Chapter 20

The formation of a partnership without a partnership agreement requires which of the following? Select 2 answers. a. Sharing of management duties b. Sharing of profits and losses c. The intent to form a partnership d. Five or more partners

a. Sharing of management duties b. Sharing of profits and losses

Which of the following documents spells out the rights and duties of a. the members of a limited liability company (LLC)? a. charter b. operating agreement c. bylaws d. certificate of organization

b. operating agreement

The simplest form of business to establish is a: a. limited liability company. b. sole proprietorship. c. partnership. d. corporation.

b. sole proprietorship.

Corporations have perpetual existence. True False

True Corporations can continue without their founders.

The term "S Corporation" comes from a) the Internal Revenue Code. b) the FTC rules. c) the Securities and Exchange Commission. d) state corporation law.

a) the Internal Revenue Code. The term "S Corporation" comes from the Internal Revenue Code. Shareholders of S corps have both the limited liability of a corporation and the tax status of a flow-through entity. Thus, all of an S corp's profits (and losses) pass through to the shareholders, who pay tax at their individual rates.

Which of the following are qualities of a non-profit corporation? Select 2 answers. a. Its goal is to earn a profit. b. It does not provide dividends to shareholders. c. It provides minimal dividends to company shareholders. d. Its goal is to not earn a profit.

a. Its goal is to earn a profit. b. It does not provide dividends to shareholders

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

True Liability for taxes and debts is shared among the participants in the venture, as if they were a general partnership.

Which of the following events occurs first with respect to the ending of a partnership? a) dissolution b) termination c) winding up d) distribution of proceeds

a) dissolution

A sole proprietorship. a. must file a tax return b. requires no formal steps for its creation c. must register with the secretary of state d. may sell stock e. provides limited liability to the owner

b. requires no formal steps for its creation

Which of the following forms of organization is a compromise between starting one's own business as an entrepreneur and working for someone else as an employee? a) sole proprietorship b) close corporation c) limited liability company d) franchise

d) franchise A franchise is a compromise between starting one's own business as an entrepreneur and working for someone else as an employee. In theory, buying a franchise combines the best of all worlds—a franchisee gets to be his own boss and he acquires an established business with all the kinks worked out.

The phrase "piercing the company veil" applies to which type of organization? a) a limited liability company b) a close corporation c) a general partnership d) an S corporation

a) a limited liability company The phrase "piercing the company veil" applies to a limited liability company (LLC). A court holds members of an LLC personally liable for the debts of the organization.

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) professional corporation. c) tax-free business venture. d) business corporation.

a) flow-through tax entity. 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 flow-through tax entity.

Partners have which of the following duties? Select 3 answers. a. Record keeping b. Fiduciary duties c. Capital contribution d. Litigating on behalf of the partnership

a. Record keeping b. Fiduciary duties c. Capital contribution

Which of the following is required in the Articles of Organization for an LLC? Select 2 answers. a. The principal place of business b. The attorney's name and address c. The name of the business d. The agent's name and address

a. The principal place of business c. The name of the business

Which of the following provisions are typically in an operating agreement for a limited liability company (LLC)? Choose 2 answers. a. how membership interests may be transferred b. whether the dissociation of a member, such as by death or departure, will trigger dissolution of the LLC c. a record of the company's assets and debts d. the advertising plan for the company

a. how membership interests may be transferred b. whether the dissociation of a member, such as by death or departure, will trigger dissolution of the LLC

Most limited liability company (LLC) statutes provide that unless the articles of organization specify otherwise, an LLC is assumed to be managed by: a. its members. b. one manager. c. a board of six members and six non-member managers. d. a board of nine managers.

a. its members.

