LRB EXAM #3 Study Guide
Stefan has opened a sole proprietorship bicycle shop. The business shows a net income of$100,000. Stefan took a salary of $40,000. The remaining money is left in the bank. A) At tax time, the business pays taxes on $100,000, and Stefan pays taxes on $40,000. B) At tax time, the business pays taxes on $140,000. C) At tax time, the business pays taxes on $70,000, and Stefan pays taxes on $70,000. D) At tax time, Stefan pays taxes on $140,000.
D
The person who is entitled to the profits of a business based on the percentage of ownerships is A) Executive B) Manager C) Board member D) Principal
D
When a partner no longer wishes to be a principal in the partnership, she may choose to leave the partnership. What term does the Revised Uniform Partnership Act (RUPA) use to describe this act of separation? A) Avoidance B) Withdrawal C) Renunciation D) Dissociation
D
When a partner no longer wishes to be a principal in the partnership, she may choose to leavethe partnership. What term does the Revised Uniform Limited Partnership Act (RULPA) use to describe this act of separation? A. Dissociation B. Rescission C. Revocation D. Withdrawal
D
Which of the following is not a characteristic of an LLC? A) May elect to be taxed as a corporation. B) Usually capitalized via debt. C) Its members are not personally liable for any business debt or liability. D) Only its managing members owe a fiduciary duty to other members.
D
Several people have decided to go into business as an LLC. To cover all contingencies, they want to specify what constitutes an act of dissociation and outline the procedures upon dissolution. This information would be included in A. common law—the members may not negotiate these rights. B. the operating agreement. C. the Uniform Limited Liability Company Act. D. the certificate of organization.
B
Suppose that the First National Bank of Missouri (First National) loans $20,000 to Alex Harris (Harris) to operate his sole proprietorship, doing business as Alex Harris Catering Services. The loan is for five (5) years at the current market interest rate of 6.75 percent, and First National has already disbursed the entire loan amount to Harris in one lump sum. What type of loan is this? A) Private B) Commercial C) A line of credit D) A proxy agreement
B
The duty of a partner to act in the best interests of the partnership is called __________duty. A) Commercial B) Fiduciary C) Ethical D) Legal
B
Which of the following statements is incorrect? A. A corporation can be sued without the principals being sued. B. A corporation may not incur obligations separate from those of its principals. C. A corporation may form a contract in its own name without the principals guaranteeing the contract. D. A corporation may file suit in its own name without the principals filing suit.
B
How are limited liability partnerships (LLPs) capitalized? A. Through private lenders, but not through commercial lenders B. Through commercial lenders, but not through private lenders C. Through private lenders, through commercial lenders, or by a sale of partnership equity for ownership in the limited liability partnership (LLP) itself D. Only by a sale of partnership equity for ownership in the limited liability partnership(LLP) itself
C
In a general partnership A) profits and losses must be split equally among the partners. B) profits must be split equally, but losses may be split unequally based on the partnership agreement. C) profits and losses may be unequally split based on the partnership agreement. D) an unequal split of profits may be agreed to based on the partnership agreement, but losses must be split equally.
C
Jeff files the articles of incorporation to start BluSky Inc. What will be the next step? A) The shareholders will create the bylaws. B) The court will declare the corporate existence. C) The principals will hold an organizational meeting to resolve any pending issues. D) Sell shares of stocks on the New York Stock Exchange
C
John Anderson, an expert in lawn care, operates a sole proprietorship as "Anderson's Lawn Maintenance and Landscaping." This is known as a __________. A) Trademark B) Copyright C) Trade Name D) Limited Liability Company
C
Josh is a sole proprietor of an ice cream shop. Regina, a customer, slips and fall on some melted mint chocolate chip ice cream on the floor and breaks her leg. Regina files suit and wins a judgment of $50,000. Josh does not have any insurance and the total value of the assets of the ice cream shop is $10,000. Which statement below is correct? A) Josh will not be required to pay anything because he does not have insurance. B) Josh will have to pay $10,000 and then set up a payment plan to pay off the balance. C) Josh will have to use his own personal assets to pay the remainder of the judgment. D) Josh will only have to give Regina the money from the assets of the business,$10,000.
C
LLCs were originally created by the A) New York legislature. B) Delaware legislature. C) Wyoming legislature. D) California legislature.
