LAW chapter 14

The factor of control in a business organization concerns _____.

who is managing the organization

A crucial issue with the continuity factor of an organization is the _____.

method by which the business organization can be dissolved

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

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

shareholders

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

-principles -agents

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.

alien corporation

A corporation created under the authority of a foreign country may be called so.

nontrading partnership

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

Joel, a manager at a retail store, buys new stock from a wholesale dealer and uses an oral consent from his employer to charge the expenses to his company's account with the dealer. Identify the form of contractual authority held by Joel in this scenario.

Actual authority

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.

Publicly held organizations

Businesses whose stock is traded on a public exchange

closely held organizations

Family-operated and family-owned businesses

implied authority

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

termination

It involves the liquidating or winding up of a business.

dissolution

It means the legal form of an organization does not exist anymore.

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

exempted from paying tax on income

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

false

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

false

A partnership is advantageous as a form of business organization because it _____.

guarantees each partner an equal voice in management unless there is a contrary agreement

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

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 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

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.

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.

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

S corporations

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

false

________ 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

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

shareholders, directors, officers

In the context of a corporation's liabilities, the corporate veil is said to be pierced when _____.

the corporate entity is disregarded because courts find that the corporate organization is being misused

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

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.

true

Identify a true statement about a limited partnership.

The limited partners have no right to participate in management.

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.

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

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

-Partnerships are not a tax-paying entity. -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.

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 continuity of the organization -The cost of creating the organization

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

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 a true statement about a sole proprietor.

He or she is personally obligated for the proprietorship's debt.

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.

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.

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 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 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

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

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

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

control

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

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

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

false

In the context of the creation of corporations, identify the true statements about a corporate name. (Check all that apply.)

-It is an asset and an aspect of goodwill. -It typically includes one of the following words or end with an abbreviation of them: "corporation," "company," "incorporated," "limited."

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

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

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.

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.)

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

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.

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.

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 corporations.

They have higher costs of formation than partnerships.

Identify a true statement about limited partners.

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

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

false

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.

false

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

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

foreign corporation

A corporation is called so in places other than the state in which it is incorporated.

domestic corporation

A corporation is called so in the state in which it is incorporated.

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.

Many individuals prefer the corporate form of organization because _____.

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

A partnership is a form of business organization that _____.

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

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

false

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

proxy

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

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

cannot be created by multiple owners

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

corporate income may be subject to double taxation

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 actual authority to buy and sell commodities, rather they have ____________ authority to do so.

implied

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

in total control of his or her business's goals