Bus Law Ch 14 Business Organizations

Identify the disadvantages of partnership as a form of business organization. (Check all that apply.)

A partnership is dissolved any time a partner ceases to be a partner, regardless of whether the reason is withdrawal or death. Only a limited number of people can be partners for practical reasons.

Identify the advantages of a partnership as a form of business organization. (Check all that apply.)

A partnership may operate in more than one state without a license to do business. Partnerships generally are subject to less regulation than are corporations. Partnerships are not a tax-paying entity.

Identify the parties involved in the application of agency law. (Check all that apply.)

Agents Principals

Identify a guideline that must be followed when selecting a name for a partnership.

Any word that would imply the existence of a corporation must not be used in the name.

Identify the true statements about a limited liability company. (Check all that apply.)

Its owners have more flexibility than those of an S corporation. It is created through filings like those used when creating a corporation.

What are the advantages of the corporate form of organization? (Check all that apply.)

Many investors may be conveniently brought together. Shareholders may be employees entitled to such benefits as workers' compensation. Ownership may be divided into many unequal shares.

Identify the groups present in the corporate form of organization. (Check all that apply.)

Officers Shareholders Directors

Identify the techniques used by corporations to avoid the double taxation of corporate income. (Check all that apply.)

Providing expense accounts for employees to purchase travel, food, and entertainment. Electing to file under Subchapter S of the Internal Revenue Code.

In the context of agency law, identify the true statements about operating an organization through agents. (Check all that apply.)

The actions of agents can have significant consequences to the business organization. The legal concepts concerned with the actions of agents are referred to as agency law.

Identify a true statement about the three interacting parties involved in the application of agency law.

The actions undertaken by agents implicate contract, tort, or criminal law.

What are the factors that should be considered when selecting the best organizational form for a particular business activity? (Check all that apply.)

The control of decisions. The cost of creating the organization. The continuity of the organization.

Identify a true statement about a limited partnership.

The limited partners have no right to participate in management.

In the context of the creation of a corporation, identify the information contained in the articles of incorporation. (Check all that apply.)

The proposed name of the corporation The number of authorized shares in the organization The proposed corporation's period of duration

Which of the following is true of a sole proprietorship?

The proprietorship's income subject to taxation is attributed to the proprietor.

Identify a true statement about limited partners.

They may assign their interests to others without dissolving the limited partnership.

True or false: A dissolution destroys the business of a partnership.

This is false. Dissolution is not the same thing as terminating an organization's business activity. A dissolution does not necessarily destroy the business of a partnership.

True or false: Consulting with or advising a general partner makes limited partners lose the benefit of limited personal liability in a limited partnership.

This is false. Limited partners do not lose the benefit of limited personal liability for consulting with or advising a general partner.

True or false: Partnerships, limited partnerships, or corporations can be shareholders in an S corporation.

This is false. Only individuals are eligible to elect under Subchapter S. Other forms of business organization, such as partnerships, limited partnerships, or corporations, cannot be shareholders in an S corporation.

True or false: Simply alleging that a person is the sole owner of a corporation that is engaged in wrongful activity will result in a piercing of the corporate veil.

This is false. Simply alleging that a person is the sole owner of a corporation that is engaged in wrongful activity will not result in a piercing of the corporate veil. This conclusion is appropriate when the owner has respect for the existence of the organization.

True or false: In the context of an employer's contractual liability arising from an agent's acts, oral instructions given by the employer to an employee cannot create actual authority.

This is false. Specific instructions, whether spoken or written, given by an employer to an employee create actual authority.

True or false: Benefit corporations are known to focus on profit maximization.

This is false. The impetus for creating the benefit corporation structure comes from the perception that traditional corporate forms place too much emphasis on profit maximization. This may conflict with business decisions that would yield less profit but achieve a social goal such as preserving the environment or enhancing employment opportunities in the community.

True or false: An individual and a corporation cannot agree to create a business in the form of a partnership.

This is false. Two or more individuals, an individual and a corporation, a partnership and a corporation, or any combination of these entities may agree to create a partnership.

True or false: The personal liability of the owners should be taken into account when selecting the best form of organization for one's business.

This is true. The personal liability of the owners, the taxation of the organization's earnings and its distribution of profits to the owners, the cost of creating the organization, the continuity or stability of the organization, and the control of decisions should be considered when selecting the best organizational form for a particular business activity.

Identify a situation that leads to double taxation on corporate income.

When a corporation is dissolved and its assets are distributed as capital gains to shareholders

Identify the circumstances in which the limited partners in a limited partnership organization do not lose the benefit of limited personal liability. (Check all that apply.)

When they receive a share of the profits by way of income. When they demand full information about the partnership in just situations. When they act as a guarantor of the partnership's obligations.