C
Limited partnerships are required to file a(n) __________ return with the IRS each year. A) SEC B) Limited C) Information D) Articles of incorporation
C
Regarding limited partners, A) they must obtain a court order to withdraw because of their limited liability and its effect on the remaining partners and third parties dealing with the business. B) if the partnership agreement is silent as to notice required prior to termination, 90 days' written notice is required before the limited partner may withdraw. C) they may not withdraw before the time that the partners have agreed the partnership will terminate. D) they may withdraw from the partnership at any time, but they forfeit their investment if they withdraw early.
C
Which group of a corporation is responsible for running the day to day matters of the corporation? A) Board members B) Shareholders C) Officers D) Principals
C
Which of the following is true about a sole proprietorship? A) It is subject to corporate income tax. B) Sole proprietorships face double taxation. C) The owner reports income and expenses on the owner's own tax return. D) The owner must file a tax return on behalf of the business.
C
Which of the following is true regarding the taxation of a limited liability partnership (LLP)? A. An LLP is not subject to taxation. B. A limited liability partnership (LLP) is not treated as a pass-through entity. C. All income or losses of the LLP are reported on the partners' individual tax returns. D. An LLP is not required to file an information return with federal and state tax authorities.
C
Which of the following statements is incorrect? A) A corporation can be sued without the principals being sued. B) A corporation may form a contract in its own name without the principals guaranteeing the contract. C) A corporation may not incur obligations separate from those of its principals. D) A corporation may file suit in its own name without the principals filing suit.
C
Which statement below is correct about a sole proprietorship? A) It can have multiple owners. B) It is created by filing bylaws. C) It has low start-up costs and minimal filing. D) It faces double taxation.
C
Which statement below is correct about a sole proprietorship? A. It is created by filing bylaws. B. It can have multiple owners. C. It has low start-up costs and minimal filing. D. It faces double taxation.
C
A limited partnership requires A) at least two general partners. B) at least two limited partners. C) a written limited partnership agreement. D) at least one general and one limited partner.
D
After the ULLCA was created, some states have started to adopt an act that modifies it called A) Revised Limited Company Formation Act B) Reform Limited Company Act C) Reformed Limited Liability Corporation Act D) Revised Uniform Limited Liability Company Act
D
An LLC offers principals the same liability coverage as that of A) principals in corporations with taxation at the business entity level. B) limited partners in a partnership with pass-through taxation. C) general partners in a partnership with taxation at the business entity level. D) principals in corporations with pass-through taxation
D
An LLC offers principals the same liability coverage as that of A. principals in corporations with taxation at the business entity level. B. general partners in a partnership with taxation at the business entity level. C. limited partners in a partnership with pass-through taxation. D. principals in corporations with pass-through taxation.
D
In terms of factors to consider in choosing a business entity, issues such as how easy the business is to start and maintain, whether there must be more than one principal, what annual filings or fees are required, and what formalities need to be followed are related to the __________ factor. A) Liability B) Capitalization C) Taxation of Income D) Formation
D
LLC laws define dissolution of an LLC as a __________ process. A) Wind up B) Termination C) Foreclosure D) Liquidation
D
Raul wants a simple method to start-up a small marketing company. The marketing firm has relatively low revenue and expenses. Which type of business entity would you suggest? A. Corporation B. Franchise C. Partnership D. Sole proprietorship
D
Reid Sterling owns a sole proprietorship called Dunkle Distributing. Dunkle Distributing is a A) Legal Name B) Brand Name C) Commercial Name D) Trade Name
D
Several people have decided to go into business as an LLC. To cover all contingencies,they want to specify what constitutes an act of dissociation and outline the procedures upondissolution. This information would be included in A) the certificate of organization. B) the Uniform Limited Liability Company Act. C) common law—the members may not negotiate these rights. D) the operating agreement
D
The expiration date of a corporate bond is also called its __________. A) Amortization date B) Fulfillment date C) Date of return D) Maturity date
D
Which of the following is not a characteristic of an LLC? A. Usually capitalized via debt. B. May elect to be taxed as a corporation. C. Its members are not personally liable for any business debt or liability. D. Only its managing members owe a fiduciary duty to other members.
