Question 1

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

Accepted Answer

A) the shares are publicly traded. 
B) the corporation can typically operate without a board of directors. 
C) the shareholders usually restrict share transfer. 
D) minority shareholders are provided more protection than in regular corporations. 
A) the shares are publicly traded. 
B) the corporation can typically operate without a board of directors. 
C) the shareholders usually restrict share transfer. 
D) minority shareholders are provided more protection than in regular corporations.

Question 2

Which of the following is an advantage of a corporation?

Accepted Answer

A) It is easy to form a corporation. 
B) It requires little expense to form a corporation. 
C) It offers limited liability for its shareholders. 
D) It is a flow-through tax entity. 
A) It is easy to form a corporation. 
B) It requires little expense to form a corporation. 
C) It offers limited liability for its shareholders. 
D) It is a flow-through tax entity.

Question 3

When a partner leaves the partnership,whether it be voluntary or by expulsion,death or bankruptcy,it is called

Accepted Answer

A) dissociation. 
B) termination. 
C) detachment. 
D) separation. 
A) dissociation. 
B) termination. 
C) detachment. 
D) separation.

Question 4

The advantage to an S corporation is

Accepted Answer

A) its offering of multiple classes of stock. 
B) its treatment of shareholders for income taxation purposes. 
C) its ability to attract an unlimited number of shareholders. 
D) its ability to have partnerships and corporations invest as shareholders. 
A) its offering of multiple classes of stock. 
B) its treatment of shareholders for income taxation purposes. 
C) its ability to attract an unlimited number of shareholders. 
D) its ability to have partnerships and corporations invest as shareholders.

Question 5

The corporate form of business

Accepted Answer

A) was first known and used by the Greeks and then spread through the Romans to England. 
B) was not known until the advent of the Industrial Revolution. 
C) was first allowed in the State of New York around 1811 and is considered to be an American creation. 
D) is a relatively new concept developed shortly after the Great Depression. 
A) was first known and used by the Greeks and then spread through the Romans to England. 
B) was not known until the advent of the Industrial Revolution. 
C) was first allowed in the State of New York around 1811 and is considered to be an American creation. 
D) is a relatively new concept developed shortly after the Great Depression.

Question 6

Corporations have perpetual existence.

Accepted Answer

A) True 
 B)False

Question 7

Daniel,his parents,and three brothers own all the stock of their family farm corporation and each person takes an active role in managing the enterprise.This corporation,which is taxed as a corporation,is most likely

Accepted Answer

A) an S corporation. 
B) a professional corporation. 
C) a close corporation. 
D) a proprietorship. 
A) an S corporation. 
B) a professional corporation. 
C) a close corporation. 
D) a proprietorship.

Question 8

No formal steps are necessary to create a sole proprietorship.

Accepted Answer

A) True 
 B)False

Question 9

Jill owns a retail business by herself and 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?

Accepted Answer

A) Jill has no potential liability to the customer. 
B) Jill can be held personally liable to the customer since she is the owner. 
C) Jill can only be liable to the amount she initially invested in the business. 
D) Jill cannot be held personally responsible; the woman's insurance must pay for the claim. 
A) Jill has no potential liability to the customer. 
B) Jill can be held personally liable to the customer since she is the owner. 
C) Jill can only be liable to the amount she initially invested in the business. 
D) Jill cannot be held personally responsible; the woman's insurance must pay for the claim.

Question 10

Debra wanted to form a partnership with Lawrence.He agreed and they became co-owners in an equal partnership.This year,after expenses,the partnership had a profit of $200,000.How will the taxation of this profit be handled?

Accepted Answer

A) Since the partnership was Debra's idea, she will pay income tax on the profit on her personal tax return. 
B) The business will pay half of the tax liability and Debra and Lawrence will pay the other half. 
C) Debra and Lawrence must both pay tax on the business's profit. 
D) The business itself will pay the taxes on the business's profit. 
A) Since the partnership was Debra's idea, she will pay income tax on the profit on her personal tax return. 
B) The business will pay half of the tax liability and Debra and Lawrence will pay the other half. 
C) Debra and Lawrence must both pay tax on the business's profit. 
D) The business itself will pay the taxes on the business's profit.

Question 11

An organization that does not pay income tax on its profits but passes them through to its owners who pay the tax at their individual rates is called a

Accepted Answer

A) business corporation. 
B) flow-through tax entity. 
C) tax-free business venture. 
D) professional corporation. 
A) business corporation. 
B) flow-through tax entity. 
C) tax-free business venture. 
D) professional corporation.

Question 12

An S Corporation cannot have more than ____ shareholders.

