1.A partnership in which the partners divide the profits and management responsibilities and share unlimited personal liability for the partnership's debts is called a(n) _____.

Multiple Choice

• general partnership
• limited partnership
• limited liability partnership
• S corporation
• limited liability company

2.In a limited partnership, who assumes no liability for the partnership beyond the capital they have invested?

Multiple Choice

• General partners
• Limited partners
• Special partners
• General partners, limited partners, and special partners
• General partners and special partners, but not limited partners

3.In a limited partnership, who have no part in the management of the business?

Multiple Choice

• General partners
• Limited partners
• General partners and limited partners
• Owners
• General partners and owners

4.A limited partnership is an agreement between at least one (1) _____ and one (1) _____.

Multiple Choice

• general partner; limited partner
• corporation; general partner
• general partner; registered agent
• limited partner; registered agent
• member of the partnership's board of directors; partnership officer

5.Who are the investor-owners of a corporation?

Multiple Choice

• General partners
• Stakeholders
• Limited partners
• Limited liability partners
• Shareholders

6.Which of the following is true regarding an S corporation?

Multiple Choice

• It is considered a partnership but is taxed like a corporation.
• It cannot have more than eighty (80) shareholders.
• Its shareholders do not report profit on their personal income tax forms.
• It is formed under federal tax law.
• Its income is not taxed when distributed to shareholders.

7.Tutoring Concerns. Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students. Wally proposes that they share control of the business and split profits equally and not bother with a written agreement. Sally, however, is concerned about being able to pay their debts because they will have to rent tutoring space and purchase computers and supplies. She is also concerned about parents and students who may sue if the students' test scores do not improve. She tells Wally that she just bought a new boat and car, and that she does not want her assets to be in jeopardy. She tells Wally that they should form a corporation to shield their personal assets. Wally, however, says their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would likely result in double taxation. What type of arrangement did Wally propose with his suggestion that they share control of the business and split profits equally?

Multiple Choice

• A joint sole proprietorship
• A partnership
• A corporation
• An S corporation
• A limited partnership

8.Tutoring Concerns. Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students. Wally proposes that they share control of the business and split profits equally and not bother with a written agreement. Sally, however, is concerned about being able to pay their debts because they will have to rent tutoring space and purchase computers and supplies. She is also concerned about parents and students who may sue if the students' test scores do not improve. She tells Wally that she just bought a new boat and car, and that she does not want her assets to be in jeopardy. She tells Wally that they should form a corporation to shield their personal assets. Wally, however, says their personal assets are not in danger with his proposal because they are a business and that, furthermore, forming a corporation would likely result in double taxation. Is Wally correct that forming a corporation would likely result in double taxation?

Multiple Choice

• Yes, because the corporation would be required to pay tax on its profits, and the shareholders would also be required to pay taxes on dividends.
• No, Wally is incorrect because all businesses are taxed in the same manner.
• No, Wally is incorrect but only because the law involving taxation of corporations does not apply until there are at least ten (10) shareholders.
• No, Wally is incorrect but only because the law involving taxation of corporations does not apply until there are at least seventy-five (75) shareholders.
• Yes, Wally is correct but only because his proposal does not involve a writing and the filing of paperwork with the secretary of state.

9.Peanut Allergy. Kitty, who had a love of baking, decided to open her own bakery. She decided that she did not need and did not want to pay for a lawyer to advise her on different forms of ownership. Unfortunately, Kitty had not paid attention in business law class. She proceeded, with little thought, to simply open her business called Kitty's Baking. Bobby came in to order some cookies for his girlfriend, Bitsy, who was allergic to peanuts. Bobby told Kitty that he needed some cookies for Bitsy but that Bitsy had allergies to peanuts. Kitty told him not to worry because she would make up a special batch just for him. Kitty had hired some assistants because she was so busy. She told an assistant, Cathy, to make up several batches of cookies for different customers including Bobby and to leave out the peanuts in Bobby's order. Cathy, however, forgot the instruction and proceeded to make Bobby's cookies with crushed peanuts. Bobby picked up the cookies and gave one to Bitsy in the car while they were on the way to the movie in Bobby's new car. Bitsy became violently ill, vomited in Bobby's car, and had to have her stomach pumped. Bobby and Bitsy sought recovery from Kitty who told them that Bitsy's doctor bill and Bobby's car cleaning bill were business debts, that the business was new and not making any money at the moment, and that she had no personal liability. Following the incident involving Bobby and Bitsy, Kitty discussed with her parents her problems with the bakery. Kitty's parents would like to invest in her business and share in any profits, but they do not want to share in the management responsibilities. Which of the following would be a form of business organization for Kitty and her parents such that her parents could invest but not participate in management?

