Ch 35: Forms of Business Organization

A corporation is a legal entity formed by selling ______ to investors, who then become owners of the company. a. licenses b. stock c. patents d. franchises

b. stock

The ______ liability company is an unincorporated form of business organization that combines the most advantageous features of partnerships and corporations. a. individual b. unlimited c. limited d. joint

c. limited

The ______ combines the tax advantages and management flexibility of a partnership with the limited liability of a corporation. a. joint stock company b. business trust c. limited liability company d. limited partnership

c. limited liability company

Which of the following is not a type of partnership? a. The limited partnership b. The limited liability partnership c. The general partnership d. The conglomerate

d. The conglomerate

Which of the following is correct regarding a business trust? a. A written trust agreement establishes the duties of the beneficiaries toward the trustees. b. A business trust is taxed like a sole proprietorship in most states. c. A business trust is a relationship between two or more corporations created for a specific business undertaking. d. The trustees and beneficiaries of a business trust enjoy limited liability.

d. The trustees and beneficiaries of a business trust enjoy limited liability.

Which of the following is not typically addressed in a franchise agreement? a. Location of the franchise b. Method of termination of the franchise c. Payment to the franchisor d. Whether the agreement constitutes a general partnership or a limited partnership

d. Whether the agreement constitutes a general partnership or a limited partnership

Cooperatives may be incorporated or unincorporated. true false

true Reason: Cooperatives may be incorporated or unincorporated. Unincorporated cooperatives are treated like partnerships, meaning members share joint liability for the cooperative's actions. Members of incorporated cooperatives, on the other hand, enjoy limited liability just as do the shareholders of a corporation.

How many states in the United States recognize the limited liability company (LLC) as a legitimate form of business ownership? a. 50 b. 48 c. 34 d. 27

a. 50

Which of the following is not an advantage of operating a business as a sole proprietorship? a. Articles of organization promote managerial efficiency b. Sole proprietor keeps all profits from the business c. Managerial control d. Minimal legal formalities in start-up

a. Articles of organization promote managerial efficiency

In which form of business organization is the owner in sole control of management and profits? a. Sole proprietorship b. Syndicate c. Corporation d. S-corporation

a. Sole proprietorship

Which of the following specialized forms of business organizations is defined as an organization formed by individuals who pool resources to gain a market advantage? a. The cooperative b. The business trust c. The syndicate d. The joint stock company

a. The cooperative

Which of the following is false regarding the franchise agreement? a. The franchisor can establish the price at which the franchisee sells the goods. b. The franchisor usually includes in the agreement business practices that are forbidden. c. The franchisor usually includes in the agreement business standards that must be met. d. The franchisor can set sales quotas in the agreement.

a. The franchisor can establish the price at which the franchisee sells the goods.

Which specialized form of business organization is an investment group that comes together for the explicit purpose of financing a specific large project? a. The syndicate b. The business trust c. The joint stock company d. The cooperative

a. The syndicate

The ______ governs voluntary associations between two or more people who co-own a business for profit in most states in the absence of an express agreement. a. Uniform Partnership Act b. Uniform Commercial Code c. Securities Exchange Act d. Sarbanes-Oxley Act

a. Uniform Partnership Act

The joint stock company is a mix of ______ and ______. a. corporation; partnership b. limited liability company; corporation c. partnership; limited liability company d. sole proprietorship; partnership

a. corporation; partnership

In a ______, the franchisor manufactures a product and licenses a dealer to sell it in an exclusive territory. a. distributorship b. syndicate c. manufacturing arrangement d. chain-style business operation

a. distributorship

A franchise is a business organization that exists because of an arrangement between the ______, an owner of a trade name or trademark, and the ______, a person who sells goods or services under the trade name or trademark. a. franchisor; franchisee b. franchisor; member c. franchisee; franchisor d. member; franchisor

a. franchisor; franchisee

In a ______, the partners divide the profits and the management responsibilities. a. general partnership b. sole proprietorship c. co-proprietorship d. corporate partnership

a. general partnership

A syndicate is usually considered a type of ______; this, they are almost always governed by ______ law. a. joint venture; partnership b. limited liability company; partnership c. limited liability company; joint venture d. limited liability company; corporation

a. joint venture; partnership

If you want to open a lawn-mowing business on your own and want to be in complete control of the management and profits of the business, you should most likely create a(n): ______. a. sole proprietorship b. syndicate c. general partnership d. S-corporation

a. sole proprietorship

An S corporation cannot have more than ______ shareholders. a. 75 b. 100 c. 25 d. 50

b. 100

Which of the following is correct regarding the partnership agreement? a. A written partnership agreement is required to form a partnership. b. A written partnership agreement is not required to form a partnership. c. No partnership agreement of any kind is required to form a partnership. d. An official partnership agreement is required to form a partnership.

b. A written partnership agreement is not required to form a partnership.

