BUL QUIZ 10 Bailey

Which of the following best describes the "double taxation" on corporate profits? The profits of a corporation are taxed at twice the rate of the highest individual tax rate. The income an individual gets from dividends is taxed at twice the rate of the income he gets from wages. The IRS is twice as likely to audit returns with dividend income as it is to audit returns with income from wages only. Corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends as personal income.

Corporations pay taxes on the profits they distribute to the shareholders as dividends, and shareholders pay taxes on the same dividends as personal income.

In a limited partnership LP, what are the partners who have unlimited personal liability for the debts of the LP? General partners Joint partners Limited partners Silent partners

General partners

Which business entity is defined as "an association of two or more owners who carry on as co-owners a business for profit?" Proprietorship General partnership Subchapter S corporation Limited Liability Company

General partnership

In a limited partnership, the _________partner has unlimited personal liability for the debts of the partnership; the ____________partner is liable only to the extent of his or her capital contribution. Limited-----------------general General----------------limited Senior------------------limited General----------------junior

General----------------limited

A person who becomes a partner by estoppel Has the right to share in the profits earned by the partnership Has the right to share in the day to day management of the partnership Has the right to veto any decision where unanimous consent is required Has no partnership rights, only liability to creditors who believed he was a partner.

Has no partnership rights, only liability to creditors who believed he was a partner.

Which of the following issues do not require a unanimous vote of the partners? Admission of a new partner Confession of a judgment against the partnership Disposal of the good will of the business Hiring an office manager for 40 hours a week.

Hiring an office manager for 40 hours a week.

Nelson and Jack are both avid sailors. When a sailing acquaintance put his older, but still highly desirable, boat up for sale, Nelson and Jack agreed to pool their resources to buy and fix up the boat, then sell it and split the profits. This is an example of an______ General partnership Limited partnership Joint venture Proprietorship

Joint venture

Which business entity has the following characteristics: an informal association of two or more persons that is formed to accomplish a single business transaction? Joint venture Limited partnership Professional association General partnership

Joint venture

Which of the following is an informal association of two or more persons who agree to engage as co-owners in a single business transaction? Joint venture General partnership Trading group Limited partnership

Joint venture

Partnership agreements often fund the purchase of a deceased partners' partnership interests with Life insurance policies Distributions of retained earnings Levies on partnership interests Partner advances

Life insurance policies

What is the equitable rule that 1 distributes assets of an insolvent partnership first to creditors of the partnership and 2 does not let partnership creditors reach the assets of individual partners until the partners' personal creditors are satisfied? Equitable distribution Comity of assets Marshaling of assets Partnership partition

Marshaling of assets

John was a limited partner in Commercial Properties Limited. When the general partner became ill, John took over all the management duties of Commercial Properties. Ace Office Equipment, a supplier of Commercial Properties, is suing Commercial Properties over several months of unpaid bills. Under modern laws governing the operation of limited partnerships, which of the following statements best describes John's personal liability for Commercial's debt to Ace Office Equipment? Ace can hold John personally liable for Commercial's debt because he is a limited partner in the business. Ace can hold John personally liable for Commercial's debt because he assumed management of Commercial. Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties. Under no circumstances can John be liable beyond his capital contribution.

Ace can hold John personally liable for Commercial's debt only if Ace knew that John had taken over the management duties.

A partnership will not terminate by operation of law if A partner dies A partner files for bankruptcy A partner becomes insolvent The purpose of the partnership becomes illegal

A partner becomes insolvent

Which of the following is not required to create a partnership? A written agreement between the parties. Two or more persons An understanding to share profits and losses A common interest and intent to conduct business activities together.

A written agreement between the parties.

Bill is a limited partner in K&L Limited Partnership. Which of the following statements about his partnership interests is false? Bill made a capital contribution to K&L Bill has a right to share in K&L profits. Bill must share in K&L losses up to his capital contribution. Bill has a right to make management decisions for K&L.

