Chapter 12

Compared to the U.S., new businesses in Japan:

Are created much less frequently than they are in the U.S.

In a sole proprietorship, profits are taxed to the:

Individual owner of the proprietorship

Oldest and simplest form

Proprietorship

The ____ provides "default rules" that determine the operation of partnerships when the partnership agreement is silent or where there is no formal agreement among the partners.

Revised Uniform Partnership Act

A disadvantage of the sole proprietorship form is often:

The owner is personally liable for all the business debts

A close corporation does not have shares of stock traded in stock markets.

True

There are close to 30 million businesses in the U.S.

True

In Zhou v. Bickley, Zhou helped Bickley start a motorcycle repair shop. When they got into a dispute later, the courts held that:

Zhou and Bickley were not partners, Bickley owed Zhou for money received to start the business run by Bickley

The duty of partners to a partnership is:

based on extraordinary trust and loyalty to the partnership

In Japan small businesses are:

considered less desirable places to work, discriminated against by government policy

Partners in a partnership owe each other:

fiduciary duty

# of businesses in US

30 million

Which of the following is a disadvantage of a sole proprietorship:

Both B and C are disadvantages

Under traditional common law rules, a partnership:

Generally was not treated as a single legal entity

majority of businesses in the US are

Sole Proprietorships

Under traditional common law rules, if you wanted to sue a partnership you had to:

Sue each partner individually

A close corporation is one that has a small number of shareholders.

True

A closed corporation typically limits the right to transfer stock.

True

A limited liability company can be recreated to avoid termination.

True

A limited partnership is a special form of a general partnership.

True

A partnership may be designed to continue even if a partner dies or quits.

True

A public corporation is one that trades shares on stock markets.

True

About 80 percent of business revenues go to corporations

True

Certificates of limited partnership must include information about the contributions of each partner.

True

Certificates of limited partnership must include information about the proportion of the profits or compensation that partners are entitled to receive.

True

Corporate charters used by state governments many years ago often granted some special privilege.

True

Corporate directors are protected from liability for honest mistakes in decisions made by the business judgment rule.

True

Corporations are "persons" that enjoy many of the same rights and privileges accorded real persons.

True

Corporations are not provided Fifth Amendment protection against self incrimination. (officers and directors are)

True

Corporations may sue and be sued in the name of the business itself.

True

Directors of a corporation are held to a duty of care to make decisions in a prudent business manner.

True

Directors of a corporation are responsible for making basic corporate policy.

True

Directors of a corporation have great leeway in making decisions about the business.

True

Directors of a corporation may be removed from office for cause, such as a breach of duty.

True

Franchise operators usually pay a franchise fee to buy the franchise.

True

If a corporation is dissolved voluntarily, the creditors must be paid before the shareholders out of the assets of the firm.

True

If a corporation is dissolved voluntarily, there must be a "winding up" of its affairs.

True

If a limited partner contributes services to the business, she may create an inference of managerial control and may be declared a general partner.

True

If partners in a partnership are in a dispute not covered in the partnership agreement, a court uses the Uniform Partnership Act, if the state has adopted it, to settle the matter.

True

If the court "pierces the corporate veil" it may hold the shareholder(s) personally liable for corporate debts.

True

In Dunkin' Donuts v. Sandip the court held that the parent company (Dunkin') could collect attorney fees and cost from a franchisee it sued for improper operations.

True

In Dunkin' Donuts v. Sandip the court held that the parent company (Dunkin') properly terminated a franchise operation due to violations of operating requirements.

True

In Eagles Landing Development, LLC v. Eagles Landing Apartments, LP, where the LLC built apartments for the LP, but the LP did not pay all sums owed, the appeals court held that the limited partners in the LP WERE NOT liable for the unpaid debt of the LP.

True

In Ironite Products v. Samuels, where a major shareholder of a company disputes changes in the bylaws, the appeals court held that the bylaws of the company had been PROPERLY changed by the board of directors, so the shareholder could not complain.

True

In Storetrax.com v. Gurland, where Gurland, founder and president of Storetrax, was fired, the appeals court held that it was not a breach of fiduciary duty for Gurland to be paid severance pay.

True

In Zhou v. Bickley, Zhou helped Bickley start a motorcycle repair shop. When they got into a dispute later, the courts held that Bickley never acted as if Zhou was his partner, hence he was a proprietor who owed Zhou for the money he lent him.

