BLTE-10e Practice Quiz
Chapter 19: The Entrepreneur’s Options
1. The simplest form of business is:
a. a partnership.
b. a joint venture.
c. a sole proprietorship.
d. a corporation.
ANS:
a. Incorrect. A partnership, because it involves more people, is more complex than a sole proprietorship.
b. Incorrect. A joint venture is not the simplest form of business.
c. Correct. A sole proprietorship, or a business owned by one person, is the simplest form of business.
d. Incorrect. A corporation is a rather complex form of business.
2. Assume that when Kyle and Larsen formed their partnership, Kyle contributed 80 percent of the capital, and Larsen, 10 percent. They did not agree, however, on what percentage of the profits each partner would receive. Further assume that they make $35,000 in profits in 2007. In this situation, what is Larsen’s share of the profits?
a. $3,500.
b. $10,000.
c. $17,500.
d. $35,000.
ANS:
a. Incorrect. Larsen is entitled to one-half of the profits, or $17,500.
b. Incorrect. Larsen is entitled to one-half of the profits.
c. Correct. If a partnership agreement does not apportion profits, the Uniform Partnership Act provides that profits are to be shared equally. Thus, Larsen should receive one-half of the profits.
d. Incorrect. Larsen is not entitled to all of the profits.
3. If Frank, a dentist who is a member of an LLP, negligently harms Kathy while attempting to complete a root canal, what is the liability of the other members of the LLP?
a. If Frank was negligent, they are also liable.
b. None of them will be liable.
c. They will be liable only if Frank intended to harm Kathy.
d. Only the supervising partner will be liable, if there is a supervising partner.
ANS:
a. Incorrect. The partners, with the possible exception of a supervising partner, are not liable.
b. Incorrect. If there is a supervising partner, he or she may be liable also.
c. Incorrect. Even if Frank intended to harm Kathy, the other partners will not be liable.
d. Correct. If there is a partner who supervised Frank while he committed this tort, that partner will also be liable, along with Frank.
4. In order for a limited partnership to be legally valid, it must:
a. file articles of organization.
b. file a certificate of limited partnership.
c. file amended articles of partnership.
d. have at least one general, and one limited partner; that's all.
ANS:
a. Incorrect. This is what an LLC files.
b. Correct. The limited partnership must file this document, which is similar to a corporate charter, with a designated state official.
c. Incorrect. Partnerships, not limited partnerships, file articles of partnership.
d. Incorrect. A limited partnership also needs to file documents with the state.
5. The key characteristics of a limited liability company (LLC) are:
a. The tax characteristics of a corporation plus the liability of shareholders.
b. The tax characteristics of a partnership plus the liability of partners.
c. The tax characteristics of a corporation plus the liability of a partnership.
d. The tax characteristics of a partnership plus the liability of a corporation.
ANS:
a. Incorrect. These are the characteristics of a corporation.
b. Incorrect. These are the characteristics of a partnership.
c. Incorrect. This would be the worst of both forms.
d. Correct. These are the characteristics of a limited liability company.
6. A key advantage of the LLC is that:
a. The liability of members is limited to the amount of their investments.
b. The entity is treated as a partnership for liability purposes.
c. There are no formalities associated with creating an LLC.
d. State statutes limit the flexibility of LLCs.
ANS:
a. Correct. This is a key advantage of the LLC.
b. Incorrect. This is not normally true with respect to LLCs, and if it were true, it would not be an advantage of this business organizational form.
c. Incorrect. To form an LLC, articles of organization must be filed with a central state agency.
d. Incorrect. LLC members enjoy a significant degree of flexibility in determining how their businesses will be operated.
7. The major difference between a joint venture and a partnership is:
a. A partnership is composed of members and a joint venture is not.
b. Partners are taxed individually, but joint ventures are not.
c. A joint venture is essentially a one-time association, whereas a partnership is ongoing.
d. A partnership is not a legal entity, whereas a joint venture is.
ANS:
a. Incorrect. Partners are partners and not members.
b. Incorrect. Joint ventures are taxed like partnerships.
c. Correct. Joint ventures are one-time associations, whereas partnerships are ongoing.
d. Incorrect. Joint ventures are not legal entities, whereas partnerships are.
8. A joint-stock company has many features of a corporation. Which of the following IS NOT one of the ways in which a joint-stock company is like a corporation?
a. Its shareholders have personal liability.
b. It is usually managed by directors or officers of the company.
c. Its ownership is represented by transferable shares of stock.
d. It can have perpetual existence.
ANS:
a. Correct. The shareholders of a joint-stock corporation have personal liability, as do the partners of a partnership. Corporate shareholders, on the other hand, have limited liability.
b. Incorrect. Joint-stock companies share this feature with corporations.
c. Incorrect. Joint-stock companies share this feature with corporations.
d. Incorrect. Joint-stock companies share this feature with corporations.
9. A local Taco Bell restaurant is an example of which kind of franchise?
a. A manufacturing arrangement franchise.
b. A chain-style business operation.
c. A distributorship franchise.
d. A processing-plant arrangement.
ANS:
a. Incorrect. The restaurant would not be an example of a manufacturing arrangement.
b. Correct. A Taco Bell, Burger King, or McDonald’s would be an example of a chain-style business operation.
c. Incorrect. The restaurant would not be an example of a distributorship franchise.
d. Incorrect. A Taco Bell would not be an example of a processing-plant arrangement.
10. If a court determines that a franchisor has arbitrarily or unfairly terminated a franchise:
a. the franchisee will be provided with a remedy for wrongful termination.
b. the matter will automatically be submitted to arbitration.
c. the franchisor will be subject to a penalty of $10,000 regardless of the circumstances.
d. the franchisor will automatically be enjoined from terminating the franchise for a period of five years.
ANS:
a. Correct. In this situation, the franchisee will be entitled to a remedy for wrongful termination.
b. Incorrect. The matter will not be automatically submitted to arbitration.
c. Incorrect. Although the franchisee will be provided with a remedy in these circumstances, the franchisor will not be subject to a penalty of $10,000 regardless of the circumstances
d. Incorrect. Although the franchisee will be provided with a remedy in these circumstances, the franchisor will not be automatically enjoined from terminating the franchise for a period of five years.