Bill has a right to make management decisions for K&L.

Which of the following statements is true about a partnership name? The name is an asset of the partnership that may be sold or assigned. The name must include the word "company" in it. The partnership must comply with the state's assume name provisions. Both a and c

Both a and c

A partnership that fails to comply with a state's assumed name statute Will be given a trade name by the attorney general Will not be able to use the courts of the state to sue its debtors May exposed the partners to criminal liability Both b and c

Both b and c

The capital contribution of a partner may consist in all of the following except Patent rights Cash Business experience Real property

Business experience

Phil has a 1/4 partnership interest in Green & Sons. He has been denied access to the partnership books and records for over a year and he suspects that one of the partners has been engaging in secret business transactions using partnership funds. Phil wants to know the status of the business. Phil's remedy in this situation is to go to a court of equity for an ______________. Charging order Marshalling order Accounting Decree of insolvency

Accounting

A partnership whose primary business purpose is the buying and selling of goods is a ________partnership. Professional Entrepreneurial Trading Non-trading

Trading

A partnership that buys and sells commodities is a _______________partnership; a partnership that produces goods or sells services is a _____________partnership. Code--------------------------statutory Code--------------------------common law Trading-----------------------non-trading Trading-----------------------common law

Trading-----------------------non-trading

Partners have unlimited personal liability for the debts incurred by the partnership. True False

True

When a partnership ceases to exist, the process of reducing the firm's assets to cash, paying off the creditors, returning the capital contributions of the partners, and distributing profits is called __________________. Dissolution Winding up Marshaling of assets Termination

Winding up

John, a partner in KLM Partners, had a personal loan from First Bank for 35,000. First Bank got a judgment against John after he defaulted on the loan. First Bank can reach John's interest in KLM Partners and require that a receiver be appointed to take John's share of the partnership profits to satisfy the judgment. The court order that will do this is an ________________ Marshalling order Accounting order Charging order Attachment order

charging order

Any change in the identity of the partners, whether through death, withdrawal, or the adding of a new partner, results in the ________________of the old partnership. Termination Winding up Dissolution Disengagement

dissolution

A business organized as a proprietorship may have up to, but not more than, thirty-five owners. True False

false

A corporation can be in existence for a maximum of ninety-nine years. True False

false

A doctor who practices as part of a professional association cannot be sued for malpractice. True False

false

A joint venture cannot sue or be sued. True False

false

A limited partnership has to have at least two general partners and at least one limited partner True False

false

A partner's capital contribution may consist in business experience or service to the firm. True False

false

Absent an agreement otherwise, each partner is entitled to compensation for his or her services in managing the business. True False

false

An incoming partner has unlimited personal liability for the already existing debts of the partnership. True False

false

Debbie, the manager of a large furniture store, receives a bonus each year equal to 2% of the business' net profits. Under RUPA, this is conclusive evidence that Debbie has a partnership interest in the business. True False

false

If a partner assigns his or her interest in a partnership to a creditor, the assignee steps into the shoes of the partner and becomes entitled to participate in the management of the business. True False

false

If a personal creditor of Partner A wants to attach A's partnership interest in satisfaction of the debt, he would do so through a marshalling order. True False

false

In a partnership for a term of years, each partner has both the power and the right to withdraw from the partnership at any time. True False

false

Marshaling of assets is the tax doctrine that allows income to be taxed only at the owner level and not at the organization level. True False

false

Partners may use partnership property for both partnership and personal reasons. True False

false

The owner of a limited liability company LLC has unlimited personal liability for the debts of the LLC. True False

false

The partnership must pay interest each year on the capital contributions of the partners. True False

false

Vic and Thom bought an antique Corvette at auction with the intent of restoring it and selling it for a profit, which they will share equally. Vic and Thom have formed a professional association. True False

false

By statute, a limited partnership must have a minimum of ____________limited partners. one two four five

one

By statute, a limited partnership must have a minimum of ___________general partners. one two four five

