Business Law CH 20 Worksheet

How may a partnership raise capital? Select all that apply. a. Selling ownership interests b. Going public c. Contributions from partners d. Borrowing

- Contributions from partners - Borrowing

Which of the following are advantages of a sole proprietorship? a. Limited liability b. Flow-through tax entity c. Attractive to investors d. Low formation costs

- Flow-through tax entity - Low formation costs

Which of the following are characteristics that apply to LLCs? a. Transferable interests b. Strict legal formalities c. Nontransferable interests d. Different classes of stock permitted e. Members may be corporations, partnerships or nonresident aliens f. Flow-through tax entity

- Flow-through tax entity - Members may be corporations, partnerships or nonresident aliens - Different classes of stock permitted - Nontransferable interests

A social enterprise must balance the interests of which of the following when making business decisions? a. Environment b. Communities c. Investors d. Stakeholders

- Investors - Environment - Stakeholders - Communities

Which of the following are features of professional corporations? a. Flexibility b. Low formation costs c. Shareholders must be members of the same profession d. Complicated tax structure e. Flow-through tax entity f. Transferrable interest g. Strict legal formalities h. Limited liability

- Limited liability - Complicated tax structure - Strict legal formalities - Shareholders must be members of the same profession

Under which of the following circumstances will a court hold LLC members personally liable for the liabilities of the LLC? a. LLC is insolvent b. Members fail to treat the LLC like a separate organization c. Members commingle assets d. Members fail to provide adequate capital e. Members attempt to sell their interest in the LLC f. Members breach a fiduciary duty g. Members commit fraud

- Members fail to treat the LLC like a separate organization - Members fail to provide adequate capital - Members commit fraud

Which of the following must be true for a company to qualify as an S corp? a. All shareholders agree that the company should be an S corp b. No more than 100 shareholders c. No stock that pays dividends d. Only one class of stock e. Shareholders are U.S. citizens or residents f. Majority of shareholders agree that the company should be an S corp g. No shareholders are partnerships or corporations h. At least 100 shareholders

- Only one class of stock - No shareholders are partnerships or corporations - Shareholders are U.S. citizens or residents - All shareholders agree that the company should be an S corp - No more than 100 shareholders

Which of the following are disadvantages of a corporation? a. Limited capital options b. Taxable entity c. High risk d. Inflexible e. High formation costs f. Strict legal formalities

- Strict legal formalities - Taxable entity - High formation costs

Why do venture capitalists sometimes prefer to invest in C corporations over LLCs? a. They incur less liability for C corporations. b. C corporations are easier to merge, sell, or take public. c. LLCs involve arcane tax issues. d. They can play a more active role in managing C corporations. e. The law governing LLCs is still developing and is therefore less certain. f. C corporations are less likely to go bankrupt.

- The law governing LLC's is still developing and is therefore less certain - LLC's involve arcane tax issues - C corporations are easier to merge, sell, or take public

To become a socially conscious organization, an enterprise typically must:

- agree to measure its social benefits using a standard set by an objective third party. - obtain the approval of two-thirds of its shareholders. - assess and report regularly on its website about the company's societal and environmental impact.

Which of the following must a partner turn over to the partnership? Select all that apply. a. Profit from the sale of the partner's interest in the partnership b. Earnings from any company that the partner owns a majority of c. Earnings from any company fully owned by the partner d. Any profit earned from use of partnership property without the consent of the partners e. Earnings from any activity related to the partnership's business

- any profit earned from use of partnership property without the consent of the partners - earnings from any activity related to the partnership's business

What are the requirements for partnership by estoppel to apply? Select all that apply. a. A third party relies on the assertion that the participants are partners. b. There is a partnership agreement. c. The participants acted with malice or recklessness. d. It is not foreseeable that others would think the participants are partners. e. The participants tell others they are partners. f. The would-be partnership suffers harm. g. The third party suffers harm. h. A third party knows that the participants are not partners.

- the participants tell others they are partners - a third party relies on the assertion that the participants are partners - the third party suffers harm

Under which of the following circumstances is a partnership not created? Select all that apply. a. The partners operate a charitable organization and do not intend to make a profit. b. The partners divide losses unequally. c. The partners do not share profits. d. The partners do not sign a written agreement and there is no evidence of an oral agreement. e. The partners do not file a written statement with the Secretary of State.

- the partners operate a charitable organization and do not intend to make a profit - the partners do not share profits

Which of the following are steps in the termination of a partnership? Select all that apply. a. Conclusion b. Termination c. Dissolution d. Winding up e. Initiation f. Ramping up g. Dissociation

1. dissolution 2. winding up 3. termination

A partnership must make a formal filing with the Secretary of State containing basic information about the entity. True or False.