Any change in the ownership of an organization that changes the legal existence of the organization is known as _____.

a dissolution

In the context of taxation of corporations, a situation of double taxation occurs when _____.

a dividend received by shareholders is taxed again after being taxed at the corporate level

The formal application for a corporate charter is called the .

articles of incorporation

A formal agreement explicitly stated among the parties entering into a partnership and drafted into a formal document is known as the .

articles of partnership

The use of sole proprietorship as a business organization is very limited because it _____.

cannot be created by multiple owners

Many individuals prefer the corporate form of organization because _____.

control may be held by those with a minority of the investment

As a form of business, a corporation may not be always beneficial because _____.

corporate income may be subject to double taxation

In the context of the different forms of business organizations, an artificial, intangible entity created under the authority of a state's law is known as a(n) .

corporation

A partnership is a preferable form of business organization because _____.

costs of formation are not significant

In the context of the significant factors one should consider when selecting the best organizational form for a business activity, _____ refers to the legal steps necessary to form a particular business organization.

creation

To avoid the double taxation of corporate income, it is advisable for a corporation to _____.

deduct reasonable salaries paid to corporate officials in computing the taxable business income

If the majority in a closely held organization is oppressing the rights of the minority shareholders or acting illegally, a minority shareholder may bring a lawsuit on behalf of the corporation. This lawsuit is known as a(n) .

derivative suit

A limited partner in a limited partnership retains the benefit of limited personal liability when he or she _____.

disapproves an amendment to the partnership's certificate

Non-profit organizations differ from corporations in that non-profits are _____.

exempted from paying tax on income

A feature of the partners in a general partnership is that they _____.

have unlimited liability for their organization's debts

A partner in a trading partnership need not have _authority to buy and sell commodities, rather they have authority to do so.

implied

The authority of an agent bestowed informally upon them by the position they hold in the company and engaging in the normal course of business for that position would be considered ____ authority.

implied

A characteristic of a sole proprietor is that he or she is _____.

in total control of his or her business's goals

A corporation is created by a state issuing a charter upon the application of individuals known as .

incorporators

A feature of a partnership is that it _____.

is easily formed when compared to other forms of business organizations with the exception of a sole proprietorship

In the context of the factors that need to be considered when selecting the best organizational form for a business activity, the meaning of the word "continuity" becomes associated with the stability of the organization when one questions the _____.

manner in which the existence of the organization relate to its owners

An agreement between two or more persons to share a common interest in a commercial endeavor and to share profits and losses is known as a(n) .

partnership

A feature of a benefit corporation is that it _____.

pursues explicit, socially oriented goals

occurs when a principal voluntarily decides to honor an agreement, which otherwise would not be binding due to an agent's lack of authority.

ratification

Any time an employee is liable for tortious acts in the scope of employment, the employer is also liable. This is because of the tort doctrine of _____.

respondeat superior

A feature of the shareholders of S corporations is that they are _____.

responsible for accounting on their individual income tax returns for their share of their organization's profits or losses

Organizations that are subject to election made possible through the language of Subchapter S of the Internal Revenue Code are known as .

s corporation

The members of the board of directors of a corporation are elected by the _____.

shareholders

Identify a true statement about the continuity of a partnership.

A change in the partners at any time results in the dissolution of the organization.

Trading partnership

A partner has the implied authority to borrow money in the usual course of business and to pledge the credit of the firm.

Nontrading partnership

A partner requires actual authority to borrow money in the usual course of money and to pledge the credit of the firm.

Identify the disadvantages of the corporate form of organization. (Check all that apply.)

Corporations are subject to more governmental regulation at all levels than are other forms of business. The cost of forming and maintaining a corporation is significant. Franchise taxes and license fees are assessed against corporations.

Which of the following is true of the partners in a general partnership?

Each partner has an equal voice in the firm's affairs unless the agreement provides to the contrary.

True or false: A partnership can survive a death of one of its partners if there are more than two original partners.

False: A partnership terminates with the death of a partner.

Implied authority

It arises from the position of authority held by an agent and by the history of actual authority situations.

Apparent authority

It may arise in a situation where a principal terminates an agent's authority but fails to inform third parties about the termination.

If a corporate entity is disregarded by its corporate officers, directors, and stockholders themselves, so that there is such a unity of ownership and interest that separateness of the corporation has ceased to exist, the __-__ theory will be followed and the corporate veil will be pierced.

alter-ego

An issue of major importance to owners of a business organization is___, so much so their own egos often insist on it.

control

A partnership is a form of business organization that _____.

does not require permission from each state in which it does business

A characteristic of sole proprietorship is that it _____.

is the easiest business organization to create

A feature of a limited liability company is that _____.

it is treated as a nontaxable entity for federal income tax purposes

An agent appointed by a shareholder for the purpose of voting the shares in a publicly held corporation is known as a(n) .

proxy

When an individual is selecting the best organizational form for his or her business, he or she should consider _____.

the taxation of the organization's earnings

The factor of control in a business organization concerns _____.

who is managing the organization

Identify the true statements about the ratification of an unauthorized contract. (Check all that apply.)

It requires the voluntary consent of the principal to honor the contract. It legally binds the principal to the contract.

True or false: A shareholder needs to vote their shares in person at any stockholder's meeting for those votes to count.

False: An appointed proxy can vote their shares.

In the context of an employer's tort liability from the actions of agents, identify the true statements about respondeat superior cases. (Check all that apply.)

Frolic and detour is a valid defense to the strict liability of respondeat superior. An employer who must pay for an employee's tort under respondeat superior may legally sue the employee for reimbursement.

Identify the most significant creation-related issues that a businessperson faces when establishing a business organization. (Check all that apply.)

How long it will take to build a particular organization. How much paperwork is involved.

Which of the following is true of a corporation?

If it wishes to conduct business in states other than the state of incorporation, it must be licensed in these foreign states.

Identify the true statements about a non-profit organization. (Check all that apply.)

It is not created for the personal benefit of owners or members. It must return any profits made to the organization to be used for future operations.

Identify a true statement about a derivative suit brought by a minority shareholder in a closely held corporation.

It may seek to collect damages for the corporation.

In the context of the creation of a limited partnership, identify the true statements about a limited partnership certificate. (Check all that apply.)

It must be recorded in the county where the partnership has its principal place of business. It contains the name of the partnership and the character of the business.