D
Which of the following is true regarding funding a sole proprietorship? A) Sole proprietorships are not limited in their options for raising money B) Sole proprietorships can sell ownership shares (i.e. stock) in their business venture C) State law prohibits sole proprietors from using their personal financial resources as a source of operating capital D) Private loans come from family members and friends and are paid back according to their individual agreement
D
Which of the following statements is incorrect? A) A corporation may file suit in its own name without the principals filing suit B) A corporation may form a contract in its own name without the principals guaranteeing the contract C) A corporation can be sued without the principals being sued D) A corporation may not incur obligations separate from those of its principals
D
Which statement is accurate about Delaware as it relates to taxation treatment of out of state corporations that incorporate in Delaware? A) They face no taxes. B) Delaware does not allow double taxation of corporations. C) They face very favorable tax treatment. D) Unless they sell products and services in Delaware, they may not benefit at all from Delaware tax treatment
D
A limited partnership is legally defined as an association of two or more people who are co-owners and co-managers of the business and who share in the profits of their ongoing business True False
False
Like most business entities, general partnerships are created by filing a form with the state. True False
False
LLCs were originally created by the Wyoming legislature in A. 1977 B. 1984 C. 1929 D. 1954
A
The duty of a partner to act in the best interests of the partnership is called __________ duty. A. Fiduciary B. Legal C. Ethical D. Commercial
A
The process when an individual member of an LLC exercises the right to withdraw from the partnership is called __________. A) Dissociation B) Disaffiliation C) Disaffirmance D) Dissonance
A
Robert Hill Corp. (RHC) is incorporated in the state of Delaware. If it transacts business in Iowa, RHC would be characterized in Iowa as A) a domestic corporation B) a foreign corporation C) an alien corporation D) a native corporation
B
A limited partnership requires A. at least one general and one limited partner. B. at least two limited partners. C. at least two general partners. D. a written limited partnership agreement.
A
Raul wants a simple method to start-up a small marketing company. The marketing firm has relatively low revenue and expenses. Which type of business entity would you suggest? A) Sole proprietorship B) Franchise C) Partnership D) Corporation
A
Redrock GP has decided to go out of business. Selling the partnership assets and making payments to creditors will occur during the __________ phase of the closing of a partnership. A) winding-up B) termination C) dissociation D) dissolution
A
Toby was elected to the board of trustees of the Chi-Town Corporation (CTC) four years ago. He loves to brag about his position as a board member, but he cares more about the prestige than doing a good job. As a member of the board at CTC, Toby serves on several committees. However, although the board and all of the committees meet on a regular basis, Toby has never attended any of these meetings and doesn't participate in any board decisions. If the insiders at CTC enter into a series of bad business deals that cause CTC to suffer a financial loss, what is Toby's potential liability? A. Toby will be liable because his inattention will likely be considered negligence and a breach of his fiduciary duty of care. B. Toby will be shielded from liability by the corporate veil. C. Toby will be held liable because by accepting the board position he has opened himself up to liability for the actions of the corporation. D. Toby cannot be held responsible because he did not vote to approve the transactions.
A
What is an advantage of a Subchapter S Corporation that a standard corporation does not have? A) It does not face double taxation B) It does not have any filing requirement C) The board does not have any fiduciary duties D) It is inexpensive and easy to start up and run
A
With regard to taxation of partnerships, A) a partnership must file an information return. B) a partnership files a state partnership tax return and pays taxes on its income but no federal filing is required. C) a partnership files a federal and state partnership tax return and pays taxes on its income. D) partnerships have no tax-filing responsibilities.
A
An enterprise may not be a Subchapter S corporation if it owns more than __________ of the stock of a subsidiary corporation. A) 60 percent B) 80 percent C) 70 percent D) 50 percent
B
An owner of a corporation is called A) An officer B) A shareholder C) A principal D) A board member
B
An owner of a corporation is called A. A board member B. A shareholder C. An officer D. A principal
B
Bob is an owner in an LLC which makes him a __________. A) Primary B) Member C) Leader D) Officer
B
Boris, Carina, and Theo have decided to go into business as a limited partnership importing and selling exotic spices. Boris and Carina will manage the business, and Theo will have no role in the day-to-day operations. Boris and Carina have each invested $500,000, and Theo has contributed the building and land that the business will be operated from. Alina, a customer, contracts a rare disease from a contaminated spice sold by the company and sues. Alina is awarded a judgment for $5 million. After she exhausts the assets of the partnership, having the property and building sold, and seizing all other property, $3 million remains unpaid. A) Boris, Carina, and Theo each owe $3 million jointly and severally, so Alina may sue one, two, or all three for the $3 million balance. B) Boris and Carina each owe $3 million jointly and severally, so Alina may sue one or both of them; Theo has no additional liability. C) Boris and Carina each owe $1.5 million, and Alina must sue each for his or her part; Theo has no additional liability. D) Boris, Carina, and Theo each owe $1 million, and Alina must sue each for his or her part.
