Question 1

In a sole proprietorship, the capital usually:

Accepted Answer

A)  comes from taxes 
B)  comes from the government 
C)  comes from investors 
D)  comes from the stock market 
E)  none of the other choices are correct 
A)  comes from taxes 
B)  comes from the government 
C)  comes from investors 
D)  comes from the stock market 
E)  none of the other choices are correct

Question 2

A potential drawback of sole proprietorships and partnerships is that the parties involved have:

Accepted Answer

A)  limited financial liability 
B)  only corporate liability 
C)  unlimited liability 
D)  partial protection from creditors for business debts 
E)  only corporate liability and partial protection from creditors for business debts 
A)  limited financial liability 
B)  only corporate liability 
C)  unlimited liability 
D)  partial protection from creditors for business debts 
E)  only corporate liability and partial protection from creditors for business debts

Question 3

A close corporation is one:

Accepted Answer

A)  with a pending application for incorporation 
B)  with stock that can only be traded with other corporations 
C)  that is in the process of dissolution 
D)  that issues only preferred stock 
E)  none of the other choices 
A)  with a pending application for incorporation 
B)  with stock that can only be traded with other corporations 
C)  that is in the process of dissolution 
D)  that issues only preferred stock 
E)  none of the other choices

Question 4

A business organization in which some of the partners are not liable for partnership debts is called a:

Accepted Answer

A)  no liability partnership 
B)  limited liability partnership 
C)  partial liability partnership 
D)  local liability partnership 
E)  unlimited liability partnership 
A)  no liability partnership 
B)  limited liability partnership 
C)  partial liability partnership 
D)  local liability partnership 
E)  unlimited liability partnership

Question 5

Refer to Fact Pattern 13-1. If Jeanette does incorporate, the corporation legally can last:

Accepted Answer

A)  for 20 years, after which she needs to apply for a renewal of her certificate of incorporation 
B)  forever 
C)  for 50 years, after which time the certificate of incorporation must be renewed 
D)  until one of her partners dies 
E)  until the state determines that the corporation no longer serves the function for which it was incorporated 
A)  for 20 years, after which she needs to apply for a renewal of her certificate of incorporation 
B)  forever 
C)  for 50 years, after which time the certificate of incorporation must be renewed 
D)  until one of her partners dies 
E)  until the state determines that the corporation no longer serves the function for which it was incorporated

Question 6

The secretary of state in most state is the official who decides if corporations will be issued charters and rejects those believed to be unsound businesses.

Accepted Answer

A) True 
 B)False

Question 7

The Franchise Rule requires that the offering circular is given to prospective franchisees:

Accepted Answer

A)  at least 5 days before any money changes hands 
B)  at least 10 days before any money changes hands 
C)  on the day the contract is to be signed 
D)  within 5 days of payment 
E)  after 50% of the money changes hands 
A)  at least 5 days before any money changes hands 
B)  at least 10 days before any money changes hands 
C)  on the day the contract is to be signed 
D)  within 5 days of payment 
E)  after 50% of the money changes hands

Question 8

A close corporation is one:

Accepted Answer

A)  with a pending application for incorporation 
B)  with stock that can only be traded with other corporations 
C)  that is in the process of dissolution 
D)  that has a small number of stockholders 
E)  that issues only preferred stock 
A)  with a pending application for incorporation 
B)  with stock that can only be traded with other corporations 
C)  that is in the process of dissolution 
D)  that has a small number of stockholders 
E)  that issues only preferred stock

Question 9

A shareholder's relation to creditors of the corporation is generally that the shareholder:

Accepted Answer

A)  is a secured creditor 
B)  is an unsecured creditor 
C)  has no relation to creditors 
D)  is a third-party beneficiary to creditors 
E)  none of the other choices 
A)  is a secured creditor 
B)  is an unsecured creditor 
C)  has no relation to creditors 
D)  is a third-party beneficiary to creditors 
E)  none of the other choices

Question 10

Davidson was barred from being in the nursing home business in New Mexico. His partner Krystopowicz knew that, but he agreed to be the front man for a nursing home business. They would split the profits from ten nursing homes 50-50. Each home existed under its own LLC. Morrissey sued the LLC that owned the home where her mother had died, claiming wrongful death due to negligence. The jury awarded $4.8 million but the LLC was worth nothing, so Morrissey could not collect on the judgment. She sued Krystopowicz, the owner of the LLC, personally. The appeals court held that:

Accepted Answer

A)  ​LLC owners are exempt from personal liability, so she could not sue Krystopowicz. 
B)  ​state law limited personal liability in such instances to $10,000 per incident, so that would be the maximum Morrissey could collect. 
C)  ​Davidson was improperly allowed to be involved in the business, so he would be held personally liable. 
D)  ​Krystopowicz abused the business form so the veil would be pierced and Morrissey could hold him liable. 
E)  ​none of the other choices are correct. 
A)  ​LLC owners are exempt from personal liability, so she could not sue Krystopowicz. 
B)  ​state law limited personal liability in such instances to $10,000 per incident, so that would be the maximum Morrissey could collect. 
C)  ​Davidson was improperly allowed to be involved in the business, so he would be held personally liable. 
D)  ​Krystopowicz abused the business form so the veil would be pierced and Morrissey could hold him liable. 
E)  ​none of the other choices are correct.

