MGT 360: Chapter 14 MC

TRUE OR FALSE A business is likely to shift away from the proprietorship form as it becomes more successful.

True

TRUE OR FALSE A corporation usually has a perpetual existence, thus when shareholders die or sell their stock it does not affect the organizational structure of the corporation.

True

TRUE OR FALSE For federal income tax purposes, limited liability companies are nontaxable entities.

True

A corporate form that requires directors to ensure the corporation confers a public benefit is called a ________. a. Benefit corporation b. Sole proprietorship c. Public corporation d. Nonprofit corporation e. Limited partnership

a. Benefit corporation

Dr. Smith had an oral agreement with Dr. Jones to take Dr. Smith's "on call" patients while Smith was on vacation. The oral agreement included a compensation provision that Smith would receive 30 percent of any fees collected by Jones and would see the patients in Dr. Jones' office. While Smith was on vacation, Jones saw BillyBob, a patient of Dr. Smith. Dr. Jones misdiagnosed BillyBob's problem, and he died. BillyBob's heirs sued both Dr. Smith and Dr. Jones, claiming at the time they were partners. Dr. Smith defended that he is not liable for BillyBob's death. Which of the following statements is most correct? a. Dr. Smith is not liable because no partnership was created. b. Dr. Smith is not liable because Dr. Jones was not his agent, stepping into his shoes only when he was on vacation. c. Dr. Smith is not liable because Dr. Jones performed a medical act that Dr. Smith did not approve. d. Dr. Smith is not liable because Dr. Jones breached his fiduciary duty to Dr. Smith.

a. Dr. Smith is not liable because no partnership was created.

Which of the following statements is true of a general partnership? a. Each partner in a general partnership has an equal voice in the firm's affairs. b. A general partnership is not dissolved if there is a change in the partners. c. A general partnership must have at least one controlling partner. d. All partners in a general partnership have only limited liability for their organization's debts. e. Unlike proprietorships, partnerships are taxable entities.

a. Each partner in a general partnership has an equal voice in the firm's affairs.

Clarence, a movie producer, was allowed to work at a movie production company's offices (ITC) out of courtesy. His business card listed the ITC address and his phone calls were handled by ITC staff. In the office, he made a deal to produce a movie for another company. When problems developed, the other company, presuming Clarence worked for ITC, sued ITC. ITC will only be liable if: a. ITC ratified/accepted the agreement. b. there is a written agency agreement between ITC and Clarence. c. only if Clarence acquiesces to the agreement. d. only if the contract included ITC's name.

a. ITC ratified/accepted the agreement.

In a(n) ______, the shareholders are taxed only on income distributed. a. corporation b. limited liability company c. S corporation d. sole proprietorship e. limited partnership

a. corporation

Jill wants to form a corporation, but she wants to avoid double-taxation. What type of corporation should she form? a. C Corporation b. S Corporation c. X Corporation d. Benefit Corporation

b. S Corporation

Which of the following is a disadvantage of partnerships? a. They have a high cost of formation b. They will be dissolved any time a partner leaves the partnership c. They are tax-paying entities d. They are subject to more governmental supervision than corporations e. They need to obtain a license if they wish to operate in more than one state

b. They will be dissolved any time a partner leaves the partnership

Two mortgage brokers, in clear violation of the rules of their employer, originated loans to customers by falsifying information on the loan application, which inflated the loan origination fees and allowed them to receive a kick-back at closing. There was no question that the brokers had the actual or implied authority to sell the stock. The borrowers sued the mortgage firm, contending it was liable for their losses because the brokers had apparent authority. Is the firm liable for the brokers' actions? a. No, the mortgage company is not liable for the actions of the brokers because they did not have express authority b. Yes, the mortgage company is liable because the brokers had apparent authority. c. Yes, the mortgage company is liable because the brokers had actual authority. d. Yes, the mortgage company is liable because the brokers had implied authority.

b. Yes, the mortgage company is liable because the brokers had apparent authority.

As a creature of state legislative bodies, a ______ is much more complex to create and to operate than other forms of businesses. a. limited partnership b. partnership c. limited liability partnership d. sole proprietorship e. corporation

e. corporation

TRUE OR FALSE A business cannot change it organizational form as a part of its life cycle, but instead must dissolve and reestablish itself under a new form.

False

TRUE OR FALSE An S Corporation is organized under Delaware law and may not have more than 50 shareholders.

False

TRUE OR FALSE To form a general partnership, the partners must file articles of organization with the state in which the general partnership is created.