B
Chaplan Corporation is a privately held corporation that wishes to offer ownership interests to the general public and commercial investors in order to generate more capital. This process is called A) Open stock offerings B) Initial public offerings C) Public stock sales D) Unlimited stock offerings
B
Cyndy is a sole proprietor of a day care. She wishes to build a new playground and also purchase new toys. She plans on doing this in stages and therefore wants a loan where she can draw against a predetermined amount as she needs it rather than getting a lump sum loan. Which type of loan would you recommend for Cyndy? A) Collateral B) Line of credit C) Private loan D) Commercial loan
B
Evan wishes to start an LLC that will do business in Florida, Vermont and Alaska. In which state(s) must he file the articles of organization? A) All three states B) Only one of the three states C) In the states where the business earns at least 15 percent of its profit D) In none of the states as an LLC has no filing requirements for start up
B
Formation of an LLC requires the filing of A) a certificate of formation. B) articles of organization. C) a record of business creation. D) a statement of qualification.
B
Franco and Jesse are operating as a general partnership. A question has arisen that is not covered under their partnership agreement nor addressed by the Revised Uniform Partnership Act. What will the courts do to resolve the situation? A) Look to foreign partnership laws because the RUPA encompasses all U.S. partnership law. B) Look to common law. C) Dissolve the partnership and allow them to reform. D) Look to the UCC for a gap filler
B
Gwendolyn Melvin wishes to start a children's sports store called, "Just Let 'Em Play!" asa sole proprietor. What form must she file so that she can use another name than her own? A) Name Certificate B) DBA Certificate C) UCC-1 statement D) Disclosure statement
B
LLCs are frequently governed by an agreement of the parties called an LLC agreement or A) Partnership agreement B) Operating agreement C) Bylaw D) UCC-1 report
B
LLCs were originally created by the Wyoming legislature in A) 1894. B) 1977. C) 2002. D) 1929
B
Linda, Nancy and Pam stated an LLC two years again. Nancy wishes to now leave the LLC. This process is called: A) Dissolution B) Dissociation C) Dissolvement D) Disbandment
B
Matt and Mindy wish to incorporate their business but want to limit who can buy ownership interests in their business. Which type of corporation would you suggest? A) Non-profit corporation B) Privately held corporation C) Public corporation D) Limited corporation
B
Matt and Mindy wish to incorporate their business but want to limit who can buy ownership interests in their business. Which type of corporation would you suggest? A. Limited corporation B. Privately held corporation C. Non-profit corporation D. Public corporation
B
Owners of nonvoting stock who receive a share of the corporate profits have received what is called a A) Profit-share B) Dividend C) Income distribution D) Gratuity
B
After the ULLCA was created, some states have started to adopt an act that modifies it called A. Reform Limited Company Act B. Reformed Limited Liability Corporation Act C. Revised Uniform Limited Liability Company Act D. Revised Limited Company Formation Act
C
All of the following are methods that a sole proprietorship can raise money except A) Private loans. B) Commercial loans. C) Sell ownership in the business. D) Line of credit.
C
An owner of an LLC is called a A) Principal B) Shareholder C) Member D) Partner
C
Frank wants to leave his partnership and wants to stop being a principal. What is this process called? A) Detachment B) Deduction C) Dissociation D) Dissolution
C
Under the Revised Uniform Partnership Act (RUPA), all partners face joint-and-several liability for contract and tort-related obligations True False
True
Under the default rules of partnership law, if a partner within the ordinary course of business incurs a payment or liability made on behalf of the partnership, the partnership must reimburse that partner for the expense. True False
True