Business Law, 8e (Cheeseman)
Chapter 34 Small Business, Entrepreneurship, and General Partnerships
1) An entrepreneur is a person who forms and operates a business.
2) A sole proprietorship cannot be easily transferred when the owner desires to do so.
3) A sole proprietor is legally responsible for the business’s contracts.
4) The designation of d.b.a. refers to the description for a business that is operating under a trade
name.
5) A trade name statement refers to a document that is filed with the state that designates a trade
name of a business, the name and address of the applicant, and the address of the business.
6) In a sole proprietorship, the business is considered a separate legal entity.
7) No federal or state government approval is required for creating a sole proprietorship.
8) If no other form of business organization is chosen while obtaining a license, the business is
by default a sole proprietorship.
9) A sole proprietor has limited personal liability.
10) A sole proprietorship does not does not pay taxes at the business level.
11) A general partnership is an association of two or more persons to carry on as co-owners of a
business for profit.
12) The UPA is a model act that codifies sole proprietorship law.
13) The Revised Uniform Partnership Act is a federal statute that holds in all states.
14) A general partnership is valid only if it is carried out for profit.
15) The UPA’s definition of a general partner includes other limited partnerships.
16) Receipt of a share of business profits is prima facie evidence of a general partnership.
17) Inference of the existence of a general partnership is drawn in cases where profits are
received in payment of wages owed to an employee.
18) A general partnership cannot operate under the name of any one of the partners; the name
has to represent all the partners if a fictitious name is not being adopted.
19) The name selected by a general partnership cannot indicate that it is a corporation.
20) A general partnership agreement must always be in writing to be considered legal.
21) General partnerships do not pay federal income taxes.
22) Flow-through taxation is the federal income tax imposed on general partnerships.
23) All general partners have an equal right to participate in the management of the general
partnership business.
24) The right to share in the profits of the partnership is the right to share in the earnings from
the investment of capital.
25) The UPA provides that all general partners are entitled to remuneration for their performance
in the partnership’s business.
26) The term indemnification refers to the right of a partner to be reimbursed for expenditures
incurred on behalf of the partnership.
27) Self-dealing—although fully disclosed—is not permitted in a general partnership.
28) A breach of the duty of care by a partner does not constitute negligence.
29) General partners owe a duty to inform their co-partners of all information they possess that is
relevant to the affairs of the partnership
30) No monetary damages can be claimed between partners for breach of duty of obedience in a
general partnership.
31) General partners are not permitted to sue other partners at law.
32) General partners have unlimited personal liability for the debts and obligations of the
partnership.
33) A third party who sues to recover on a partnership contract need not name all the general
partners in the lawsuit.
34) The dissolution of a general partnership discharges the liability of an outgoing partner for
existing partnership debts and obligations.
35) The process of liquidating a partnership’s assets and distributing the proceeds to satisfy
claims against the partnership is known as winding up.
36) Which of the following best describes an entrepreneur?
A) a person who forms and operates a business
B) a person who invests in an existing business
C) a person who lends capital to a new business
D) a person who derives a profit from a new or an existing business
37) Which of the following is a major form of conducting a business?
A) institution
B) charity
C) corporation
D) trust
38) ________ are the most common form of business organization in the United States.
A) General partnerships
B) Sole proprietorships
C) Limited liability companies
D) Limited partnerships
39) Which of the following is true of a sole proprietorship?
A) A business operated under sole proprietorship cannot be transferred.
B) Large businesses cannot be operated under sole proprietorship.
C) A business operated under sole proprietorship should be owned by one or more people of the
same family.
D) Creditors can recover claims against the business from the sole proprietor’s personal assets.
40) The designation of ________ is used for businesses that are operating under a trade name.
A) w.e.f.
B) p.f.a.
C) d.b.a.
D) l.o.p.
41) Which of the following is true of a business operating under sole proprietorship?
A) It is not considered a separate legal entity.
B) It cannot be sold when the owner decides to do so.
C) It requires governmental approval when being transferred.
D) It has access to unrestricted capital by means of investments.
42) Which of the following is true of creating a sole proprietorship?
A) No state government approval is required.
B) Federal taxation is levied upon sole proprietorship.
C) No licenses are required to do business within a city or state.
D) Special permission must be obtained to receive a sole proprietorship status.
43) Jonathan Lopez wants to be his own boss and ventures into retailing fruit in the
neighborhood after borrowing some money from his mother. While obtaining a license to carry
out business in his city, Jonathan mentions the money he borrowed but forgets to specify what
type of business undertaking his store will be. Under which of the following major forms of
business is Jonathan’s store listed by default?
A) a general partnership
B) a sole proprietorship
C) a limited partnership
D) a limited liability corporation
44) A ________ is a document that is filed with the state that designates a trade name of a
business.
A) proprietorship statement
B) partnership agreement
C) fictitious business name statement
D) nomenclature affidavit
45) The sole proprietor has ________ liability.
A) zero personal
B) limited organizational
C) complete organizational
D) unlimited personal
46) Orlando opened a hot dog stand in Brooklyn which unfortunately did not earn him a profit.
He had borrowed $5,000 from the bank to set it up, which had to be repaid to the bank in two
days. However, Orlando’s friend Bob agreed to partner with him starting the subsequent month.
From which of the following sources can the bank recover its $5,000 with interest?
A) Orlando’s secondary financer
B) Orlando’s savings account
C) Orlando’s family
D) Bob, Orlando’s prospective business partner
47) Why does a sole proprietorship not pay taxes at the business level?
A) It does not have a separate legal personality.
B) It is a small business that is exempted from taxation.
C) It is a not-for-profit organization.
D) It is generally an institution with no business dealings.