Which of the following is not a disadvantage of operating a business as a sole proprietorship? a. Automatic termination upon the owner's death b. Double taxation of profits c. Limited funding d. Personal liability for business debts

b. Double taxation of profits

Which of the following is a disadvantage of a corporation? a. Profits from the business are taxed as income to the partners, not to the shareholders. b. Formalities are required in establishing and maintaining the corporate form of business. c. Shareholders have unlimited liability for the management of the corporation. d. It is difficult to raise capital by issuing stock.

b. Formalities are required in establishing and maintaining the corporate form of business.

Which of the following is not an advantage of operating a business as a sole proprietorship? a. Minimal legal formalities in start-up b. Immunity from personal liability c. Managerial control d. Single taxation

b. Immunity from personal liability

Which of the following is false regarding a limited liability partnership (LLP)? a. The parties must file a form with the secretary of state to create the LLP. b. In most states, the LLP is considered a separate legal entity. c. The business name must include the phrase "Limited Liability Partnership" or an abbreviation of the phrase. d. Each partner pays taxes on his or her share of the income of the business.

b. In most states, the LLP is considered a separate legal entity.

Which of the following is a disadvantage of operating a business as a sole proprietorship? a. Managerial control of business and profits b. Personal liability for business debts c. Fewer legal formalities required for business start-up compared to a corporation d. Single taxation

b. Personal liability for business debts

Which of the following is a disadvantage of a franchise for the franchisor? a. The franchisor earns increased income from the franchise. b. The franchisor has little control over the franchise. c. The franchisor takes a low risk in starting the franchise. d. The franchisor is not liable for the franchise if he or she exerts only minimal control.

b. The franchisor has little control over the franchise.

When members form an LLC, they typically draft ______, which is the foundational contract among the entity's owners. a. a formation agreement b. an operating agreement c. articles of formation d. operating articles

b. an operating agreement

Select all that apply To terminate a franchise, a franchisor must have: a. court permission to terminate the franchise agreement b. documented the warnings given to the franchisee for violations of the franchise agreement c. been in a business relationship with the franchisee for at least three years c

b. documented the warnings given to the franchisee for violations of the franchise agreement b. documented the warnings given to the franchisee for violations of the franchise agreement

For purposes of jurisdiction, an limited liability company (LLC) is considered a citizen of: ______. a. the state where it was formed b. every state in which its members reside c. all 50 states d. several states, depending on the Federal Rules of Civil Procedure

b. every state in which its members reside

In a(n) ______, the partners share unlimited personal liability for the firm's debts. a. unlimited liability company b. general partnership c. limited partnership d. corporation

b. general partnership

A limited liability company (LLC) is formed by filing articles of ______ in the state in which its members want to establish their LLC. a. federation b. organization c. incorporation d. origination

b. organization

A limited liability company (LLC) combines the tax advantages and management flexibility of a(n) ______ with the limited liability of a(n) ______. a. C corporation; S corporation b. partnership; corporation c. S corporation; C corporation d. corporation; partnership

b. partnership; corporation

The most frequently cited advantage of the limited liability company (LLC) is that for tax purposes, the Internal Revenue Service generally treats the LLC like a ______ or a(n) ______. a. partnership; corporation b. sole proprietorship; partnership c. corporation; S corporation d. corporation; sole proprietorship

b. sole proprietorship; partnership

Which of the following is correct regarding a limited liability partnership (LLP)? a. Each partner in an LLP pays taxes on the total income of the business. b. An LLP consists of a general partner and a limited partner who plays no role in the management of the business. c. Each partner in an LLP is responsible for his or her own negligence and the negligence of those that he or she supervises. d. An LLP is considered a separate legal entity in most states.

c. Each partner in an LLP is responsible for his or her own negligence and the negligence of those that he or she supervises.

Which of the following is not an advantage of operating a business as a partnership? a. Partners can deduct business losses from their taxable income. b. Single taxation of profits c. Limited liability of partners d. Easy formation

c. Limited liability of partners

Which specialized form of business organization is governed by a group of trustees who operate the organization for the beneficiaries? a. The joint venture b. The syndicate c. The business trust d. The joint stock company

c. The business trust

Which specialized form of business organization is defined as a partnership agreement in which company members hold transferable shares, while all the goods of the company are held in the names of the partners? a. The syndicate b. The business trust c. The joint stock company d. The cooperative

c. The joint stock company

In which of the following forms of business organizations are owners personally liable for business debts? a. The S-corporation b. The limited liability company c. The partnership d. The C-Corporation

c. The partnership

In a ______, the franchisor provides the franchisee with the formula or necessary ingredient to manufacture a product. a. joint stock company b. distributorship c. manufacturing arrangement d. chain-style business operation

c. manufacturing arrangement

The major disadvantage of partnerships is that: ______. a. partners have no control over the management of the firm b. it is difficult and time-consuming to create a partnership c. partners are personally liable for the firm's debts d. all income from the business is taxable as business earnings

c. partners are personally liable for the firm's debts

How many states have adopted the latest version of the Uniform Limited Liability Company Act (ULLCA)? a. 24 b. 50 c. 43 d. 17

d. 17

What form of business organization is a voluntary association between two or more persons who co-own a business for profit? a. A sole proprietorship b. A limited liability company c. A corporation d. A partnership

d. A partnership

Which of the following is false regarding a joint venture? a. It is usually terminated when all the product stock has been sold or at the discretion of the members. b. It is not automatically terminated when one of the members dies. c. It is usually created for making and selling a single product. d. It creates an ongoing, full business.

