Starting A Business: LLC's and Other Options

Question 1

True/False: The case of Apcar v. Gaus illustrates that it is essential to comply with all the technicalities of a limited liability partnership statute.

Answer 1

True

Question 2

True/False: Corporations have perpetual existence.

Answer 2

True

Question 3

True/False: The most common form of business ownership is the corporation.

Answer 3

False

Question 4

True/False: To be a close corporation, the business must be small, with under 20 owners and under $500,000 in gross annual income.

Answer 4

False

Question 5

True/False: A partnership is a separate, taxable entity.

Answer 5

False

Question 6

True/False: Limited liability is a major advantage of a partnership as compared to a corporation.

Answer 6

False

Question 7

True/False: Dr. Wong, a dentist, and his wife, an attorney, can protect their personal assets with limited liability from their business dealings by creating and operating a professional corporation together.

Answer 7

False

Question 8

True/False: Corporations have a distinct advantage over other forms of business organization in the area of taxation.

Answer 8

False

Question 9

True/False: A limited liability company, unlike a Subchapter S corporation, can have members that are corporations, partnerships, or nonresident aliens.

Answer 9

True

Question 10

True/False: Generally, a joint venture is a partnership created for one limited purpose.

Answer 10

True

Question 11

True/False: Cooperatives may be either incorporated or unincorporated businesses.

Answer 11

True

Question 12

True/False: To form an LLC, a charter and an operating agreement must be filed with the Secretary of State in the jurisdiction where the business will operate.

Answer 12

False

Question 13

True/False: Franchise fees can be costly, but they are usually payable over a number of years, after profits are generated from the business.

Answer 13

False

Question 14

True/False: The Federal Trade Commission will not allow the sale of franchises that are unfair to the franchisee.

Answer 14

False

Question 15

True/False: Filings are required to form and operate a limited liability partnership.

Answer 15

True

Question 16

All the business forms listed below have limited liability except the:

Answer 16

general partnership.

Question 17

Rachel and Cyndi started a retail business called Zebra Toy Company. The business is operated as a partnership. Under partnership law:

Answer 17

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.

Question 18

Lance and Darrell have an equal partnership. This year, after expenses, the partnership had a profit of $100,000. Lance and Darrell will each pay taxes on:

Answer 18

$50,000.

Question 19

Seventy farmers in Morgan County joined together to gain the advantages of purchasing seed and fertilizer in bulk and of obtaining better prices when distributing and selling their crops. These farmers have formed a:

Answer 19

cooperative.

Question 20

The Federal Trade Commission requires franchisors to:

Answer 20

give prospective franchisees an offering circular at least 14 business days prior to the signing of a contract or payment of any money.

Question 21

The importance of a Subchapter S corporation is:

Answer 21

its treatment of shareholders for income taxation purposes.

Question 22

The business form that is taxed as a partnership and gives all owners limited liability, is:

Answer 22

a limited liability company.

Question 23

All of the following are characteristics of a closely held corporation EXCEPT:

Answer 23

the shares are publicly traded.

Question 24

Which of the following would not be personally liable for the debts of the business?

Answer 24

A general partner in a limited liability limited partnership.

Question 25

Which of the following transactions would be considered by the IRS to be a taxable sale of assets? Changing the form of business from:

Answer 25

a corporation to an LLC.

Question 26

Murray was a partner in a large firm. He died unexpectedly. His son, Frank, wanted to take over for his father in the partnership and was well qualified to do the work his father had done. Which statement best describes Frank’s rights in the partnership if he inherits the interest?

Answer 26

Frank is entitled to the value in the partnership, but not to become a full partner.

Question 27

Jill was a limited partner in a retail business that was sued by a customer who fell in the store. The customer claimed the business was negligent in caring for its floors. Which statement best describes Jill’s potential liability?

Answer 27

Jill can only be liable to the amount of her investment.

Question 28

The corporate form of business:

Answer 28

was first known and used by the Greeks and then spread through the Romans to England.

Question 29

The advantage of a corporation over a partnership is:

Answer 29

a. ) shares are easily transferable to another person.
b. ) perpetual existence.
c. ) it is easier to raise funds.
d. ) All the above.

Question 30

What federal agency requires that the seller of a franchise give the potential buyer an offering circular and audited financial statements?

Answer 30

The Federal Trade Commission (FTC).

Question 31

The form of business ownership that is the most easily transferable is the:

Answer 31

corporation.

Question 32

Which of the following forms of organization is a compromise between starting one’s own business as an entrepreneur and working for someone else as an employee?

Answer 32

Franchise.

Question 33

LLCs have become popular for all except which of the following reasons:

Answer 33

uniformity of law.

Question 34

Charles and Ellen, an unmarried couple, run an ice cream store. The business is not incorporated and they have filed no formation papers with the state. Their business is a:

Answer 34

partnership.

Question 35

E. I. James is a writer with a best selling novel. He wishes to create a corporation called “James, Inc.” He will be the only shareholder. Can James incorporate his business of writing?

Answer 35

Yes, this would be the incorporation of a sole proprietorship.

Question 36

Harold and Zack have pooled their money together to buy real estate but have filed no formal papers to form a business. Harold, a lawyer, handles all the legal matters and Zack, a real estate broker, finds buyers for the property they have subdivided. Harold and Zack are engaged in a:

Answer 36

partnership.

Question 37

John, his parents, and three brothers own all the stock of their family farm corporation. This corporation, which is taxed as a corporation, is probably:

Answer 37

a closely held corporation.

Question 38

An S Corporation cannot have more than ____ shareholders.

Answer 38

100

Question 39

The term “S Corporation” comes from:

Answer 39

the Internal Revenue Code.

Question 40

Martin, Leah, and Pablo are considering forming a business. What factors should they consider in making a choice of organization?

Answer 40

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.