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Exam 21: Forms of Business Organization

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Question 51

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Which of the following is true regarding corporations other than S corporations?

A) A corporation is not a separate legal entity.
B) A corporation may not be sued.
C) A corporation is created according to federal law.
D) Shareholders are typically held liable for the debts of the corporation.
E) The corporation must pay taxes on profits,and shareholders must pay taxes on dividends they receive from the corporation.

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

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Question 52

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A voluntary association between two or more persons who co-own a business for a profit is a(n) ________.

A) limited liability company
B) partnership
C) corporation
D) S corporation
E) sole proprietorship

F) A) and D)
G) None of the above

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Question 53

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Which of the following is a way that a corporation can avoid double taxation?

Community Fair.Craig and Melinda are searching for a one-time business opportunity that will enable them to make a sufficient amount of cash to take a really great vacation to Galapagos.They live in a rather small rural community that has not,to date,had a community fair.Craig and Melinda decide to sponsor a fair on a weekend in October and to arrange for exhibits and awards,beauty contests,pie eating contests,food vendors,and amusement rides.The profit to Craig and Melinda will come from ticket sales and from charges to food vendors for the privilege of setting up shop.Apart from some minor skirmishes between Craig and Melinda regarding management rights,preparations go fairly well.When the weekend of the fair arrives,things initially go fairly smoothly.Unfortunately,however,one of the beauty contestants slipped on the runway.An argument broke out during the pie eating contests resulting in angry contestants throwing pies and injuring spectators.Finally,an elderly lady,who was angry because she did not win the prize for the best honey,jabbed the volunteer judge with her cane.All injured parties threaten to sue Craig and Melinda.Craig tells Melinda that she should bear the larger percentage of any damages because the idea for the fair was initially hers,and she obtained all necessary permits.Melinda,on the other hand,tells Craig that he should be wholly responsible for any damages because he was put in charge of all competitions.They can reach no agreement regarding winding up the project and splitting the meager profits,and angrily go their separate ways with no resolution.As she is leaving,Melinda shouts to Craig that as her agent he should have done a better job with security.Which of the following is the type of business organization that best fits Craig and Melinda's project?

A limited partnership and a limited liability partnership refer to the same type of business organization.

Tutoring Concerns.Wally and Sally want to go into business together and plan on offering a tutoring service to high school and college students.Wally proposes that they share control of the business and split profits equally and not bother with a written agreement.Sally,however,is concerned about being able to pay their debts because they will have to rent tutoring space and purchase computers and supplies.She is also concerned about parents and students who may sue if the students' test scores do not improve.She tells Wally that she just bought a new boat and car,and that she does not want her assets to be in jeopardy.She tells Wally that they should form a corporation to shield their personal assets.Wally,however,says their personal assets are not in danger with his proposal because they are a business and that,furthermore,forming a corporation would likely result in double taxation.What type of arrangement,if any,would avoid double taxation for the Wally and Sally's endeavor?

Under the Uniform Limited Liability Company Act,a limited liability company will dissolve after the passage of ________ consecutive days during which the company has no members.

A written agreement is required to create a partnership.

In which of the following does the franchise operate under the franchisor's business name and act subject to the franchisor's standards and methods of business operation?