True

In Zhou v. Bickley, Zhou helped Bickley start a motorcycle repair shop. When they got into a dispute later, the courts held that Bickley was a sole proprietor who had borrowed money from Zhou for which he was liable

True

In a corporation, the profits are taxed and then the profits are taxed again when paid to the shareholders, so there is double taxation of corporate profits.

True

In a limited partnership, the general partner has sole responsibility for managing the business and may be personally liable to the partnership's creditors.

True

In a sole proprietorship, legally the owner is the business and the business is the owner.

True

In most states, limited partnerships must file certificates of limited partnership with the state.

True

It may be difficult to sell a partnership share in a partnership because determining the market value of the share may be difficult.

True

Limited liability companies are guided by an operating agreement.

True

Limited liability companies are taxed like partnerships, but have the liability rules of a corporation.

True

Limited partners may not participate in the management of the limited partnership or they lose certain legal protections.

True

Managers hired to run a corporation owe it a duty of care and loyalty.

True

Many states allow partnerships to be treated as legal entities for certain purposes.

True

Monopoly power was often granted by early corporate charters.

True

Most states have passed a Uniform Limited Partnership Act.

True

Offshore businesses are often established for tax purposes.

True

Parent franchise companies may limit the territory in which a franchisee operates.

True

Partnership agreements typically state what the voting rights of partners will be and how the profits will be shared.

True

Shareholders are the owners of a corporation.

True

Shareholders have a limited right to inspect the books and records of the corporation.

True

Shareholders in corporations and limited partners in limited partnerships have liability limited to the sum they invested in the business, even for tort liability.

True

Shareholders liability is limited to the extent of investment in stock in the corporation.

True

Shareholders may usually grant their proxy for another party to vote on corporate matters on their behalf.

True

Shell corporations are very easy to be set up in many states.

True

Some states have adopted regulations for the sale of franchises that go beyond the federal requirements.

True

State laws, not federal, concern the forms of business organization.

True

The Franchise Rule requires franchisors to produce a detailed disclosure document before any money is paid by franchisees.

True

The articles of incorporation filed with the state can provide minimal information about the structure of a corporation.

True

The articles of incorporation include the classes of stock to be issued and the purpose of the business.

True

The corporate bylaws are the rules that regulate the internal structure of a corporation.

True

The directors of a corporation are the principal of the corporation.

True

The duties owed to shareholder by the board of directors are often affected by the circumstances in which the business finds itself.

True

The formation of limited partnerships is governed by state law, not common law.

True

The income from a partnership is taxed as the personal income of the partners.

True

The income of proprietorships is often treated as personal income of the owner.

True

The income of proprietorships must be reported on a corporate income tax form.

True

The law specifies that partners owe a fiduciary duty to one another of the highest loyalty.

True

The modern "liberal" general incorporation statutes that we have today were adopted in the late 1800s.

True

The offering circular that franchisors are required to produce contains information about the background and experience of the executives of the franchise firm.

True

The owners of a limited liability company are called members.

True

The sole proprietorship is the most common business organization in the U.S.

True

The states issue certificates of incorporation.

True

The voluntary dissolution of a corporation is approved by the shareholders and board of directors.

True

The winding up of partnership affairs completes any unfinished business and distributing the partnership's assets.

True

To terminate a partnership, the partners must go through "dissolution."

True

Typically, members of a limited liability company will enter into an operating agreement that is similar to corporate by-laws.

True

Unless otherwise provided by contract, a partnership dissolves if a change in the composition of the partners takes place.

True

In most circumstances, a partnership is now treated as:

a legal entity

A partnership can begin with:

a written agreement or an oral agreement or an implied agreement that can be inferred from the conduct of the parties doing business

any name other than the name of the individual who owns the business

fictitious name

The owner of a sole proprietorship:

is legally the same as the business and is taxed the same as the business and may hire any number of employees

Which of the following is not true about a partnership?

it is always an independent legal entity

Unless otherwise stated by contract, the law of partnership presumes which of the following not to be true?

only managing partners are fully responsible for debts of the partnership

A person doing business for herself is a ____; the business is a ____.

sole proprietor; proprietorship

A written partnership agreement typically specifies the following except:

that the partnership will be established under federal or state law

A disadvantage of the sole proprietorship form is often:

the limited alternatives for raising financial capital