one

A Subchapter S corporation is taxed in the same way a partnership is taxed. True False

true

A buy and sell agreement normally specifies the terms under which a withdrawing or deceased partner's interest will be bought out. True False

true

A corporation must qualify to do business in each state where it conducts business activities. True False

true

A dormant partner is one who does not participate in the management of the business and whose identity is not known to third parties. True False

true

A limited partnership must have at least one general partner and one limited partner. True False

true

A new partner is liable only to the extent of his or her capital contribution for the already existing debts of the partnership. True False

true

A partner in a trading partnership has the implied power to make warranties on goods sold by the partnership. True False

true

A partnership maybe created by an express agreement between the parties or it may be implied from their conduct. True False

true

A sole proprietorship is not a taxable entity; all profits or losses are reported and taxed as individual income. True False

true

Absent a contrary provision in the partnership agreement, all partners have equal rights in the management of the business. True False

true

An advantage to doing business as a corporation is that ownership interests can be transferred without impact on day-to-day business operations. True False

true

In a Limited Liability Company, the losses and profits pass through to the shareholders. True False

true

Investors favor using Limited Partnerships to invest in commercial real estate because they can use the depreciation of the property as a tax loss. True False

true

Legal capacity is the ability of an organization to sue and to own property. True False

true

Members of professional associations and professional corporations are eligible under the Tax Code to participate in pension and profit-sharing plans. True False

true

One partner has the ability to veto the admission of a new partner into the business. True False

true

Partner A defrauded a client of the partnership. Partners B and C are jointly and severally liable with A to the client, even though they were unaware of the fraud. True False

true

Premiums paid by corporations for the health insurance it provides employees are tax-deductible expenses. True False

true

Professional corporations are business entities organized under state law. True False

true

Shareholders of corporations pay taxes on the dividends distributed to them by the corporation. True False

true

Subchapter S corporations may have a maximum of 100 shareholders. True False

true

The Tax Code does not allow corporations to deduct as expenses excessive or unreasonable compensation to officers and employees. True False

true

The capital contribution of each partner is a liability to the partnership and must be returned to the partner when the partnership ends. True False

true

The surviving partner is entitled to compensation for winding up the affairs of the partnership. True False

true

Unless agreed to otherwise, all partners have an equal vote in the management decisions of the partnerships. True False

true

Usury laws do not apply to corporations when they borrow money. True False

true

Peter, Paul and John, who were licensed pharmacists, formed a partnership to purchase and run a small drugstore chain. Each held a 13 interest in the partnership. When Paul died his wife Ellen began receiving annuity payments equal to 13 of the partnership's net profits. The payments were to last for 3 years. Ellen is also a licensed pharmacist and perfectly capable of performing all the duties that Peter, Paul and John performed. She claims that under partnership law both her right to receive a share of net profits and her expertise in the field are prima facie evidence that she is a partner in the firm. Is Ellen correct? No, paying a surviving spouse an annuity out of net profits is not prima facie evidence of partnership. No, only management rights are prima facie evidence of a partnership Yes, sharing in net profits for whatever reason is prima facie evidence of a partnership. Yes, sharing in net profits and having the same business qualifications as the other partners together create prima facie evidence of a partnership.

No, paying a surviving spouse an annuity out of net profits is not prima facie evidence of partnership.

Which of the following is the order in which partnership assets will be distributed upon termination of the partnership? Outside-creditors, partner-creditors, undistributed profits, capital contributions. Capital contributions, outside-creditors, partner-creditors, undistributed profits. Partner-creditors, outside-creditors, undistributed profits, capital contributions Outside-creditors, partner-creditors, capital contributions, undistributed profits.

Outside-creditors, partner-creditors, capital contributions, undistributed profits.

Which of the following is not an advantage of a general partnership? Partners have limited liability for the debts of the partnership The costs to form a partnership are minimal. All partners have equal management rights. All of the above are advantages of a general partnership.