48) The earnings and losses from a sole proprietorship are reported on ________.
A) the federal income tax filing document
B) the business license that is renewed each year
C) the proprietor’s personal income tax filing
D) the state income tax filing document
49) The income or loss from the sole proprietorship is reported on ________ which must be
attached to the taxpayer’s Form 1040.
A) Schedule B
B) Schedule C
C) Form 14
D) Form 8
50) An association of two or more persons to carry on as co-owners of a business for profit is
known as a(n) ________.
A) limited partnership
B) sole proprietorship
C) corporation
D) general partnership
51) An ordinary partnership is also known as a ________.
A) sole proprietorship
B) general partnership
C) limited partnership
D) limited liability company
52) The ________ is a model act that codifies general partnership law.
A) UPA
B) FEPA
C) ADA
D) ADEA
53) An organization or venture must have a ________ motive in order to qualify as a partnership
A) large-scale expansion
B) non-commercial
C) profit
D) target market
54) Which of the following is true of general partnership?
A) A business should make a profit in order to qualify as a general partnership.
B) The general partners need not be the co-owners of the business.
C) General partnerships can be either oral or implied from the conduct of the parties.
D) Charity organizations and schools are mostly formed from general partnerships.
55) Inference of the existence of a general partnership is drawn only if profits are received as
________.
A) share in partnership
B) payment of wages
C) interest owed on a loan
D) a debt owed to a creditor
56) Which of the following is true in the creation of a general partnership?
A) The business name has to have the names of all the partners.
B) The business name cannot be a fictitious name.
C) The name selected by the partnership cannot indicate that it is a corporation.
D) The business cannot operate under a trade name.
57) Which of the following must be in writing even if it is below the time stipulation of the
Statute of Frauds?
A) businesses that have more than one commercial venture
B) partnerships authorized to deal real estate
C) businesses that are authorized to lend money
D) enterprises which deal with health and medicine
58) How long should a general partnership have existed for it to be in writing under the Statute
of Frauds?
A) six months
B) 180 days
C) five years
D) one year
59) Which of the following is true of the management of a general partnership?
A) The number of votes a general partner has depends on the proportion of his or her capital
investment.
B) Partnership matters are decided by unanimous agreement only.
C) Only general partners in the board of directors have the authority to participate in the
management.
D) If the vote is tied, the action being voted on is considered to be defeated.
60) Which of the following is true of profits and losses in a general partnership?
A) The proportion of profit shared is equal to the general partner’s initial investment.
B) Losses are shared equally by all general partners.
C) The general partner who proposed the idea of the business gets most profit.
D) The proportion of investment governs only the proportion of loss shared and not profit
obtained.
61) ________ refers to the right of a partner to be reimbursed for expenditures incurred on behalf
of the partnership.
A) Indemnification
B) Proliferation
C) Lucubration
D) Fenestration
62) Which of the following is a right to which every general partner is entitled?
A) right to remuneration
B) right to free and open speech
C) right to return of capital
D) right to legal action
63) A(n) ________ is the obligation partners owe to use the same level of care and skill that a
reasonable person in the same position would use in the same circumstances.
A) call for action
B) duty of care
C) duty to inform
D) duty of obedience
64) The ________ requires general partners to adhere to the provisions of the partnership
agreement and the decisions of the partnership.
A) duty to inform
B) duty of loyalty
C) duty of care
D) duty of obedience
65) Instead of suing the partnerships or other partners at law, general partners are given the right
to bring a(n) ________ against other partners.
A) claim for damages
B) tort action
C) call for action
D) action for an accounting
66) Competing with the partnership without the permission of other partners violates a general
partner’s ________.
A) duty to inform
B) duty of loyalty
C) duty of care
D) duty of obedience
67) General partners have ________ for the debts and obligations of the partnership.
A) limited exemption
B) conditional exemption
C) limited organizational liability
D) unlimited personal liability
68) Which of the following is true of tort liability of a general partnership?
A) Only the partner who committed the tort is liable.
B) Partners who have not committed the tort but had to pay liability cannot indemnify from the
partner that committed the torn.
C) A partner can be sued even if he or she did not participate in the commission of the tort.
D) If one of the partners in the partnership is released, the other partners are discharged of
liability.
69) While claiming under ________, a plaintiff must name the partnership and all of the partners
as defendants in a lawsuit.
A) multiple liability
B) joint liability
C) limited liability
D) unlimited personal liability
70) Which of the following is true of the liability of an incoming partner?
A) An incoming partner is liable for the previous debts of the partnership.
B) An incoming partner is equally liable for all existing debts of the partnership.
C) An incoming partner is liable for the debts of the partnership only to the extent of his or her
capital contribution.
D) An incoming partner is not liable for the future debts of the partnership.
71) A(n) ________ is a partnership created for a fixed duration.
A) partnership for a term
B) partnership at will
C) ordinary partnership
D) limited partnership
72) A(n) ________ is a partnership created with no fixed duration.
A) partnership for a term
B) partnership at will
C) ordinary partnership
D) limited partnership
73) The change in the relationship of partners in a partnership caused by any partner ceasing to
be associated in the carrying on of the business is known as ________.
A) action for an accounting
B) indemnification
C) winding up
D) dissolution
74) ________ is a situation in which a partner withdraws from a partnership without having the
right to do so at that time.
A) Winding up
B) Indemnification
C) Wrongful dissolution
D) Proliferation
75) List the advantages and disadvantages of a sole proprietorship.
76) Explain the taxation levied on a sole proprietorship.
77) Explain in brief the formation of a general partnership.
78) Explain with an example the duty of care owed by a general partner.
79) How are assets distributed after the dissolution of a general partnership?