BUS 277, PROFESSOR LIPKA SAMPLE QUESTIONS FOR CHAPTER 35

Which of the following is an organization formed by individuals who pool their resources to market products? A. A cooperative B. A syndicate C. A corporation D. A consortium

A. A cooperative p. 780 A cooperative is an organization formed by individuals who usually pool their resources to gain an advantage in the market. 

Which of the following are franchises in which the franchisor manufactures a product and licenses a dealer to sell the product in an exclusive territory? A. Distributorship B. Manufacturing arrangement C. Chain-style business operation D. Approved business franchise

A. Distributorship p. 784 In distributorships, the franchisor manufactures a product and licenses a dealer to sell it in an exclusive territory. A car dealership is an example of a distributorship.

Wally and Sally want to offer a tutoring service. Wally wants to share control and profits equally. He wants to go into business right away and does not want a written agreement. Sally is concerned about expenses and lawsuits if parents are dissatisfied. She wants to protect her personal assets and form a corporation. Wally tells Sally that she would not be personally liable for their business debts and does not want a corporation because of double-taxation. 23. What form of business is Wally proposing? A. General partnership B. Limited partnership C. Dual sole proprietorship D. Joint venture

A. General partnership p.773

In which of the following, if any, may investors share in profits but not in management responsibilities while avoiding personal liability? A. Limited partnership B. General partnership C. Limited liability partnership D. Limited liability company

A. Limited partnership p. 774 In a limited partnership, the general partners assume unlimited personal liability for the partnership's debts, but the limited partners assume no liability beyond the capital they have invested in it and no part in its management. 

Which of the following establishes how a franchise will be terminated? A. The franchise agreement B. The Franchise Termination Act C. The Franchisor-Franchisee Protection Act D. The Franchisee Protection Act

A. The franchise agreement p. 786 The franchise agreement establishes how the franchise will be terminated.

Which of the following is true regarding Wally's assertion regarding taxation of corporations? A. Wally is correct because the corporation must pay taxes on its profits, and the shareholders would also pay taxes on dividends. B. Wally is incorrect because all businesses are taxed in the same manner. C. Wally is incorrect because only S corporations pay double-taxation. D. Wally is correct because his proposal does not involve writing and filing paperwork with the state government.

A. Wally is correct because the corporation must pay taxes on its profits, and the shareholders would also pay taxes on dividends. p. 776 The corporation must pay taxes on its profits, and its shareholders must pay taxes on the dividends (distributions of those profits) they receive from it. 

Which of the following is a business that exists because of an arrangement between the owner of a trade name or trademark and a person who sells goods or services under the trade name or trademark? A. Joint venture B. Franchise C. Joint partnership D. Consensual seller

B. Franchise p. 783 A franchise is a business that exists because of an arrangement between the franchisor, an owner of a trade name or trademark, and the franchisee, a person who sells goods or services under the trade name or trademark.

Syndicates are usually considered a type of ________________, thus they are almost always governed by ______________________ law. A. Limited liability company; corporate B. Joint venture; partnership C. Cooperative; corporate D. Joint stock company; partnership

B. Joint venture; partnership p. 781 Syndicates are usually considered a type of joint venture; thus they are almost always governed by partnership law. 

Which of the following is a voluntary association between two or more persons who co-own a business for a profit? A. Co-owned business B. Partnership C. Joint proprietorship D. Joint corporation

B. Partnership p. 773 A partnership is a voluntary association between two or more persons who co-own a business for profit.

Assuming requirements are met, which of the following, if any, is a way that a corporation can avoid double taxation? A. By forming a C corporation. B. By forming a D corporation. C. By forming an S corporation. D. A corporation cannot avoid double taxation.

C. By forming an S corporation. p. 776. One way to avoid the double taxation is by forming an S corporation. 

In which of the following does a franchise operate a business under the franchisor's name and subject to the franchisor's standard and method of operation? A. Distributorship B. Manufacturing arrangement C. Chain-style business operation D. General franchise

C. Chain-style business operation p. 784 In a chain-style business operation, such as McDonald's and Burger King, the franchise operates under the franchisor's business name and is required to follow the franchisor's standards and methods of business operation. 