Partners have limited liability for the debts of the partnership

The business entity that consists in an association of two or more persons to carry on as co-owners a business for profit is an__________. Limited partnership Limited liability company Partnership Professional association

Partnership

When partners enter into a partnership without stating how long the partnership will last, they have formed an ____________________. Partnership for a term of years Implied partnership Partnership at will Partnership by the entireties

Partnership at will

Corporations are said to have a burden of "double tax" because Profits are taxed at the corporate level as income and again at the shareholder level as dividends. Corporations are taxed at both the state and federal level. Corporations must file federal tax returns twice a year because their taxing period runs for only 6 months. Corporations compute their federal tax liability by multiplying their state tax liability by 2.

Profits are taxed at the corporate level as income and again at the shareholder level as dividends.

Which of the following statements about the taxation of corporations is false? Premiums paid for employee health insurance plans are fully deductible. Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule. Salaries paid to employees are deductible expenses for the corporation. Most states impose license fees or franchise taxes on corporations doing business in the state.

Profits retained by the corporation are normally taxable to the shareholders under the corporate pass through rule.

A partner who does not participate in the management of the business is a _________partner; a partner who participates in decisions and advises management, but whose partnership interest is not known to third parties is a _________________partner. Dormant-------------------Silent Secret----------------------Dormant Silent----------------------Secret Silent-------------------Dormant

Silent----------------------Secret

Another name for a tax option corporation is a Limited liability Company Professional corporation Subchapter S corporation Joint venture

Subchapter S corporation

A partnership need not give public notice of its dissolution if the dissolution was caused by The bankruptcy of a partner The death of a partner The wrongful withdrawal of a partner The expiration of the partnership's term of years.

The bankruptcy of a partner

Which of the following is not normally included in the Partnership Agreement? The name of the partnership. The capital contribution of each partner. A buy and sell agreement The daily work schedule for each partner.

The daily work schedule for each partner.

Which of the following statements about LLC's is false? LLC's are a relatively new form of business organization. There is an extensive body of law based on court decisions governing LLC's. Shareholders have no personal liability for the debts of the LLC. The LLC is not a taxable entity.

There is an extensive body of law based on court decisions governing LLC's.

Sharing in net profits is not prima facie evidence that a partnership exists if the profits were paid by the partnership As rent For wages As an annuity to the spouse of a deceased partner All of the above

All of the above

Allfam is a closely held family corporation, many of whose shareholders are employees of the corporation. In an attempt to reduce its taxes, Allfam paid its shareholder-employees enormous salaries and deducted the salaries as a corporate expense. Is Allfam permitted to do this? Yes, this is a legitimate way for closely held corporations to reduce their taxes. No, the IRS will disallow the deductions for unreasonably high salaries and tax them as dividends. No, the shareholder-employees will have do return the excess portion of their salaries to the corporation. No, the IRS will disallow the deductions for this year, but will allow the corporation to treat them as carry-forward losses for next year.

No, the IRS will disallow the deductions for unreasonably high salaries and tax them as dividends.

A partnership whose primary purpose is to manufacture things or to provide services is a ____________partnership. Professional Entrepreneurial Trading Non-trading

Non-trading

A partner who participates in the management of the partnership, but whose existence is not known to the public is a _____________ partner. Silent Dormant Secret Senior

Secret

Subchapter S corporations are limited to _________shareholders. 10 35 100 There is no limit to the number of shareholders in a Subchapter S corporation.

100

The maximum number of shareholders a Subchapter S corporation may have is 25 35 100 1000

100

The AMJ Partnership has 3 partners: Amy, who made a 60,000 capital contribution; May, who made a 20,000 capital contribution; and June, whose capital contribution was 10,000. The partnership agreement is silent about how profits will be divided. If the partnership makes 90,000 in profits, how will it be distributed? 60,000 to Amy; 20,000 to May; 10,00 to June 30,000 each to Amy, May and June 45,000 to Amy; 30,000 to May; 15,000 to June The partners will have to determine the distribution by a 23 partnership vote.

