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Exam 35: Forms of Business Organization

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Question 41

Multiple Choice

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What is the correct term for the investor-owners of a corporation?

A) Profit owners
B) Profit and loss owners
C) Approved investors
D) Limited partners
E) Shareholders

F) C) and D)
G) A) and B)

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Question 42

Multiple Choice

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Which of the following statements is true about taxes in a limited partnership?

A) Limited partners are not double taxed, but general partners are.
B) Both limited partners and general partners pay taxes on their share of the profit.
C) Both limited partners and general partners are double taxed.
D) General partners, but not limited partners, pay taxes for profits of the partnership.
E) Both limited partners and general partners are double taxed, however, the amount of tax liability by limited partners is capped.

F) A) and E)
G) B) and E)

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Question 43

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Which statement is true regarding corporations?

[Heart surgery invention] Winston and Noe patented a mechanism that will change open heart surgery forever. They are setting up a business to produce and sell their invention to hospitals and will take advantage of Noe's non-U.S. citizenship to help with sales in international markets. They hire Lenita, a corporate lawyer, to assist in setting up their business. Winston's largest concern is taxes. Noe, on the other hand, doesn't want to bother keeping corporate minutes and having board meetings as he is too busy. Both are concerned about being sued personally for products liability. -Which of the following business organizations would best address Winston and Noe's concerns?

Which of the following statements is correct about the requirements to form a limited liability company?

Winston tells Lenita that he prefers to form an S corporation because he does not want to attach "LLC" to the name of the company. Lenita responds that the option of an S corporation is not available for their situation. Is she correct?

Which of the following statements is true about cooperatives?

[Cookie Problems] Rashi makes great chocolate chip cookies and sells them in her café called Rashi's Famous Cookies. Some of her friends have expressed interest in selling her cookies. They want to use her name and identify the cookies as Rashi's Famous Cookies. Seeing a business opportunity, Rashi agrees to bake the cookies and provide them frozen to her friends who will open other cafés under her café's name. Rashi strictly controls all packaging and sales. She also frequently inspects kitchens used by the sellers, pursuant to her agreements with them. Lola, one of Rashi's friends who entered into an agreement with Rashi to open a café and sell the cookies, was not being careful and negligently put a harmful ingredient into the cookie dough resulting in a customer, Jonah, becoming ill. Jonah threatens to sue both Lola and Rashi. Rashi is so exasperated that she cancels all the franchise contracts. Although the franchise agreements provide that,as long as requirements are met, the franchise agreements will continue for a period of two years, Rashi takes the position that the cookies involve a personal service using a trade secret, and that she cannot be held liable to her franchisees for discontinuation of the franchises. -What type of arrangement did Rashi make with her friends?

[Car Repair] Gordon and Leo are partners in SafeT Car, a full service automotive repair company. Leo does nearly all of the day-to-day work as Gordon is thinking about retiring. When Leo was moving a customer's car last week, he accidentally collided with the garage door, and the door had to be replaced at a cost of $6,000. Leo recently met with BigBox stores about a potential deal by which BigBox would set up a SafeT Car shop in every BigBox store nationwide. Leo signed an agreement to open a "test" store in one BigBox store. Leo hasn't told Gordon yet, because Gordon hasn't been in the office in a month. Gordon opens The Oil Place, an express oil change company, which he plans to have his sons operate in his retirement. When Leo learns about The Oil Place, he threatens to sue Gordon for breach of duty because Leo is sick of doing all the work at SafeT Car while Gordon was apparently opening a competing business. Gordon tells Leo that he hasn't breached any duty and they don't have a written agreement that restricts Gordon from opening his own store with his sons. Gordon also tells Leo that the $6,000 for the damaged door is coming out of Leo's pocket. Leo, who's thinking about the potential deal about BigBox, tells Gordon he wants to split up the partnership. -A corporation can raise capital by issuing stock.

[R&R Landscaping, LLC] R&R Landscaping, LLC, is registered as a limited liability company in Illinois. R&R provides corporate landscape design and maintenance. During a large corporate project near Chicago, the driver of R&R's bulldozer lost control, went into oncoming traffic, and caused injuries to Viktor. Viktor wants to file a lawsuit and, after research, learns that R&R is owned by Rohan, an Illinois resident, and Roland, an Indiana resident, and that R&R filed articles of organization in Illinois and a certificate of authority in Indiana. -Would Rohan and Roland likely be held liable for Viktor's injuries?

[Car Repair] Gordon and Leo are partners in SafeT Car, a full service automotive repair company. Leo does nearly all of the day-to-day work as Gordon is thinking about retiring. When Leo was moving a customer's car last week, he accidentally collided with the garage door, and the door had to be replaced at a cost of $6,000. Leo recently met with BigBox stores about a potential deal by which BigBox would set up a SafeT Car shop in every BigBox store nationwide. Leo signed an agreement to open a "test" store in one BigBox store. Leo hasn't told Gordon yet, because Gordon hasn't been in the office in a month. Gordon opens The Oil Place, an express oil change company, which he plans to have his sons operate in his retirement. When Leo learns about The Oil Place, he threatens to sue Gordon for breach of duty because Leo is sick of doing all the work at SafeT Car while Gordon was apparently opening a competing business. Gordon tells Leo that he hasn't breached any duty and they don't have a written agreement that restricts Gordon from opening his own store with his sons. Gordon also tells Leo that the $6,000 for the damaged door is coming out of Leo's pocket. Leo, who's thinking about the potential deal about BigBox, tells Gordon he wants to split up the partnership. -A limited partnership and a limited liability partnership refer to the same type of business organization.