Multiple Choice

• The general partnership
• The limited partnership
• The cooperative partnership
• The strategic partnership
• The 501(c)(3) corporation

10.Who has the responsibility of running the day-to-day business of a corporation?

Multiple Choice

• The corporation's board of directors
• The corporation's stakeholders
• The corporation's officers
• The corporation's registered agent(s)
• The corporation's principal shareholder(s)

11.An increasingly important advantage of the limited liability company is that its members _____.

Multiple Choice

• need not be citizens or permanent residents of the United States (U.S.)
• must be citizens of the U.S.
• can be citizens of countries other than the U.S. if they have permanent work visas
• can have the business incorporated overseas but recognized in the U.S.
• can also be part owners of an S corporation in the U.S. if they are from a foreign nation

12.Which of the following is false regarding a manager-managed limited liability company (LLC)?

Multiple Choice

• The managers of a manager-managed LLC have the apparent authority to enter into contracts on behalf of the LLC.
• The managers of a manager-managed LLC have the actual authority to enter into contracts on behalf of the LLC.
• In a manager-managed LLC, the members select a group of managers to manage the affairs of the company.
• The managers of a manager-managed LLC must be selected from the members of the LLC.
• The managers of a manager-managed LLC owe the LLC and its members the same fiduciary duties as the officers and directors of a corporation owe to the corporation and its shareholders.

13.Typically, the articles of organization of a limited liability company (LLC) include all but which of the following?

Multiple Choice

• The number of shares of stock (both common and preferred) the LLC is authorized to issue
• The name of the business
• The LLC's principal business address
• The name and address of a registered agent for service
• Information regarding how the company's management will be structured

14.Under the Uniform Limited Liability Company Act (ULLCA) and most state limited liability company (LLC) statutes, a member's voluntary withdrawal from the LLC, referred to as _____, does not terminate the LLC.

Multiple Choice

• elective termination
• symbolic disassociation
• dissociation
• statutory withdrawal
• winding up

15.Community Fair. Craig and Melinda are searching for a one-time business opportunity that will enable them to make a sufficient amount of cash to take a really great vacation to Galapagos. They live in a rather small rural community that has not, to date, had a community fair. Craig and Melinda decide to sponsor a fair on a weekend in October and to arrange for exhibits and awards, beauty contests, pie eating contests, food vendors, and amusement rides. The profit to Craig and Melinda will come from ticket sales and from charges to food vendors for the privilege of setting up shop. Apart from some minor skirmishes between Craig and Melinda regarding management rights, preparations go fairly well. When the weekend of the fair arrives, things initially go fairly smoothly. Unfortunately, however, one of the beauty contestants slipped on the runway. An argument broke out during the pie eating contests resulting in angry contestants throwing pies and injuring spectators. Finally, an elderly lady, who was angry because she did not win the prize for the best honey, jabbed the volunteer judge with her cane. All injured parties threaten to sue Craig and Melinda. Craig tells Melinda that she should bear the larger percentage of any damages because the idea for the fair was initially hers, and she obtained all necessary permits. Melinda, on the other hand, tells Craig that he should be wholly responsible for any damages because he was put in charge of all competitions. They can reach no agreement regarding winding up the project and splitting the meager profits, and angrily go their separate ways with no resolution. As she is leaving, Melinda shouts to Craig that as her agent he should have done a better job with security. Which of the following is the type of business organization that best fits Craig and Melinda's project?

Multiple Choice

• A partnership
• A double proprietorship
• A business trust
• A joint venture
• A distributorship

16.Chocolate Chips. Molly makes great chocolate chip cookies and sells them. She calls them "Molly's Famous Chocolate Chips." Some of her friends are interested in selling her cookies. They want to use her name and identify the cookies as "Molly's Famous Chocolate Chips." Molly says, however, that she does not have enough time to bake any more cookies. She agrees, for a price, to allow her friends to use her recipe and her name. Suzette, one of Molly's friends who was selling the cookies, was not being sufficiently careful and negligently put a harmful ingredient into the cookie dough resulting in a customer, Fred, becoming ill. Fred threatens to sue both Suzette and Molly. Molly is so exasperated that she cancels all the franchise contracts on the basis of aggravation although the franchise agreements provided that so long as requirements were met, the franchise agreements were good for a period of two years, Molly took the position that the cookies involved a personal service and that she could not be held liable for discontinuation. Will Molly likely be held liable to Fred?