30,000 each to Amy, May and June

Which of the following is NOT a recognized advantage of doing business as a corporation? Investors have extremely limited liability for the debts of the corporation. A corporation can have perpetual existence. Usury laws do not apply to corporations. All of the above are advantages of doing business in corporate form.

All of the above are advantages of doing business in corporate form.

Which of the following would bring about the dissolution of the partnership? The time the partnership is to last, as stated in the partnership agreement, has expired All of the partners agree to end the partnership One of the partners dies. All of the above would bring about the dissolution of a partnership

All of the above would bring about the dissolution of a partnership

A partner who does not participate in management and whose existence is not known by the public is a _____________ Silent partner Dormant partner Secret partner Phantom

Dormant partner

Frank is in the business of selling imported pottery. To induce a new wholesaler to sell him goods on credit, Frank and his brother Ed told the wholesaler that Ed was a partner in the business. In fact, Ed had no partnership interest and Frank was a sole proprietor. Ed now has liability to the wholesaler based on The complicity theory Vicarious liability Estoppel Respondeat superior

Estoppel

If a partnership agreement does not say how losses will be shared, they will be shared Equally among the partners Proportionately according to the capital contribution of each partner. In whatever way the profits are shared. Equally among those partners who have not made loans to the partnership

In whatever way the profits are shared.

Which of the following statements about a joint venture is true? It can be the plaintiff in a lawsuit without involving the individuals who form the joint venture. It can be the defendant in a lawsuit without subjecting the individuals who form the joint venture to liability. It is limited by statute to thirty-five members. Individuals form it to conduct a single, or very limited, business activity.

Individuals form it to conduct a single, or very limited, business activity.

Jim and Fred had been equal partners in J & F Industries for 20 years. Jim has died and Fred is now in the process of winding up the partnership. Which of the following statements about the winding up process is false? Fred is entitled to compensation for winding up the business. Jim's estate is entitled to an accounting Jim's estate is entitled to participate in the winding up process. If there are not enough assets in the partnership to pay off all the debts, Jim's estate will be liable for one half of the losses.

Jim's estate is entitled to participate in the winding up process.

If a business has the power to own property, enter into contracts, and sue others in court, it is said to have Legal capacity legal standing legal authority corporate authority

Legal capacity

States give corporations many rights, among them the right to sue and the right to own property in the corporation's name. What do such legal rights collectively constitute for a corporation? Goodwill Legal capacity Business identity Competitive advantage

Legal capacity

Which of the following statements about the limited partner in a limited partnership is false? Limited partners may participate fully in the management of the partnership. There must be at least one limited partner. Limited partners must approve any changes to the partnership agreement. Limited partnerships that invest in real estate are typically good tax shelters for the limited partners.

Limited partners may participate fully in the management of the partnership.

Megan has joined Alliance Partners, making a 50,000 capital contribution. Alliance has been in business for 10 years and Megan is worried about her liability for pre-existing debts. Which statement best describes her liability for the debts Alliance had when she joined the partnership? Megan has unlimited personal liability and her entire capital contribution may be used to satisfy the debts. Megan has unlimited personal liability, but her capital contribution cannot be used because it is new money. Megan has no personal liability for the debts, but her entire capital contribution may be used to satisfy them. Megan has no personal liability for the debts and her capital contribution cannot be used to satisfy old debts.

Megan has no personal liability for the debts, but her entire capital contribution may be used to satisfy them.

What is another name for a Subchapter S Corporation? Hybrid Limited Partnership Tax option corporation Limited Liability Company Professional Corporation

Tax option corporation

Bob, Sue and Jim were classmates in medical school who formed a professional corporation to practice medicine. Which of the following statements about their professional corporation is false? They will be protected from suits for medical malpractice. They will be eligible for a tax-advantaged pension plan. Their practice will have to include some designation of its status, such as "S.C." or "P.C." in its name. Bob, Sue and Jim may have special legal protections against discrimination as shareholder-employees of the professional corporation.

