Chapter 17: Business Organizations

To prove the existence of a partnership, which of the following is needed? - A state business license. - One person manages the business. - Only one person is the owner. - A sharing of profits and losses.

- A sharing of profits and losses.

The sole proprietor is free to make any decision she or he wishes concerning: - Whom to hire. - When to take a vacation. - What kind of business to pursue. - All of these choices.

- All of these choices.

How can an LLC be managed? - It can be member-managed. - It can be manager managed. - Both a and b. - Neither a nor b.

- Both a and b.

Compared to a partnership, a sole proprietorship allows more: - Flexibility - Profits - Stock - Growth

- Flexibility

To start a sole proprietorship: - Articles of organization must be filed with the state. - A proprietorship fee must be paid. - A certificate of business must be granted from the state. - No documents need to be filed with the government.

- No documents need to be filed with the government.

What is required for decisions such as to admit a new partner or engage in a new business? - Information return. - Articles of organization. - Unanimous consent. - Articles of partnership.

- Unanimous consent.

An agreement made at the time of partnership formation providing for one or more of the partners to buy out the other or others, in the event the firm is dissolved is called - information return. - a buy-sell agreement. - privity of contract - winding up.

- a buy-sell agreement.

A hybrid form of business enterprise that offers the limited liability of the corporation and the tax advantages of a partnership is - a sole proprietorship. - a corporation. - a limited liability company. - a partnership.

- a limited liability company.

The owner of an LLC is called - an entrepreneur. - a member. - a principal. - an agent.

- a member.

A limited liability company that wants to distribute profits to its members could avoid "double taxation" by electing to be taxed as - a person. - a corporation. - a sole proprietorship. - a partnership.

- a partnership.

The IRS taxes the LLC with two or more members as - a corporation. - a sole proprietorship. - a partnership. - none of the choices.

- a partnership.

A business entity that has no tax liability because the entity's income is passed through to the owners, who pay taxes on it is - a pass-through entity. - a sole proprietorship. - an entrepreneur. - an independent contractor.

- a pass-through entity.

Dissolution of a partnership can be brought about by - the acts of the partners. - operation of law - judicial decree. - all of these choices.

- all of these choices.

In a manager-managed LLC, the members can designate a management group consisting of - only members. - both members and nonmembers. - only nonmembers. - all of these choices.

- all of these choices.

Operating agreements typically contain provisions relating to - management. - profit division. - transfer of membership interests. - all of these choices.

- all of these choices.

The members of an LLC can decide how to operate the various aspects of the business by forming - articles of organization. - an information return. - an operation agreement. - a certificate of limited partnership.

- an operation agreement.

Today, most states follow the UPA and treat a partnership: - as an entity. - as a sole proprietorship. - as a person. - none of these choices.

- as an entity.

For the sole proprietor, business profits are reported: - as business income. - as tax-exempt. - quarterly. - as personal income.

- as personal income.

Neva is a partner in Orchard Farm. Neva gives notice to quit the firm, which otherwise continues to do business. This is - dissociation. - dissolution. - unethical. - illegal.

- dissociation.

The process of collecting, liquidating, and distributing the partnership assets is called - dissolution. - dissociation. - termination. - winding up.

- dissolution.

In a partnership, all partners have - equal rights in managing the partnership. - equal share of stock. - equal share of profits. - none of the choices.

- equal rights in managing the partnership.

When dissolving a partnership, each partner must exercise - a buy-sell agreement. - good faith. - express authority. - equal asset distribution.

- good faith.

Accounting LLC is a member-managed limited liability company. Unless the members have agreed otherwise, all decisions with respect to the firm's business are made by - majority vote. - the firm's board. - the senior members. - the firm's chief executive officer.

- majority vote.

Contracts entered into when the business is not yet formed is called - preincorporation contracts. - privity of contract. - articles of organization. - articles of partnership.

- preincorporation contracts.

When the owner of a sole proprietorship dies, - it is passed to next of kin. - the owner's children automatically inherit it. - so does the business. - the state sells it.

- so does the business.

A written agreement that sets forth each partner's rights and obligations with respect to the partnership is called - a pass-through entity. - information return. - the articles of organization. - the articles of partnership.

- the articles of partnership.

Bea is one of three partners in Commercial Custodial Service. With respect to Bea's interest in the firm, when she dies, her heirs are most likely entitled to - nothing. - a payout of her capital contribution without more. - the buyout price paid by the firm for the interest. - one-third of the value of the interest.

- the buyout price paid by the firm for the interest.

Rena establishes and operates Sweet Homes, a construction-contracting outfit, as a sole proprietorship. In the course of doing business, the outfit fails to pay some of its debts. To satisfy the obligations, the firm's creditors can go after: - the owner's personal assets only. - the firm's assets only. - None of the choices—the creditors must bear the losses. - the firm's assets and the owner's personal assets.

- the firm's assets and the owner's personal assets.

A key advantage of the LLC for members is - taxation can be deferred without penalty. - interest rates for taxes are low. - the members are not personally liable. - free stock.

- the members are not personally liable.

Which is an effect of dissociation? - the partner's duty of loyalty ends. - the partner can collect an equal share in profits - the partner cannot compete with the firm for new clients. - none of these choices.

- the partner's duty of loyalty ends.

Under the federal jurisdiction statute, a corporation is deemed to be a citizen of - the state where it is incorporated and neighboring states. - the state where it is incorporated and maintains its principal place of business. - the state where the members were born. - none of these choices.

- the state where it is incorporated and maintains its principal place of business.

Olin is a partner in Precision Plumbing. When the partners decide to dissolve the firm, Olin collects and distributes the assets. This results in - nothing with respect to the firm's existence. - the continuation of the firm's business. - the termination of the firm's legal existence. - the temporary suspension of the firm's business.

- the termination of the firm's legal existence.

For all obligations incurred in doing business, the sole proprietor has: - limited liability. - immunity from creditors. - no legal responsibility. - unlimited liability.

- unlimited liability.

What are the benefits of sole proprietorships?

SPs own the entire business.