Multiple Choice

• Yes, but only if Suzette has officially filed for bankruptcy protection.
• Yes, but only if Suzette is insolvent.
• Yes, because the cookies had her name on them.
• No, because she was a franchisor.
• It is unclear and depends on whether she exercised too much authority in the day-to-day affairs of Suzette's business.

17.Which of the following federal administrative agencies has a rule requiring franchisors to present prospective franchisees with materials necessary for the franchisee to make an informed decision about entering a franchise relationship?

Multiple Choice

• The Federal Trade Commission (FTC)
• The Federal Communications Commission (FCC)
• The Securities and Exchange Commission (SEC)
• The Uniform Commerce Commission (UCC)
• The Interstate Commerce Commission (ICC)

18.Which of the following is true regarding a joint venture?

Multiple Choice

• Generally, a joint venture is taxed like a corporation.
• If a joint venture member dies, the joint venture automatically terminates.
• A joint venture member is an agent for the other members.
• A joint venture may be formed without drawing up a formal agreement.
• Sole proprietorship law applies to the formation, operation, and termination of a joint venture.

19.Chocolate Chips. Molly makes great chocolate chip cookies and sells them. She calls them "Molly's Famous Chocolate Chips." Some of her friends are interested in selling her cookies. They want to use her name and identify the cookies as "Molly's Famous Chocolate Chips." Molly says, however, that she does not have enough time to bake any more cookies. She agrees, for a price, to allow her friends to use her recipe and her name. Suzette, one of Molly's friends who was selling the cookies, was not being sufficiently careful and negligently put a harmful ingredient into the cookie dough resulting in a customer, Fred, becoming ill. Fred threatens to sue both Suzette and Molly. Molly is so exasperated that she cancels all the franchise contracts on the basis of aggravation although the franchise agreements provided that so long as requirements were met, the franchise agreements were good for a period of two years, Molly took the position that the cookies involved a personal service and that she could not be held liable for discontinuation. Is Molly correct that she was entitled to cancel all franchise agreements?

Multiple Choice

• No, she was not entitled to cancel any franchise agreements.
• No, while she was arguably justified in canceling Suzette's franchise agreement, she was not justified in canceling other franchise agreements because no breach of the other franchise agreements had occurred.
• No, she could only cancel all franchises after a judgment was entered against her, and that had not yet occurred.
• Yes, because a personal service type of franchise was involved, she could cancel all the franchises at will.
• Yes, she can cancel the franchises but only if she can establish that her profits were less than had been expected.

20.Community Fair. Craig and Melinda are searching for a one-time business opportunity that will enable them to make a sufficient amount of cash to take a really great vacation to Galapagos. They live in a rather small rural community that has not, to date, had a community fair. Craig and Melinda decide to sponsor a fair on a weekend in October and to arrange for exhibits and awards, beauty contests, pie eating contests, food vendors, and amusement rides. The profit to Craig and Melinda will come from ticket sales and from charges to food vendors for the privilege of setting up shop. Apart from some minor skirmishes between Craig and Melinda regarding management rights, preparations go fairly well. When the weekend of the fair arrives, things initially go fairly smoothly. Unfortunately, however, one of the beauty contestants slipped on the runway. An argument broke out during the pie eating contests resulting in angry contestants throwing pies and injuring spectators. Finally, an elderly lady, who was angry because she did not win the prize for the best honey, jabbed the volunteer judge with her cane. All injured parties threaten to sue Craig and Melinda. Craig tells Melinda that she should bear the larger percentage of any damages because the idea for the fair was initially hers, and she obtained all necessary permits. Melinda, on the other hand, tells Craig that he should be wholly responsible for any damages because he was put in charge of all competitions. They can reach no agreement regarding winding up the project and splitting the meager profits, and angrily go their separate ways with no resolution. As she is leaving, Melinda shouts to Craig that as her agent he should have done a better job with security. Which of the following is true regarding management rights to the project?

Multiple Choice

• Unless an agreement gives one party greater management responsibilities, Craig and Melinda would share equal management for the task for which they have come together.
• For this type of project, generally state law requires that responsibilities of management be specifically assigned in writing to one of the parties.
• For this type of project, generally state law requires that responsibilities of management be specifically assigned to one of the parties, but the assignment may be oral.
• In the absence of an agreement between the parties, the party who filed for the business license for the project is charged with management responsibilities.
• Regardless of any agreement existing between the parties, the party who filed for the business license for the project is charged with management responsibilities.