d. It creates an ongoing, full business

Which of the following is correct regarding an S corporation? a. It is formed under local laws. b. It cannot have less than 500 shareholders. c. The shareholders of an S corporation must report the income from the corporation on their business income tax forms. d. It is a corporation under federal tax law but is taxed like a partnership as long as it follows certain regulations.

d. It is a corporation under federal tax law but is taxed like a partnership as long as it follows certain regulations.

Which of the following is correct regarding partner liability for partnership debts? a. Partners have conditional personal liability for partnership debts. b. Partners are not personally liable for partnership debts. c. Although a partner is not personally liable for the malpractice of another partner, he or she is responsible for ordinary partnership debts. d. Partners have unlimited personal liability for partnership debts.

d. Partners have unlimited personal liability for partnership debts.

Which of the following is not a specialized form of business organization? a. The joint venture b. The syndicate c. The business trust d. The corporate partnership

d. The corporate partnership

Which form of business organization is a legal entity formed by selling shares of stock to investors? a. The general partnership b. The syndicate c. The sole proprietorship d. The corporation

d. The corporation

Which of the following is an advantage of a franchise for the franchisor? a. The franchisor has great control over the franchise. b. The franchisor earns decreased income from the franchise. c. The franchisor can become liable for the franchise if he or she exerts too much control. d. The franchisor takes a low risk in starting the franchise.

d. The franchisor takes a low risk in starting the franchise.

Which form of business organization is defined as a relationship between two or more persons or corporations created for a specific business undertaking? a. The general partnership b. The limited liability company c. The limited partnership d. The joint venture

d. The joint venture

Which of the following forms of business organizations is an agreement between at least one general partner and at least one limited partner? a. The limited liability proprietorship b. The limited liability company c. The professional limited liability company d. The limited partnership

d. The limited partnership

Which of the following forms of business ownership is terminated automatically when the owner dies? a. The limited liability company b. The S-corporation c. The corporation d. The sole proprietorship

d. The sole proprietorship

The ______ is a relationship between two or more persons or corporations that is created for a specific business undertaking. a. limited liability partnership b. limited partnership c. cooperative d. joint venture

d. joint venture

In a sole proprietorship, profits are taxed as: ______. a. corporate profits b. capital gains c. business income d. personal income

d. personal income

Much of the litigation associated with franchises involves wrongful ______ of the franchise. a. ratification b. renewal c. acquisition d. termination

d. termination

Which of the following is correct regarding the operation of a limited liability company (LLC)? a. An LLC is required to hold an annual meeting. b. The owners of an LLC are called shareholders. c. An LLC is required to allocate profits and losses in proportion to ownership interests. d. An LLC is required to draft meeting minutes. e. To obtain limited liability, a member does not have to relinquish his or her right to participate in management.

e. To obtain limited liability, a member does not have to relinquish his or her right to participate in management.

If a limited partner dies, the limited partnership is usually dissolved. true false

false Reason: If a limited partner dies, the limited partnership is usually unaffected. If a general partner dies, however, the limited partner is usually dissolved.

Like the S corporation, all owners of a limited liability company (LLC) must be citizens and residents of the United States. true false

false Reason: In our global environment, an increasingly important advantage of limited liability companies (LLCs) is that members need not be citizens or permanent residents of the United States. Other organizational forms, such as the subchapter S corporation, are available only when all the owners are U.S. citizens.

Since the Uniform Limited Liability Company Act (ULLCA) has been adopted in all 50 states, managers need not check the laws regarding limited liability companies in each state to ensure that the liabilities, as well as rights and duties, of a company established in one state continue to apply when conducting business outside that state. true false

false Reason: The Uniform Limited Liability Company Act (ULLCA) has not been accepted by many states. Until a uniform system has been adopted, managers should check the laws regarding limited liability companies in each state to ensure that the liabilities, as well as rights and duties, of a company established in one state continue to apply when conducting business outside that state.

Technically, a corporation must be dissolved when one or more of its shareholders die. true false

false Reason: The corporation is not dissolved when shareholders die.

In determining whether diversity of citizenship exists for federal jurisdiction over a case involving a limited liability company (LLC), an LLC is considered a resident of the state in which it is incorporated and the state that is its primary place of business. true false

false n determining whether diversity of citizenship exists for federal jurisdiction over a case involving a limited liability company (LLC), an LLC is considered a resident of the state in which it is incorporated and the state that is its primary place of business.