Chapter 17: Business Organizations

An operating agreement for a limited liability company: a. may not specify how profits are divided. b. is required for the operation of a limited liability company. c. must be in writing and signed by all the officers of the company. d. typically includes provisions about choosing the LLC's management.

typically includes provisions about choosing the LLC's management.

Partners have which of the following duties? Select 3 answers.

Fiduciary duties Record keeping Capital contribution

Any partner: a. may create a business in direct competition with the partnership. b. may encumber the property of the partnership to satisfy personal debt. c. may act as an agent who binds the partnership. d. is entitled to compensation for their time, skill, and effort.

may act as an agent who binds the partnership.

The simplest form of business to establish is a: a. partnership. b. limited liability company. c. corporation. d. sole proprietorship.

sole proprietorship.

Which of the following are advantages of operating as a partnership? Choose 2 answers. a. Any partner may add a new partner at any time to help decrease the workload and liability and to bring in more capital. b. Partnerships are not taxed. c. The partners are not personally liable for business debts if the partnership is registered with the state. d. Forming a partnership is simple and relatively inexpensive.

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

The formation of a partnership without a partnership agreement requires which of the following? Select 2 answers.

Sharing of profits and losses Sharing of management duties

Which statement is true about creating a sole proprietorship? a. There is a waiting period of 30 days between opening the business and the time a sole proprietorship becomes official. b. The members of a sole proprietorship must write and sign an operating agreement. c. The owner of a sole proprietorship must file an official record of the business name with the secretary of state's office. d. No documentation is required to create a sole proprietorship.

No documentation is required to create a sole proprietorship.

Which of the following is a disadvantage of operating as a partnership? a. Partners may suffer financial loss if the partnership is not profitable. b. Partnerships are taxed at the same rate as corporations. c. A partnership may be formed for only one year at a time and the registration must be renewed annually. d. A partnership may not own real or personal property.

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

Which of the following are essential elements of a partnership? Choose 2 answers. a. Profits and losses are shared among the members. b. All members have equal right to be involved in the management of the business. c. The name must include the word "partnership." d. All members have signed a written partnership agreement.

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

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.

A general partnership differs from a limited partnership in: (Choose 2 answers.) a. the documents required for creation. b. the minimum number of partners. c. the limit on profits. d. a partner's management rights.

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

A written agreement outlining the roles of partners, their rights, and their duties are called: a. Articles of Organization. b. Operating agreements. c. Articles of Incorporation. d. a partnership agreement.

a partnership agreement.

Which of the following provisions are typically in an operating agreement for a limited liability company (LLC)? Choose 2 answers. a. how membership interests may be transferred b. a record of the company's assets and debts c. whether the dissociation of a member, such as by death or departure, will trigger dissolution of the LLC d. the advertising plan for the company

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

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: a. limited liability partnership. b. limited liability limited partnership. c. limited partnership. d. general partnership.

limited liability limited partnership.

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: a. member-managed, and the member with the largest capital investment will control the decisions of the LLC. b. member-managed; all members will vote on decisions of the LLC, and the majority vote controls. c. manager-managed; the members will designate a person or persons to manage the LLC, and none of the managers can be members. d. manager-managed, and the members will designate a person or persons to manage the LLC, which may include nonmembers.

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

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: a. corporation. b. limited liability company. c. franchise. d. sole proprietorship.

sole proprietorship.

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: a. the dealership must honor the deal and reinstate Ellie as a partner. b. the dealership is not required to honor the deal whether or not it has provided Dylan notice of Ellie's dissociation. c. the dealership must honor the deal unless it has provided Dylan notice of Ellie's dissociation. d. the dealership is not required to honor the deal because Ellie is no longer a partner.

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

A sole proprietorship differs from a limited liability company (LLC) in: a. the documentation required for formation. b. how stock is sold. c. ability to earn a profit. d. the minimum number of owners.

the documentation required for formation.

The formation of LLCs is governed by: a. the ULLCA. b. private agreements. c. the laws of the state in which the LLC is created. d. federal statute.

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: a. they must file an operating agreement with the secretary of state and should create a certificate of organization, although a certificate of organization is not required. b. they must file a certificate of organization with the county clerk and should create an operating agreement, although an operating agreement is not required. c. they must file a certificate of organization and an operating agreement with the secretary of state. d. 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.

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.

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: a. whether Jerry and Lawrence share profits and losses in the business. b. 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. c. whether Jerry and Lawrence have signed a partnership agreement. d. whether Jerry and Lawrence list themselves as partners on their letterhead.

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.

Which of the following is required to create a sole proprietorship? a. An intention between two or more people to run a business b. Filing Articles of Organization with the secretary of state c. Filing Articles of Incorporation with the secretary of state d. Nothing

Nothing

Which of the following is required in the Articles of Organization for an LLC? Select 2 answers.

The name of the business The principal place of business