang's suit against Burgers, his best argument is that the franchisor a. breached the express terms of the franchise agreement. b. violated the implied covenant of good faith and fair dealing. c. violated the Federal Trade Commission's Franchise Rule. d. granted Ang an impliedly exclusive franchise.

ANSWER: b

49. Nora and Owen do business as Property & Profit, a real estate investment partnership. In acting on the firm's behalf, Nora takes advantage of an opportunity to make a secret profit. To her firm, Nora is liable for a breach of a. the duty of care. b. contract. c. the duty of loyalty. d. none of the choices.

ANSWER: c

50. Olin is a partner in Precision Plumbing. When the partners decide to dissolve the firm, Olin collects and distributes the assets. This results in a. nothing with respect to the firm's existence. b. the continuation of the firm's business. c. the termination of the firm's legal existence. d. the temporary suspension of the firm's business.

ANSWER: c

52. Bea is one of three partners in Commercial Custodial Service. With respect to Bea's interest in the firm, when she dies, her heirs are most likely entitled to a. nothing. b. a payout of her capital contribution without more. c. the buyout price paid by the firm for the interest. d. one-third of the value of the interest.

ANSWER: c

54. Dain is a limited partner in Eco Baits, a pest control service organized as a limited partnership, which cannot pay its debts. Dain is liable for the debts a. in proportion to the number of partners in the firm. b. to no extent. c. to the extent of his capital contribution to the firm. d. to the full extent.

ANSWER: c

56. A business organizational form that limits its owners' liability allows the firm to lawfully a. act recklessly. b. engage in misconduct. c. take risks. d. all of the choices.

ANSWER: c

59. Bayside Restaurant LLC is a limited liability company. Its sole member is Conrad. For federal income tax purposes, unless the firm indicates otherwise, it will automatically be taxed as a. a person. b. a corporation. c. a sole proprietorship. d. a partnership.

ANSWER: c

63. Ruby is interested in buying a franchise from Snax Stores Inc. This transaction, like other franchise deals, is regulated to protect a. certain types of anticompetitive agreements. b. franchisors from dishonest prospective franchisees. c. prospective franchisees from dishonest franchisors. d. the government's power to restrict freedom of contract.

ANSWER: c

68. Riki contracts to buy a franchise from Sushi Company. In this contract, as in most franchise contracts, the determination of the territory to be served is made by a. other Sushi franchisees within the same state. b. Flo. c. Sushi. d. Sushi customers.

ANSWER: c

69. Teresa buys a franchise from Urgent Care Clinics, LLC. If their agreement is like most franchise agreements, it will specify that Urgent can terminate the franchise a. at will. b. for any reason. c. for cause only. d. for no reason.

ANSWER: c

41. Rena establishes and operates Sweet Homes, a construction-contracting outfit, as a sole proprietorship. In the course of doing business, the outfit fails to pay some of its debts. To satisfy the obligations, the firm's creditors can go after a. the owner's personal assets only. b. the firm's assets only. c. none of the choices—the creditors must bear the losses. d. the firm's assets and the owner's personal assets.

ANSWER: d

42. Olav starts Power Cells to make and sell batteries. Later, Olav contracts with Quinn to invest additional capital in the firm in exchange for 25 percent of the profits. Olav and Quinn are not partners in Power Cells because a. they do not share the profits equally. b. their agreement does not provide for the sharing of losses. c. Olav started the firm before Quinn agreed to invest additional capital. d. they do not have joint control over the business.

ANSWER: d

44. Deb and Elle are partners in Foundations, a counseling clinic. Deb manages the business. For this service, unless the partnership agreement states otherwise, she is entitled to pay in proportion to her a. effect on the business. b. effort. c. capital contribution. d. none of the choices.

ANSWER: d

47. Brea and Colin do business as Dig Excavators. In acting on the firm's behalf, Brea makes an honest error in underestimating the cost of a certain project. In this situation, to her firm, Brea is liable for a breach of the duty of a. care. b. accounting. c. loyalty. d. none of the choices.

ANSWER: d

55. Otto is a general partner in Port Exports, a limited partnership. By participating in the firm's management, Otto is liable for its obligations a. in proportion to the number of partners in the firm. b. to no extent. c. to the extent of his capital contribution to the firm. d. to the full extent.

ANSWER: d