All of the following are characteristics of a closely held corporation EXCEPT a) minority shareholders are provided more protection than in regular corporations. b) the shares are publicly traded. c) the shareholders usually restrict share transfer. d) the corporation can typically operate without a board of directors.

b) the shares are publicly traded. Having shares that are publicly traded is not a characteristic of a closely held corporation. A typical close corporation has a small number of shareholders (usually fewer than 50), stock that is not publicly traded, and shareholders who play an active role in the management of the enterprise. In some states, close corporations are created by statute; in others they are devised by courts under the common law.

Which statement is true about creating a sole proprietorship? a. The owner of a sole proprietorship must file an official record of the business name with the secretary of state's office. b. No documentation is required to create a sole proprietorship. c. The members of a sole proprietorship must write and sign an operating agreement. d. There is a waiting period of 30 days between opening the business and the time a sole proprietorship becomes official.

b. No documentation is required to create a sole proprietorship.

A sole proprietorship differs from a corporation in: a. the ability to be an educational organization. b. how stock is sold. c. the ability to earn a profit. d. where in the United States they may be located.

b. how stock is sold.

Any partner: a. may encumber the property of the partnership to satisfy personal debt. b. may act as an agent who binds the partnership. c. is entitled to compensation for their time, skill, and effort. d. may create a business in direct competition with the partnership.

b. may act as an agent who binds the partnership.

A limited liability partnership. a. protects partners from liability for their own misdeeds b. protects the partners from liability for the debts of the partnership c. must pay taxes on its income d. has a general partner who is liable for the debts of the organization.

b. protects the partners from liability for the debts of the partnership

The formation of LLCs is governed by: a. the ULLCA. b. the laws of the state in which the LLC is created. c. private agreements. d. federal statute.

b. the laws of the state in which the LLC is created.

A sole proprietorship differs from a partnership in: a. liability for debt. b. the number of owners. c. documentation required for formation. d. how stock is sold.

b. the number of owners.

CPA QUESTION Assuming all other requirements are met, a corporation may elect to be treated as an S corporation under the Internal Revenue Code if it has. a. both common and preferred stockholders b. a partnership as a stockholder c. 100 or fewer stockholders d. the consent of a majority of the stockholders

c. 100 or fewer stockholders Strategy: Review the list of requirements for an S corporation.

Which of the following is required to create a sole proprietorship? a. Filing Articles of Incorporation with the secretary of state b. An intention between two or more people to run a business c. Nothing d. Filing Articles of Organization with the secretary of state

c. Nothing

A written agreement outlining the roles of partners, their rights, and a. their duties are called: b. Articles of Organization. c. a partnership agreement. d. Operating agreements. e. Articles of Incorporation.

c. a partnership agreement.

A foreign corporation is: a. one that was incorporated in two or more different states. b. one that was incorporated outside of the United States. c. one that was incorporated in a different state. d. one that it privately held.

c. one that was incorporated in a different state.

A sole proprietorship differs from a limited liability company (LLC) in: a. the minimum number of owners. b. ability to earn a profit. c. the documentation required for formation. d. how stock is sold.

c. the documentation required for formation.

Which of the following is a requirement for the formation of a limited liability company (LLC)? a. an initial stock offering b. at least three members c. an operating agreement d. articles (or certificate) of organization

d. articles (or certificate) of organization

A joint venture is a(n) . a. association limited to no more than two persons in business for profit b. enterprise of numerous co-owners in a nonprofit undertaking c. corporate enterprise for a single undertaking of limited duration d. association of persons engaged as co-owners in a single undertaking for profit

d. association of persons engaged as co-owners in a single undertaking for profit

An operating agreement for a limited liability company: a. must be in writing and signed by all the officers of the company. b. may not specify how profits are divided. c. is required for the operation of a limited liability company. d. typically includes provisions about choosing the LLC's management.

d. typically includes provisions about choosing the LLC's management

A limited liability company. a. is regulated by a well-established body of law b. pays taxes on its income c. cannot have members that are corporations d. is a form of organization favored by venture capitalists e. can have an oral operating agreement

e. can have an oral operating agreement