Question 11

A ____ is one whose shares are held by one shareholder or a small group of shareholders.

Accepted Answer

A)  nonprofit corporation 
B)  small corporation 
C)  limited corporation 
D)  shared corporation 
E)  none of the other choices are correct 
A)  nonprofit corporation 
B)  small corporation 
C)  limited corporation 
D)  shared corporation 
E)  none of the other choices are correct

Question 12

Unless its articles of incorporation provide otherwise, a corporation:

Accepted Answer

A)  lasts for twenty years 
B)  lasts for fifty years 
C)  lasts perpetually 
D)  lasts as long as state law allows; the life varies among the states 
E)  lasts as long as the IRS permits 
A)  lasts for twenty years 
B)  lasts for fifty years 
C)  lasts perpetually 
D)  lasts as long as state law allows; the life varies among the states 
E)  lasts as long as the IRS permits

Question 13

If the court "pierces the corporate veil" it may hold the shareholder(s) personally liable for corporate debts.

Accepted Answer

A) True 
 B)False

Question 14

Sole proprietorships must register with their state government to be able to operate a business legally.

Accepted Answer

A) True 
 B)False

Question 15

The income of proprietorships must be reported on a corporate income tax form.

Accepted Answer

A) True 
 B)False

Question 16

Partnerships must begin with a written agreement, but not necessarily a contract, between two or more people to do business.

Accepted Answer

A) True 
 B)False

Question 17

After reviewing a corporation's application, the state issues a:

Accepted Answer

A)  certificate of business 
B)  certificate of taxes 
C)  certificate of incorporation 
D)  certificate of institution 
E)  certificate of corporation 
A)  certificate of business 
B)  certificate of taxes 
C)  certificate of incorporation 
D)  certificate of institution 
E)  certificate of corporation

Question 18

The formation of interstate limited partnerships is governed by the Federal Uniform Partnership Act.

Accepted Answer

A) True 
 B)False

Question 19

The ____ provides "default rules" that determine the operation of partnerships when the partnership agreement is silent or where there is no formal agreement among the partners.

Accepted Answer

A)  Revised Uniform Proprietorship Act 
B)  Revised Uniform Partnership Act 
C)  Revised Real Partnership Act 
D)  Revised Unified Partnership Act 
E)  Revised Universal Partnership Act 
A)  Revised Uniform Proprietorship Act 
B)  Revised Uniform Partnership Act 
C)  Revised Real Partnership Act 
D)  Revised Unified Partnership Act 
E)  Revised Universal Partnership Act

Question 20

A ____ is an artificial person, or legal entity, created under state law.

Accepted Answer

A)  megabusiness 
B)  limited partnership 
C)  legal partnership 
D)  sole proprietorship 
E)  none of the other choices are correct 
A)  megabusiness 
B)  limited partnership 
C)  legal partnership 
D)  sole proprietorship 
E)  none of the other choices are correct

Exam 12: Business Organizations

In a sole proprietorship, the capital usually:

A potential drawback of sole proprietorships and partnerships is that the parties involved have:

A close corporation is one:

A business organization in which some of the partners are not liable for partnership debts is called a:

Refer to Fact Pattern 13-1. If Jeanette does incorporate, the corporation legally can last:

The secretary of state in most state is the official who decides if corporations will be issued charters and rejects those believed to be unsound businesses.

The Franchise Rule requires that the offering circular is given to prospective franchisees:

A close corporation is one:

A shareholder's relation to creditors of the corporation is generally that the shareholder:

A ____ is one whose shares are held by one shareholder or a small group of shareholders.

Unless its articles of incorporation provide otherwise, a corporation:

If the court "pierces the corporate veil" it may hold the shareholder(s) personally liable for corporate debts.

Sole proprietorships must register with their state government to be able to operate a business legally.

The income of proprietorships must be reported on a corporate income tax form.

Partnerships must begin with a written agreement, but not necessarily a contract, between two or more people to do business.

After reviewing a corporation's application, the state issues a:

The formation of interstate limited partnerships is governed by the Federal Uniform Partnership Act.

The ____ provides "default rules" that determine the operation of partnerships when the partnership agreement is silent or where there is no formal agreement among the partners.

A ____ is an artificial person, or legal entity, created under state law.

Todays Business Environment: Law and Ethics

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