The Legal Environment of Business and Online Commerce, 7e (Cheeseman)
Chapter 14 Small Business and General and Limited 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) In a sole proprietorship, the business is considered a separate legal entity.
5) No federal or state government approval is required for creating a sole proprietorship.
6) If no other form of business organization is chosen while obtaining a license, the business is
by default a sole proprietorship.
7) The designation of d.b.a. refers to the description for a business that is operating under a trade
name.
8) A sole proprietor has limited personal liability.
9) A sole proprietorship does not does not pay taxes at the business level.
10) The UPA is a model act that codifies sole proprietorship law.
11) The Revised Uniform Partnership Act is a federal statute that holds in all states.
12) Receipt of a share of business profits is prima facie evidence of a general partnership.
13) The name selected by a general partnership cannot indicate that it is a corporation.
14) A general partnership agreement must always be in writing to be considered legal.
15) General partnerships do not pay federal income taxes.
16) Flow-through taxation is the federal income tax imposed on general partnerships.
17) The right to share in the profits of the partnership is the right to share in the earnings from
the investment of capital.
18) General partners are not permitted to sue other partners at law.
19) General partners have unlimited personal liability for the debts and obligations of the
partnership.
20) A third party who sues to recover on a partnership contract need not name all the general
partners in the lawsuit.
21) The process of liquidating a partnership’s assets and distributing the proceeds to satisfy
claims against the partnership is known as winding up.
22) The dissolution of a general partnership discharges the liability of an outgoing partner for
existing partnership debts and obligations.
23) A limited partnership cannot have general partners.
24) General partners are not personally liable for partnership debts beyond their capital
contributions.
25) It is not necessary for a limited partnership to have general partners if the limited partners
share management responsibility among themselves.
26) The creation of a limited partnership is formal and requires public disclosure.
27) Defective formation of a limited partnership occurs when a certificate of limited partnership
is not properly filed.
28) Limited partners have unlimited personal liability for the debts and obligations of the limited
partnership.
29) Acting as a surety for the limited partnership makes a limited partner lose his or her limited
liability.
30) A limited partner may engage in voting on the dissolution of the limited partnership without
losing his or her limited liability.
31) 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
32) Which of the following is a major form of conducting a business?
A) institution
B) charity
C) corporation
D) trust
33) ________ 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
34) 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.
35) 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.
36) 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.
37) 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
38) 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
39) 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.
40) 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
41) 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
42) 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
43) 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.
44) 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
45) 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.
46) 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
47) 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
48) 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.
49) 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.
50) 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
51) 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.
52) 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.
53) 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
54) ________ 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
55) According to priority, which of the following claims are satisfied first after dissolution?
A) creditors
B) creditor-partners
C) capital contributions
D) profits
56) A limited partnership has two types of partners, ________.
A) general partners and sole proprietors
B) general partners and limited partners
C) ordinary partners and liable partners
D) special partners and sole proprietors
57) Which of the following partners in a limited partnership invest capital, manage the business,
and are personally liable for partnership debts?
A) specific partners
B) limited partners
C) general partners
D) sole proprietors