Who is responsible for managing the business of a corporation?

[Car Repair] Gordon and Leo are partners in SafeT Car, a full service automotive repair company. Leo does nearly all of the day-to-day work as Gordon is thinking about retiring. When Leo was moving a customer's car last week, he accidentally collided with the garage door, and the door had to be replaced at a cost of $6,000. Leo recently met with BigBox stores about a potential deal by which BigBox would set up a SafeT Car shop in every BigBox store nationwide. Leo signed an agreement to open a "test" store in one BigBox store. Leo hasn't told Gordon yet, because Gordon hasn't been in the office in a month. Gordon opens The Oil Place, an express oil change company, which he plans to have his sons operate in his retirement. When Leo learns about The Oil Place, he threatens to sue Gordon for breach of duty because Leo is sick of doing all the work at SafeT Car while Gordon was apparently opening a competing business. Gordon tells Leo that he hasn't breached any duty and they don't have a written agreement that restricts Gordon from opening his own store with his sons. Gordon also tells Leo that the $6,000 for the damaged door is coming out of Leo's pocket. Leo, who's thinking about the potential deal about BigBox, tells Gordon he wants to split up the partnership. -A partnership in which the partners share management responsibilities equally, but some partners are limited in regards to the amount of profit distribution to which they are entitled is an example of a limited partnership.

[Car Repair] Gordon and Leo are partners in SafeT Car, a full service automotive repair company. Leo does nearly all of the day-to-day work as Gordon is thinking about retiring. When Leo was moving a customer's car last week, he accidentally collided with the garage door, and the door had to be replaced at a cost of $6,000. Leo recently met with BigBox stores about a potential deal by which BigBox would set up a SafeT Car shop in every BigBox store nationwide. Leo signed an agreement to open a "test" store in one BigBox store. Leo hasn't told Gordon yet, because Gordon hasn't been in the office in a month. Gordon opens The Oil Place, an express oil change company, which he plans to have his sons operate in his retirement. When Leo learns about The Oil Place, he threatens to sue Gordon for breach of duty because Leo is sick of doing all the work at SafeT Car while Gordon was apparently opening a competing business. Gordon tells Leo that he hasn't breached any duty and they don't have a written agreement that restricts Gordon from opening his own store with his sons. Gordon also tells Leo that the $6,000 for the damaged door is coming out of Leo's pocket. Leo, who's thinking about the potential deal about BigBox, tells Gordon he wants to split up the partnership. -A sole proprietor is considered a separate legal entity for purposes of incorporation.

Assuming all other requirements are met, which of the following entity can avoid double taxation?

When a group decides to organize for the purpose of pooling their resources to gain a market advantage, this is known as a(n) ________.

Describe the three different categories of franchises. Give an example of each.

[Car Repair] Gordon and Leo are partners in SafeT Car, a full service automotive repair company. Leo does nearly all of the day-to-day work as Gordon is thinking about retiring. When Leo was moving a customer's car last week, he accidentally collided with the garage door, and the door had to be replaced at a cost of $6,000. Leo recently met with BigBox stores about a potential deal by which BigBox would set up a SafeT Car shop in every BigBox store nationwide. Leo signed an agreement to open a "test" store in one BigBox store. Leo hasn't told Gordon yet, because Gordon hasn't been in the office in a month. Gordon opens The Oil Place, an express oil change company, which he plans to have his sons operate in his retirement. When Leo learns about The Oil Place, he threatens to sue Gordon for breach of duty because Leo is sick of doing all the work at SafeT Car while Gordon was apparently opening a competing business. Gordon tells Leo that he hasn't breached any duty and they don't have a written agreement that restricts Gordon from opening his own store with his sons. Gordon also tells Leo that the $6,000 for the damaged door is coming out of Leo's pocket. Leo, who's thinking about the potential deal about BigBox, tells Gordon he wants to split up the partnership. -When one of the members dies, a joint venture is not automatically terminated.

[Daria's Bakery] Daria decided to open her own bakery. She decided she did not need a lawyer to advise her on different forms of ownership. Unfortunately, Daria had not paid attention in business law class. She proceeded to simply open her business called Daria's Bakery. Eli told Daria that he wanted to order some cookies for his girlfriend, Kirsten, but that Kirsten had allergies to peanuts. Daria told him not to worry because she would make up a special batch just for him. Daria had hired some assistants because she was so busy. She told an assistant, Kate, to make up several batches of cookies for different customers including Eli and told her to leave out the peanuts in Eli's batch because of the allergy. Kate, however, forgot about the peanut allergy and proceeded to make Eli's cookies with peanuts. Eli picked up the cookies and gave one to Kirsten in the car. Kirsten became violently ill, vomited in Eli's car, and had to have her stomach pumped. Eli and Kirsten sought recovery from Daria who told them that Kirsten's doctor bill and Eli's car cleaning bill were business debts, that the business was new and not making any money at the moment, and that she had no personal liability. Following the incident involving Eli and Kirsten, Daria discussed her problems with the bakery with her parents. Daria's parents would like to invest in her business and share in any profits, but they do not want to share in the management responsibilities. -Daria initially set up which type of business?

When a court is assessing joint ventures, they frequently apply ________ to their decisions.