Accepted Answer

A) 100 
B) 75 
C) 50 
D) 25 
A) 100 
B) 75 
C) 50 
D) 25

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

The Federal Trade Commission requires franchisors to

Accepted Answer

A) give prospective franchisees a franchise disclosure document at least 14 business days prior to the signing of a contract or payment of any money. 
B) give prospective franchisees earnings information on the company. 
C) disclose any litigation the company has ever been involved in. 
D) let prospective franchisees know how many franchisees have gone out of business in the prior five years. 
A) give prospective franchisees a franchise disclosure document at least 14 business days prior to the signing of a contract or payment of any money. 
B) give prospective franchisees earnings information on the company. 
C) disclose any litigation the company has ever been involved in. 
D) let prospective franchisees know how many franchisees have gone out of business in the prior five years.

Question 15

Generally,a joint venture is a partnership created for one limited purpose.

Accepted Answer

A) True 
 B)False

Question 16

The phrase "piercing the company veil" applies to which type of organization?

Accepted Answer

A) a close corporation 
B) a general partnership 
C) a limited liability company 
D) an S corporation 
A) a close corporation 
B) a general partnership 
C) a limited liability company 
D) an S corporation

Question 17

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?

Accepted Answer

A) Limited liability company 
B) Sole proprietorship 
C) Close corporation 
D) Franchise 
A) Limited liability company 
B) Sole proprietorship 
C) Close corporation 
D) Franchise

Question 18

The term "S Corporation" comes from

Accepted Answer

A) the Internal Revenue Code. 
B) the FTC rules. 
C) the Securities and Exchange Commission. 
D) state corporation law. 
A) the Internal Revenue Code. 
B) the FTC rules. 
C) the Securities and Exchange Commission. 
D) state corporation law.

Question 19

The business form that offers the limited liability of a corporation and the tax status of a flow-through entity is

Accepted Answer

A) a close corporation. 
B) a sole proprietorship. 
C) a limited liability company. 
D) a general partnership. 
A) a close corporation. 
B) a sole proprietorship. 
C) a limited liability company. 
D) a general partnership.

Question 20

Which of the following would NOTbe personally liable for the debts of the business?

Accepted Answer

A) a sole proprietor 
B) a partner in a general partnership 
C) an S corp shareholder 
D) a partner in a joint venture 
A) a sole proprietor 
B) a partner in a general partnership 
C) an S corp shareholder 
D) a partner in a joint venture

Exam 31: Starting a Business: LLCs and Other Options

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

Which of the following is an advantage of a corporation?

When a partner leaves the partnership,whether it be voluntary or by expulsion,death or bankruptcy,it is called

The advantage to an S corporation is

The corporate form of business

Corporations have perpetual existence.

Daniel,his parents,and three brothers own all the stock of their family farm corporation and each person takes an active role in managing the enterprise.This corporation,which is taxed as a corporation,is most likely

No formal steps are necessary to create a sole proprietorship.

Jill owns a retail business by herself and 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?

Debra wanted to form a partnership with Lawrence.He agreed and they became co-owners in an equal partnership.This year,after expenses,the partnership had a profit of $200,000.How will the taxation of this profit be handled?

An organization that does not pay income tax on its profits but passes them through to its owners who pay the tax at their individual rates is called a

An S Corporation cannot have more than ____ shareholders.

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

The Federal Trade Commission requires franchisors to

Generally,a joint venture is a partnership created for one limited purpose.

The phrase "piercing the company veil" applies to which type of organization?

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?

The term "S Corporation" comes from

The business form that offers the limited liability of a corporation and the tax status of a flow-through entity is

Which of the following would NOTbe personally liable for the debts of the business?

Introduction to Law

Business Ethics and Corporate Social Responsibility

International Law

Common Law, Statutory Law, and Administrative Law

Constitutional Law

Dispute Resolution

Crime

Intentional Torts and Business Torts

Negligence, Strict Liability, and Product Liability

Cyberlaw and Privacy

Introduction to Contracts

Agreement

Consideration

Legality

Capacity and Consent

Written Contracts

Third Parties

Performance, Breach and Discharge

Remedies

Practical Contracts

Introduction to Sales

Ownership, Risk and Warranties

Performance and Remedies

Secured Transactions

Creating a Negotiable Instrument

Liability for Negotiable Instruments

Accountants' Liability

Agency Law

Employment and Labor Law

Employment Discrimination

Partnerships

Life and Death of a Corporation

Management Duties

Shareholder Rights

Bankruptcy

Securities Regulation

Antitrust

Consumer Protection

Environmental Law

Intellectual Property

Real Property and Landlord Tenant

Personal Property and Bailment

Planning for the Future: Estates and Insurance

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