ELE-4E PRACTICE QUIZ

CHAPTER 10: BUSINESS ORGANIZATIONS

1. The simplest form of business is:

a. a partnership.
b. a joint venture.
c. a sole proprietorship.
d. a corporation.

ANS:
a. Incorrect. A partnership, because it involves more people, is more complex
than a sole proprietorship.
b. Incorrect. A joint venture is not the simplest form of business.
c. Correct. A sole proprietorship, or a business owned by one person, is the
simplest form of business.
d. Incorrect. A corporation is a rather complex form of business.

2. Assume that Kyle and Larsen have a general partnership. In this situation,
what rights does each have regarding the management of the dog biscuit
business?

a. One partner must be the superior in rights.

b. They have equal management rights.
c. One partner must conduct the partnership business, while the other
provides the capital.
d. The partner who put in more money has a bigger voice in management.

ANS:
a. Incorrect. The partners have equal rights in management.
b. Correct. Even though one partner may have contributed more money to
the partnership than the other, Larsen and Kyle have equal management
rights unless they agree otherwise.
c. Incorrect. This is not the rule.
d. Incorrect. Kyle and Larsen have equal management rights.

3. A partner’s fiduciary duty includes which of the following?

a. Undue care.
b. Duties of loyalty and care.
c. Proximate care.
d. That the partner always has to assume a management role.

ANS:
 a. Incorrect. The partner must refrain from grossly negligent or reckless
conduct, intentional misconduct, or a knowing violation of the law.
b. Correct. Partners must act consistently with the obligations of good faith
and fair dealing.
c. Incorrect. There is no such thing as proximate care.
d. Incorrect. The partner does not always need to assume a management
role.

4. In order for a limited partnership to be legally valid, it must:

a. file articles of organization.

b. file a certificate of limited partnership.
c. file amended articles of partnership.
d. have at least one general, and one limited partner; that's all.

ANS:
a. Incorrect. This is what an LLC files.
b. Correct. The limited partnership must file this document, which is similar to
a corporate charter, with a designated state official.
c. Incorrect. Partnerships, not limited partnerships, file articles of partnership.
d. Incorrect. A limited partnership also needs to file documents with the state.

5. After Koss, Schmidt, and Jacobsen have been partners for three years,
Jacobsen declares bankruptcy. What will happen as a result?

a. Nothing. The partnership will continue as always.

b. Jacobsen will be dissociated from the partnership.
c. The partnership will terminate due to the bankruptcy.
d. The partnership will terminate due to withdrawal.

ANS:
a. Incorrect. Jacobsen’s bankruptcy will dissociate him from the partnership.
b. Correct. Bankruptcy of a partner dissociates that partner from the firm, but
the partnership will continue without him.
c. Incorrect. Bankruptcy of a partner will not terminate the partnership, but
the partner who goes bankrupt will be dissociated from the partnership.
d. Incorrect. Jacobsen did not withdraw and the partnership will not be
terminated. Jacobsen’s bankruptcy will cause him to be dissociated from
the partnership.

6. The key characteristics of a limited liability company (LLC) are:

a. The tax characteristics of a corporation plus the liability of shareholders.

b. The tax characteristics of a partnership plus the liability of partners.
c. The tax characteristics of a corporation plus the liability of a partnership.
 d. The tax characteristics of a partnership plus the liability of a corporation.

ANS:
a. Incorrect. These are the characteristics of a corporation.
b. Incorrect. These are the characteristics of a partnership.
c. Incorrect. This would be the worst of both forms.
d. Correct. These are the characteristics of a limited liability company.

7. A key advantage of the LLC is that:

a. The liability of members is limited to the amount of their investments.

b. The entity is treated as a partnership for liability purposes.
c. There are no formalities associated with creating an LLC.
d. State statutes limit the flexibility of LLCs.

ANS:
a. Correct. This is a key advantage of the LLC.
b. Incorrect. This is not normally true with respect to LLCs, and if it were
true, it would not be an advantage of this business organizational form.
c. Incorrect. To form an LLC, articles of organization must be filed with a
central state agency.
d. Incorrect. LLC members enjoy a significant degree of flexibility in
determining how their businesses will be operated.

8. In an LLC, the members themselves can decide how to operate the various
aspects of the business by forming:

a. The articles of incorporation.

b. An operating agreement.
c. The articles of consolidation.
d. A certificate of membership.

ANS:
a. Incorrect. An LLC does not form articles of incorporation.
b. Correct. In this agreement, the members of an LLC can themselves
decide how to operate the various aspects of the business.
c. Incorrect. An LLC does not form articles of consolidation.
d. Incorrect. An LLC does not form a certificate of membership.

9. A local Taco Bell restaurant is an example of which kind of franchise?

a. A manufacturing arrangement franchise.

b. A chain-style business operation.
c. A distributorship franchise.
d. A processing-plant arrangement.
ANS:
a. Incorrect. The restaurant would not be an example of a manufacturing
arrangement.
b. Correct. A Taco Bell, Burger King, or McDonald’s would be an example of
a chain-style business operation.
c. Incorrect. The restaurant would not be an example of a distributorship
franchise.
d. Incorrect. A Taco Bell would not be an example of a processing-plant
arrangement.

10. Who typically controls the day-to-day operations of a franchise?

a. The management of the franchisor.

b. The employees of the franchisor.
c. The franchisee.
d. The shareholders of the franchisor.

ANS:
a. Incorrect. The franchisee typically controls day-to-day operations.
b. Incorrect. The employees of the franchisor do not control day-to-day
operations of a franchise.
c. Correct. The franchisee typically controls these operations.
d. Incorrect. Shareholders do not have control over the daily management of
any corporation.