False

Nicholas and Adeline started doing tax returns for friends in college and split the profits. Now they do tax returns for their startup businesses and split the expenses and profits, but have never adopted a business name or filed any organization papers with the state. They have formed a. a sole proprietorship b. a partnership c. an LLC d. an illegal association

b. a partnership

The owners of limited liability companies are called ______. a. directors b. members c. proprietors d. partners e. shareholders

b. members

Gary and Sue start a consulting firm. They are co-owners of it and have joint control over its operation and the right to share in its profits. Their organization is most likely a: a. proprietorship b. partnership c. limited partnership d. corporation

b. partnership

The _________elect members of the board of _________, who set the objectives and goals of the corporation. a. officers, shareholders b. shareholders, directors c. arbitrators, proxies d. directors, officers e. proxies, shareholders

b. shareholders, directors

Which of the following is the disadvantage of the corporate form of organization? a. Shareholders' liabilities are limited to their investments. b. Ownership may be divided into many unequal shares. c. Corporate income may be subject to double taxation. d. The organization cannot have perpetual existence. e. Control of a corporation may be held by those with a minority of the investment.

c. Corporate income may be subject to double taxation.

Dean Smith did business as Deans's Appliance. For years, he bought appliances direct from General Electric. Deans's Appliance was sold to Smitty's Appliance, Inc. and Smitty hired Dean as manager, but General Electric did not know of the ownership change. Dean ordered a truckload of appliances from General Electric, as he had done many times. But when the invoice came due, Smitty refused to pay, claiming the order was a mistake, and it had not authorized Dean to make the order. General Electric sued both Smitty and Dean personally. What is the most likely outcome? a. Smitty is not liable to GE, and Dean is not personally liable to GE because a mistake is a defense to personal liability. b. Smitty is not liable to GE, and Dean is not personally liable to GE because Smitty was a disclosed principal. c. Smitty is liable to GE, and Dean is not personally liable to GE based on apparent authority. d. Smitty is liable to GE, and Dean is personally liable to GE based on actual authority.

c. Smitty is liable to GE, and Dean is not personally liable to GE based on apparent authority.

If Don wants to form a corporation, he will need to: a. apply for permission from the Federal Trade Commission. b. apply for permission from the Department of Commerce to pursue an incorporation. c. create and file articles of incorporation with the proper state official. d. create and file articles of incorporation with the FCC.

c. create and file articles of incorporation with the proper state official.

Nas owns nine stores - three restaurants, three gas stations and three convenience stores. He employs a manager for each line of business to negotiate and enter into all transactions in connection with the stores in that business line. These managers are a. gratuitous agents b. universal agents c. general agents d. special agents

c. general agents

Which of the following is required to have its organizers file articles of organization with state official for formation? a. partnership b. limited liability partnership c. limited liability company d. sole proprietorship e. limited partnership

c. limited liability company

Jonathan intends to have maximum control over his decisions in his business. Which of the following forms of business organizations is most likely to give Jonathan total control over his business decisions? a. S corporation b. limited liability company c. sole proprietorship d. corporation e. partnership

c. sole proprietorship

Which of the following is an advantage of a sole proprietorship? a. A sole proprietor is personally obligated for the debt of the proprietorship. b. A sole proprietorship's business activity may be more stable than the proprietor's willingness to remain actively involved in the business. c. A sole proprietorship is not taxed as an organization. d. A sole proprietorship is the least expensive business organization to create. e. In a sole proprietorship, liability is shared with many partners.

d. A sole proprietorship is the least expensive business organization to create.

Hanson is Carla's agent. Carla has made it clear to Hanson that she does not want him to sign the contracts that he negotiates; she retains that power and Mario is aware of this. If, despite Carla's instructions, Hanson negotiates and signs a contract with Mario committing Carla to spend thousands of dollars, Carla is liable under the contract of: a. express authority b. apparent authority c. implied authority d. None of the answers

d. None of the answers

Which of the following statements is true of managerial control in a general partnership? a. The possibility of deadlock is higher when there is a greater number of partners b. The differences in the degree of control do not affect a business's success c. It is mandatory for each partner to have equal voice in a firm's affairs d. Partners may agree to divide control in such a way as to make controlling partners and minority partners

d. Partners may agree to divide control in such a way as to make controlling partners and minority partners

Taylor contracts with Macy's Manufacturing to do excavation work and gets injured on the job. If Taylor is an independent contractor, the injuries would typically not be covered by Macy's Manufacturing's insurance. Which of the following is not relevant to the determination of whether Taylor is an independent contractor or employee? a. The extent to which the employer exercised control over the details of work. b. Whether the work done involves significant skill. c. Whether compensation is by the job will by the hour. d. Whether there is a written agreement that outlines the expectation of the project.

d. Whether there is a written agreement that outlines the expectation of the project.

Jeanette wants to exercise sole managerial control over her business but she does not have enough money to set the business up so she is seeking investors. What type of organization should she form? a. a sole proprietorship b. a partnership c. a cooperative d. a corporation

d. a corporation

After Eli forms a corporation, he will need to do all of the following except: a. elect a board of directors. b. enact bylaws. c. issue stock. d. file the articles of incorporation.

d. file the articles of incorporation.

In a corporation, the ________ elect members of the board of ________, who set the objectives and goals of the corporation. a. arbitrators, proxies b. officers, shareholders c. proxies, shareholders d. directors, officers e. shareholders, directors

e. shareholders, directors