Which of the following is false regarding general partnerships? A. They are easy to create. B. Business losses can be deducted from taxes. C. Partners do not have personal liability for losses. D. Income of the business is personal income.

C. Partners do not have personal liability for losses. p. 773 The major disadvantage of partnerships is that partners are personally liable for the firm's debts.

Which of the following governs partnerships in most states in the absence of an express agreement? A. The Joint Partnership Act B. The Uniform Joint Agreement Act C. The Uniform Partnership Act D. The Associated Partnership Act

C. The Uniform Partnership Act p. 773 The Uniform Partnership Act governs partnerships in most states in the absence of an express agreement. 

Which of the following is true regarding corporations? A. A corporation is not a separate legal entity. B. A corporation may not be sued. C. The corporation must pay taxes on profits, and shareholders must pay taxes on dividends they receive from the corporation. D. Shareholders may typically be held liable for debts of the corporation.

C. The corporation must pay taxes on profits, and shareholders must pay taxes on dividends they receive from the corporation. p. 776 The corporation must pay taxes on its profits, and its shareholders must pay taxes on the dividends (distributions of those profits) they receive from it. 

Which of the following offers tax advantages of a partnership and liability advantages similar to a corporation, but allows for unlimited shareholders? A. A limited partnership B. A joint partnership C. A corporate partnership D. A limited liability company

D. A limited liability company p. 777 A limited liability company combines the tax advantages and management flexibility of a partnership with the limited liability of a corporation.

5. Which of the following is false regarding a sole proprietorship? A. A sole proprietorship requires few legal formalities. B. A sole proprietor has complete control of managing the business. C. Profits are taxed as the personal income of the sole proprietor. D. A sole proprietor is not personally liable for debts of the business. 

D. A sole proprietor is not personally liable for debts of the business. p. 772 A sole proprietor is personally liable for any losses or obligations associated with the business.

Which of the following is distinguishable from other forms of partnerships because the partners' liability for professional malpractice is limited to the partnership assets? A. General partnership B. Limited partnership C. Professional partnership D. Limited liability partnership 

D. Limited liability partnership p. 775 If the partners have created a limited liability partnership (LLP), all the partners assume liability for one partner's professional malpractice, but only to the extent of the partnership's assets; the other partners' personal assets cannot be taken. 

Is Wally correct that if they share control and profits equally Sally would not be personally liable for business losses? A. Yes, so long as they have no partnership agreement. B. Yes, because they have not signed any agreement to be personally liable for business expenses. C. No, because they have formed a corporation by estoppel. D. No, because general partners are personally liable for business losses.

D. No, because general partners are personally liable for business losses. p. 773 The major disadvantage of partnerships is that partners are personally liable for the firm's debts.

1. A sole proprietorship is considered a separate legal entity. True False

False p. 772 The sole proprietorship is not considered a separate legal entity. 

3. Officers of a corporation are hired by the shareholders. True False

False p. 776 The board of directors hires officers to run the day-to-day business. 

A type of franchise in which a franchisor provides the franchisee with the formula or necessary ingredient to manufacture a product is a __________________.

Manufacturing arrangement p.784

11. The owners of a corporation are called ______________________________.

Shareholders. p. 776

16. A group of investors that comes together for the purpose of financing a specific large project is a ____________________________.

Syndicate p. 781

2. Members of the board of directors are elected by the shareholders. True False

True p. 776 The shareholders elect a board of directors.

For purposes of jurisdiction, an LLC is considered a citizen of every state in which its members reside. True False

True p. 778 For purposes of jurisdiction, an LLC is considered a citizen of every state in which its members reside. 

If you are their attorney, what would you recommend as the best form of business organization for Wally and Sally, and why?

Wally and Sally can choose an S Corporation or a limited liability corporation, or LLC. An S corporation will allow limited personal liability and avoid double taxation because corporate income will be credited to the SH and only the SH will pay income taxes. A LLC combines the tax advantages and management flexibility of a partnership with the limited liability of a corporation. p777