They will be protected from suits for medical malpractice.

A partnership is a taxable entity. True False

false

Partnerships are required to use the term "Company" in their names. True false

false

A partner who does not participate in the management of the partnership is a ________partner. Silent Dormant Secret Junior

silent

A person may become a partner without making a capital contribution. True False

true

If net profits are retained in a Subchapter S corporation, income tax must be paid by shareholders on these earnings even though the earnings have not yet been received. True False

true

If the partnership agreement does not state how long the partnership is to last, a partnership- at- will is created. True False

true

Partnership books must be kept in the firm's place of business and be accessible to all partners True False

true

Partnerships typically buy life insurance policies on each partner in order to fund the required purchase of the partner's interest in the partnership when the partner dies. True False

true

The bankruptcy of a partner will cause the dissolution of the partnership by operation of law. True False

true

Under RUPA, a partnership may take title to real property as a tenancy in partnership. True False

true

Unless agreed to otherwise, partners are not entitled to compensation for work done to further the interests of the partnership. True False

true

May is one of three limited partners in a limited partnership. Each limited partner made a capital contribution of $50,000. Assume there is a judgment against the partnership for $300,000 and that both the partnership and the general partner are insolvent. What is the maximum amount that May will have to pay on the judgment? 0: May is a limited partner so has no liability for the debts of the partnership under any circumstances. $50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that. $100,000: May will be liable for up to 1/3 of the judgment since there are three limited partners. $300,000: As a limited partner May has joint and several liability for the debts of the partnership so she could be personally liable for the full amount.

$50,000: May's capital contribution can be applied to the debt, but she is not personally liable beyond that.

Subchapter S corporation will avoid double taxation only if which of the following applies? All the shareholders agree to be taxed as in a partnership. The corporation files Articles of Partnership in the state where it has its principal place of business. The corporation has no retained earnings All of the above are necessary to avoid double taxation.

All the shareholders agree to be taxed as in a partnership.

The formal document that represents the agreement of the parties to form a partnership is the ___________. Partnership charter Partnership certificate Articles of partnership Uniform Act of Partnership

Articles of partnership

The written agreement between two or more persons that creates a partnership and sets for the rights and duties of each partner is the_____________. Articles of incorporation Articles of partnership By laws charter

Articles of partnership

Bob and Sue, who are both attorneys, agreed to share office space and other overhead expenses in order to save money. They did not agree to form a partnership. They do not share profits or losses and neither has a say in the management of the other's business. The sign outside their door, and on their common letterhead, reads: "Bob Smith and Sue Jones, Attorneys at Law." Using this stationary, Bob purchased office equipment from Smart Buy. Sue at no time used the equipment and did not enter into the contract with Smart Buy. Bob did not pay for the equipment and Smart Buy wants to hold Sue liable. Is Sue liable as a partner for this purchase? Yes, allowing her name to be used with Bob's in the same letterhead created an express partnership. Yes, allowing her name to be used with Bob's in the same letterhead created an implied partnership Yes, allowing her name to be used with Bob's in the same letterhead created a partnership by estoppel No, there was no sharing of profits or losses or management rights so there was no partnership.

Yes, allowing her name to be used with Bob's in the same letterhead created a partnership by estoppel

Which of the following statements about the rights and duties of doctors who practice medicine in a professional corporation is true? Doctors have no personal liability for medical malpractice suits. Because they are also owners of the corporation, doctors have no protection from discrimination based on age. The professional corporation can have no more than 10 owner-employee doctors. are eligible to participate in tax advantaged pension plans.

are eligible to participate in tax advantaged pension plans.

The court order directing that the share of profits due a partner be given to his or her creditor to satisfy a judgment is a _________________order. Charging Marshaling Accounting Collection

charging