Answer Sheet 1 Flashcards
Week 1
Sole proprietorships are easy and inexpensive to create and operate.
TRUE
In a sole proprietorship earnings are reported on the business tax return.
FALSE
Corporations are easy and inexpensive to create and have a limited existence and are not taxable entities.
FALSE
In a partnership both parties are liable for intentional and negligent torts, personally liable for debts of the partnership and can be sued by a creditors as as a group or individually.
TRUE
A partnership is a taxable entity, separate from the partners.
FALSE
Martin, Leah, and Pablo are considering forming a business.
What factors should they consider in making a choice of organization?
(a) Ease of creation and operation.
(b) Whether there is personal liability for the owners.
(c) How the owners will be taxed.
(d) All of the above.
(d) All the above.
The advantage of a corporation over a partnership is:
(a) shares are easily transferable to another person
(b) perpetual existence.
(c) it is easier to raise funds.
(d) All the above.
(d) All the above.
Rachel and Cyndi started a retail business called Zebra Toy Company. The business is operated as a partnership. Under partnership law:
(a) Rachel is personally liable for any business contracts entered into by Cyndi.
(b) Rachel is personally liable for any business debts, regardless of whether she or Cyndi created the obligation.
(c) Rachel is personally liable for any negligent act committed by Cyndi in the scope of the business activity.
(d) All the above.
(d) All the above.
A limited liability partnership (LP or LLP):
(a) Difficult to form.
(b) Protects the partners from liability for the debts of the partnership.
(c) Must pay taxes on its income.
(d) Requires no formal steps for its creation, such as Certificate of Limited Partnership.
(e) Transferability is unlimited.
(b) Protects the partners from liability for the debts of the partnership.
A limited liability company:
(a) Does not offer limited liability of a corporation.
(b) When it goes public it is taxed like a partnership.
(c) Must make annual filings, like a S Corporation.
(d) Is expensive to set-up and difficult to obtain capital financing.
(e) Dissolves upon the withdrawal of a member.
(d) Is expensive to set-up and difficult to obtain capital financing.
What is a Business?
Business is ‘the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs.
What are the three (3) characteristics of a business?
(a) Businesses must be the result of individuals working together in an organized way.
(b) Businesses must satisfy a societal need
(c) Businesses must seek to make a profit
What are the three (3) services that are vital to the success of a business?
(a) Accounting services
(b) Financial planning services
(c) Legal services
What is the advantages of an Limited Liability Company (LLC) and Limited Liability Partnership (LLP)?
The owner’s/partnership’s personal property is not at risk.
In California, what are the three (3) occupations that are allowed to create an LLP?
The LLP form of ownership is limited in the State of California to persons licensed to
practice in the fields of public accountancy, law, or architecture as of 1/12016.
