Business Law Chapter 21

Which of the following is the most common choice of organization for a new small business?

A limited liability company

How is the income from a partnership taxed?

As individual income

Which of the following is a disadvantage of a corporation?

Double taxation

True or False: A franchisor is the seller of goods or services under a tradename or trademark in a franchise.

False: A franchisor is the owner of the trade name or trademark in a franchise. A franchisee is the seller of goods or services under a trade name or trademark in a franchise.

True or False: Not all states recognize a limited liability company.

False: The limited liability company form of business organization was first recognized in the United States in 1977 in Wyoming and is now recognized in every state.

Suppose Tad creates a partnership agreement with his best friend, Kyle. Then he tells his first potential customer that their friends Bobby and Carl are also partners. On the basis of their participation, the customer decides to place an order with Tad. Bobby and Carl discover that Tad has reported they are his partners, but they do not contact the customer to tell her they are not partners. What can be said about the relationship between Carl and Bobby in this situation?

In many states Bobby and Carl could be held liable for damages because partnership by estoppel exists.

Which of the following is not true of a limited liability partnership?

The LLP is not considered a separate legal entity. Each partner pays taxes on his or her share of the income of the business.

Which of the following is not generally included in a franchise agreement?

The price at which the franchisee sells the goods.

Which of the following is not an advantage of a sole proprietorship?

The sole proprietor cannot be sued.

True or False: In a general partnership, the partners share unlimited personal liability for the partnership's debts.

True A general partnership consists of an agreement that the partners will divide the profits (usually equally) and management responsibilities and share unlimited personal liability for the partnership's debts.

Suppose Zander sues your partnership, which has four partners. Zander names one of the partners in the first action. If the first partner is found liable, then ______________________.

Zander can sue all three other partners separately

In a sole proprietorship, the proprietor has personal liability for _____.

all losses

In a limited partnership, _____________________ no liability beyond the capital they invested.

at least one limited partner assumes

If a member voluntarily withdraws from an LLC, it is called a _____.

dissociation

An LLC is similar to a limited partnership in that _____________________________.

each member has limited liability dependent on the investment he or she makes

Suppose Tom and his brother, Ridley, decide to create a lawn care business. Both agree to share control of the business, work the same amount, and split the profits equally. Tom and Ridley created a ____________________.

general partnership

Dissolution of the limited partnership is very similar to dissolution of the general partnership. The ____________ has no right or power to dissolve the partnership. While the death or bankruptcy of the limited partner rarely dissolves the partnership, the death of the general partner usually does (unless the agreement specifies otherwise).

limited partner

An LLC is formed by filing articles of _____ in the state in which members want to establish their LLC.

organization

An LLC may be taxed as a:

partnership, sole proprietorship, or a corporation

A limited liability company is usually taxed as a _____ and its member have _____ liability.

partnership; limited