Quiz #5

Question 1

Sole Propietors

Answer 1

sole propietorship is the simplest form of business. The owner is the business.

Question 2

General Partners

Answer 2

Assumes management responsibility for the partnership and has full responsibility for the partnership and for all its debts

Question 3

Limited Partners

Answer 3

A business organizational form that limits the liability of some of its owners. Consists of one or more general partners and one or more limited partners

Question 4

Liability of Members of LLC’s

Answer 4

Members (owners) have limited personal liability. Their liability is limited to amount of investment.

Question 5

Liability of Partners of LLP’s

Answer 5

• Allows professionals to avoid personal liability for the malpractice of other partners
• is still liable for his or own wrongful acts
• the LLP partner who supervised the individual who committed a wrongful act is also liable

Question 6

Corporate Shareholders Liability

Answer 6

Shareholders are not personally liable for corporate acts

Question 7

Officers Liability

Answer 7

Generally not personally liable for the corporation’s debts or obligations, but they can be held personally liable for their own wrongful acts, negligence, or violations of fiduciary duties.

Question 8

Directors Liability

Answer 8

generally protected from personal liability for corporate debts or obligations due to the corporate veil, but can be held liable if they:
- breach duty of care, loyalty, or good faith
- commit fraud or illegal acts
-authorize wrongful acts or violate statutory obligations

Question 9

Franchisee Agreement

Answer 9

an agreement that usually sets out conditions of termination. Franchisees must be given reasonable time to wind up the business.

Question 10

Relationship between Franchisor and Franchisee

Answer 10

• A franchisee may receive little or nothing on termination since the franchisor owns the trademark—and the business.
• If franchisor arbitrarily or unfairly terminates a franchise, franchisee may be able to sue for wrongful termination
  Most courts will not consider the termination “wrongful” if:
• Franchisor’s decision to terminate was made in the normal course of business
  operations.
• Reasonable notice of termination was given to the franchisee.

Question 11

Duty of Care

Answer 11

Acting in good faith (honestly)
exercise the care that an ordinarily prudent (careful) person would exercise in similar circumstances

Question 12

Duty of Loyalty

Answer 12

Disclosing or avoiding any conflicts of interest

Question 13

Sole proprietor Liability

Answer 13

Owner has unlimited liability for all losses or liabilities incurred by the business

Question 14

General Partners Liability

Answer 14

have unlimited personal liability for the partnership’s debts and obligations, including those incurred by other partners.

Question 15

Different forms of businesses How citizenship is determined for Jurisdiction

Answer 15

determined by the citizenship of each of its members

Question 16

How LLCs will be managed and taxed

Answer 16

Two or more members will be taxed as a
partnership (pass-through), unless they choose to be taxed as a corporation (double-tax). A one-member LLC is taxed as sole proprietorship, unless the owner wishes to be taxed as corporation.

Question 17

Duties of Shareholders

Answer 17

Majority shareholders owe a duty of fairness and loyalty to minority shareholders and the corporation. They must not abuse their control to the detriment of others (e.g., through oppressive conduct or self-dealing)

Question 18

Duties of Officers

Answer 18

Responsible for the day-to-day management of the
corporation
Duty of Loyalty and Duty of care

Question 19

Duties of Directors

Answer 19

Duty of Loyalty and Duty of care

Question 20

Public Corporations

Answer 20

A corporation formed by the government for some public purpose (ex. U.S. Postal Service)

Question 21

Private Corporations

Answer 21

A corporation created either wholly or in part of private benefit, or for profit

Question 22

Nonprofit Corporations

Answer 22

A corporation formed for the purpose other than making a profit (ex. private hospitals, colleges, and charities)

Question 23

Close Corporations

Answer 23

One whose shares are held by relatively few persons and is often operated like a partnership

Question 24

S Corporations

Answer 24

A close corporation that meets specific requirements is allowed to make a tax-election to be taxed as a partnership. Some requirements include:
- corporation must be domestic
- corporation has no more than 100 shareholders
- corporation must have only one class of stock
- no shareholder of the corporation may be a nonresident alien

Question 25

Domestic Corporation

Answer 25

A corporation is formed in one state and does business in that state

Question 26

Foreign Corporation

Answer 26

A corporation that is formed in one state but does business in another state

Question 27

Alien Corporation

Answer 27

A corporation formed in another country that is doing business in the United States

Question 28

When is the Corporate Veil pierced

Answer 28

When the corporation no longer has a separate identity

Question 29

Resulting Consequences of Corporate Veil being pierced

Answer 29

Shareholders may lose limited liability protection and be held personally liable for corporate debts.