False

Although corporations were widely celebrated and encouraged when they were originally created centuries ago, they have been treated with growing suspicion since the stock market crash that led to the Great Depression. True or False.

False

When a partner dissociates, the partnership terminates. True or False.

False

What must be true for Costello and Giordano to be personally liable to Ridgaway's estate in Ridgaway v. Silk?

Ridgaway's death is attributable to Costello and Giordano's own negligence, recklessness, or tortious conduct.

Which of the following is true of so-called social enterprises?

The most common forms are benefit corporations and low profit limited liability companies

A corporation that registers for S corp status with the IRS is not necessarily treated as a close corporation under state law unless it complies with the state statute's particular requirements. True or False.

True

A joint venture is not its own legal entity. Rather, its participants retain their own separate identities and simply partner for a limited purpose, such as a specific project. True or False.

True

A limited liability company may go public, but once it does so it loses its status as a flow-through tax entity. True or False.

True

A partner must receive permission from the partnership to seize a business opportunity that the partnership could take itself. True or False.

True

Although a partner cannot transfer his share in a partnership without approval of the other partners, a partner may freely transfer his right to receive the partnership's profits and losses. True or False.

True

General partners have equal management rights in the partnership unless they agree otherwise. True or False.

True

In the past professional corporations were the only business formation other than general partnerships available to professionals, such as lawyers and accountants. True or False.

True

Operating agreements are not required but can be extremely helpful for LLCs. True or False.

True

Sole proprietors are personally liable for all of the debts incurred by their business. True or False

True

The court in Marsh v. Gentry found that transactions between two partners require a higher degree of good faith than transactions between a partnership and a third party. True or False.

True

Limited liability companies offer the best of both worlds:

a flow-through tax entity and limited liability

_______ partners have ______ liability for the partnership obligations. This means that _______ and the partners are all individually liable for the full amount of debt. However, a creditor cannot recover from _______ until _______ are exhausted.

all joint and several the partnership a partner's assets the partnership's assets

Termination occurs

automatically upon completion of winding-up

Sole proprietorships work best for small businesses because __________________

debt is generally the only source of working capital.

In National Franchisee Association v. Burger King Corporation, the court held that Burger King Corporation

did not act in bad faith because there may well be a legitimate business reason to sell products below cost

When a partner leaves a partnership, it is called a _____________. The partnership can either _______________ the departing partner and _____________________ or _____________ the business and __________________ the partnership.

dissociation buy out continue in business wind up terminate

S corporations and close corporations were both created to _____________.

encourage entrepreneurship

Each partner has _______ in the management of the partnership's business ________ the partners agree otherwise. Large partnerships often designate _________ to run the business operations.

equal rights unless managing partners

A __________ tax entity __________ pay __________ tax on its profits, but passes them through to its _________, who pay tax at ________ rates.

flow-through does not income owners their individual

If a court pierces the LLC veil it _____________.

holds LLC members liable for the debts of the company

A corporation protects managers and _____________ from _________ for the debts of the corporation and ____________, but not against liability for __________ negligence, torts, or crimes.

investors personal liability actions of others their own

A partner may sell her share in a partnership

only with the unanimous approval of the other partners

Franchises are appealing to franchisees because they allows them to

own their own business while also receiving the benefit of an established brand and support structure.

__________ applies when the parties ________, in fact, ________ but are ___________ as if they were.

partnership by estoppel are not partners held liable

Corporations have a _________ existence. They are also a __________ form of business because they have stock that can be ___________ easily.

perpetual flexible bought and sold

A close corporation has a small number of ____________ whose stock is not _______ and who play an active role in _________. A close corporation is entitled to special treatment under ___________.

shareholders publicly traded management state law

Few corporations have converted to LLC's, even though it is legally possible, because _________________.

the IRS would treat the change as a sale of corporate assets and tax the assets accordingly.

Jane is in debt to Jack, and is also a partner in Mother Goose, LLP. Jane may transfer to Jack __________________.

the value of her partnership interest in Mother Goose.

Most states require sole proprietors to register _________________________

their business name if it is different from their own.

The Federal Trade Commission (FTC) requires franchisors to provide the Franchise Disclosure Document (FDD) to franchisees prior to signing a franchise agreement

to allow the franchise to make an informed decision

A sole proprietorship is a(n) _____________________ business owned by _____ person. It is the ______________ common form of business.

unincorporated one most

A general partnership is a(n) __________ association of __________ owner/co-owners who carry on a business ___________. Each owner is a ____________.

unincorporated two or more for profit general partner