BULW Exam 3- CH 17

Partners have which of the following duties?

- Capital contribution - Record keeping - Fiduciary duties

The formation of a partnership without a partnership agreement requires which of the following?

- Sharing of management duties - Sharing of profits and losses

Which of the following is required in the Articles of Organization for an LLC?

- The name of the business - The principal place of business

Which statement is true about creating a sole proprietorship?

No documentation is required to create a sole proprietorship.

Which of the following is required to create a sole proprietorship?

Nothing

Which of the following is a disadvantage of operating as a partnership?

Partners may suffer financial loss if the partnership is not profitable.

Any partner:

may act as an agent who binds the partnership.

A written agreement outlining the roles of partners, their rights, and their duties are called:

partnership agreement

The simplest form of business to establish is a:

sole proprietorship.

Which of the following are advantages of operating as a partnership?

- Forming a partnership is simple and relatively inexpensive. - Partnerships are not taxed.

Which of the following are essential elements of a partnership?

- Profits and losses are shared among the members. - All members have equal right to be involved in the management of the business.

A general partnership differs from a limited partnership in:

- a partner's management rights. - the documents required for creation.

Which of the following provisions are typically in an operating agreement for a limited liability company (LLC)?

- whether the dissociation of a member, such as by death or departure, will trigger dissolution of the LLC - how membership interests may be transferred

A partnership in which the liability of all the partners is limited to the amount of their capital investment in the firm is called a:

limited liability limited partnership.

Johnson lives near Dollywood, a popular theme park in Tennessee. Johnson decides to begin a new money-making venture selling screen printed t-shirts from a booth just down the road from the theme park, to take advantage of the traffic that flows by on its way to the park. Johnson's t-shirts, however, will not be Dollywood-themed t-shirts; they will be Johnson's own creations. Johnson's daughter Susan helps him in his new venture by manning the booth from time to time, but Johnson has total control over everything about the business—from ordering the t-shirts, paying the bills, pricing the t-shirts, paying the taxes on his sales, and receiving all the profits from the venture. Even though Johnson put no thought into what kind of business venture he was creating when he started his business, Johnson has effectively created a:

sole proprietorship.

A sole proprietorship differs from a limited liability company (LLC) in:

the documentation required for formation.

The formation of LLCs is governed by:

the laws of the state in which the LLC is created.

Lola, Jacy, and Tate plan to create a company to manufacture bicycles. After reviewing the pros and cons of the various forms of business enterprises, they decide to create a limited liability company. To create a limited liability company:

they must file a certificate of organization with the secretary of state and should create an operating agreement, although an operating agreement is not required.

An operating agreement for a limited liability company:

typically includes provisions about choosing the LLC's management.

Jerry Hall and Lawrence Vaught practice law in the same building. They share equally in the overhead expenses, such as rent and utilities, required to keep the business running. Both Jerry and Lawrence handle their own cases, consult and accept their own clients, and purchase their own advertising. Jerry and Lawrence do occasionally handle a case together, and they have stationery that says "Hall and Vaught" on the letterhead. They each have their own stationery as well. Jerry and Lawrence keep their finances separate, except when they handle a case together; then, they split the proceeds equally. When a client of Jerry's becomes dissatisfied and sues Jerry for malpractice, she sues Lawrence as well. In deciding whether or not a partnership exists here, the court will look at:

whether Jerry and Lawrence share profits and losses, whether they own the business jointly, and whether they have an equal right to be involved in the management of the business.

Bart, Sam, and Greg create Big Barns Sales LLC, a company that builds pre-constructed barns. They file the certificate of organization with the secretary of state and create an operating agreement for the LLC. The operating agreement, however, does not address the method by which the LLC will be managed. Because management of the LLC is not addressed in the operating agreement, it is assumed the LLC will be:

member-managed; all members will vote on decisions of the LLC, and the majority vote controls.

Ellie, Josie, and Dylan are partners in a car dealership. Ellie gives notice to Josie and Dylan that she wants to withdraw from the partnership, and Josie and Dylan decide to continue the partnership without her. Shortly after Ellie leaves the partnership, she has lunch with an old friend, Justin. Justin has been looking for a new car and asks about the price of a particular car he saw on the website of the dealership, because he does not know that Ellie has left the partnership. Instead of telling Justin that she has left the partnership, Ellie quotes Dylan a price for the car, and Dylan accepts. When Dylan goes to the car dealership to complete the deal:

the dealership must honor the deal unless it has provided Dylan notice of Ellie's dissociation.

You plan to open a tattoo parlor, and you are trying to decide the best form of business entity to use. You decide on a sole proprietorship (a solely-owned business), because you want all the profits from the business and you don't want anyone telling you how to run your business. Do you think there might be any disadvantages to creating your tattoo parlor as a sole proprietorship?

Yes. As a sole proprietor, you can be held personally liable for all the business's debts, and your options for raising capital will be limited.