Question 1

All of the following are characteristics of a closely held corporation EXCEPT

Accepted Answer

A)  the shares are publicly traded.
B)  the corporation can typically operate without a board of directors.
C)  the shareholders usually restrict share transfer.
D)  minority shareholders are provided more protection than in regular corporations.

Question 2

Debra wanted to form a partnership with Lawrence.He agreed and they became co-owners in an equal partnership.This year,after expenses,the partnership had a profit of $200,000.How will the taxation of this profit be handled?

Accepted Answer

A)  Since the partnership was Debra's idea, she will pay income tax on the profit on her personal tax return.
B)  The business will pay half of the tax liability and Debra and Lawrence will pay the other half.
C)  Debra and Lawrence must both pay tax on the business's profit.
D)  The business itself will pay the taxes on the business's profit.

Question 3

Which of the following forms of organization is a compromise between starting one's own business as an entrepreneur and working for someone else as an employee?

Accepted Answer

A)  Limited liability company
B)  Sole proprietorship
C)  Close corporation
D)  Franchise

Question 4

The term "S Corporation" comes from

Accepted Answer

A)  the Internal Revenue Code.
B)  the FTC rules.
C)  the Securities and Exchange Commission.
D)  state corporation law.

Question 5

The advantage to an S corporation is

Accepted Answer

A)  its offering of multiple classes of stock.
B)  its treatment of shareholders for income taxation purposes.
C)  its ability to attract an unlimited number of shareholders.
D)  its ability to have partnerships and corporations invest as shareholders.

Question 6

When a partner leaves the partnership,whether it be voluntary or by expulsion,death or bankruptcy,it is called

Accepted Answer

A)  dissociation.
B)  termination.
C)  detachment.
D)  separation.

Question 7

Which of the following would NOTbe personally liable for the debts of the business?

Accepted Answer

A)  a sole proprietor
B)  a partner in a general partnership
C)  an S corp shareholder
D)  a partner in a joint venture

Question 8

An S Corporation cannot have more than ____ shareholders.

Accepted Answer

A)  100
B)  75
C)  50
D)  25

Question 9

Generally,a joint venture is a partnership created for one limited purpose.

Accepted Answer

A) True 
 B)False

Question 10

Corporations have a distinct advantage over other forms of business organization in the area of taxation.

Accepted Answer

A) True 
 B)False

Question 11

Jill owns a retail business by herself and was sued by a customer who fell in the store.The customer claimed the business was negligent in caring for its floors.Which statement best describes Jill's potential liability?

Accepted Answer

A)  Jill has no potential liability to the customer.
B)  Jill can be held personally liable to the customer since she is the owner.
C)  Jill can only be liable to the amount she initially invested in the business.
D)  Jill cannot be held personally responsible; the woman's insurance must pay for the claim.

Question 12

Corporations have perpetual existence.

Accepted Answer

A) True 
 B)False

Question 13

The phrase "piercing the company veil" applies to which type of organization?

Accepted Answer

A)  a close corporation
B)  a general partnership
C)  a limited liability company
D)  an S corporation

Question 14

Which of the following is an advantage of a corporation?

Accepted Answer

A)  It is easy to form a corporation.
B)  It requires little expense to form a corporation.
C)  It offers limited liability for its shareholders.
D)  It is a flow-through tax entity.

Question 15

Daniel,his parents,and three brothers own all the stock of their family farm corporation and each person takes an active role in managing the enterprise.This corporation,which is taxed as a corporation,is most likely

Accepted Answer

A)  an S corporation.
B)  a professional corporation.
C)  a close corporation.
D)  a proprietorship.

Question 16

An organization that does not pay income tax on its profits but passes them through to its owners who pay the tax at their individual rates is called a

Accepted Answer

A)  business corporation.
B)  flow-through tax entity.
C)  tax-free business venture.
D)  professional corporation.

Question 17

No formal steps are necessary to create a sole proprietorship.

Accepted Answer

A) True 
 B)False

Question 18

The corporate form of business

Accepted Answer

A)  was first known and used by the Greeks and then spread through the Romans to England.
B)  was not known until the advent of the Industrial Revolution.
C)  was first allowed in the State of New York around 1811 and is considered to be an American creation.
D)  is a relatively new concept developed shortly after the Great Depression.

Question 19

The Federal Trade Commission requires franchisors to

Accepted Answer

A)  give prospective franchisees a franchise disclosure document at least 14 business days prior to the signing of a contract or payment of any money.
B)  give prospective franchisees earnings information on the company.
C)  disclose any litigation the company has ever been involved in.
D)  let prospective franchisees know how many franchisees have gone out of business in the prior five years.

Question 20

The business form that offers the limited liability of a corporation and the tax status of a flow-through entity is

Accepted Answer

A)  a close corporation.
B)  a sole proprietorship.
C)  a limited liability company.
D)  a general partnership.

Exam 31: Starting a Business: LLCs and Other Options

Corporations have a distinct advantage over other forms of business organization in the area of taxation.

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An organization that does not pay income tax on its profits but passes them through to its owners who pay the tax at their individual rates is called a

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The phrase "piercing the company veil" applies to which type of organization?

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When a partner leaves the partnership,whether it be voluntary or by expulsion,death or bankruptcy,it is called

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The corporate form of business

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Which of the following would NOTbe personally liable for the debts of the business?

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No formal steps are necessary to create a sole proprietorship.

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The business form that offers the limited liability of a corporation and the tax status of a flow-through entity is

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The advantage to an S corporation is

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The Federal Trade Commission requires franchisors to

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Jill owns a retail business by herself and was sued by a customer who fell in the store.The customer claimed the business was negligent in caring for its floors.Which statement best describes Jill's potential liability?

Correct AnswerverifiedShow Answer

Generally,a joint venture is a partnership created for one limited purpose.

Correct AnswerverifiedShow Answer

Which of the following forms of organization is a compromise between starting one's own business as an entrepreneur and working for someone else as an employee?

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Which of the following is an advantage of a corporation?

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Daniel,his parents,and three brothers own all the stock of their family farm corporation and each person takes an active role in managing the enterprise.This corporation,which is taxed as a corporation,is most likely

Correct AnswerverifiedShow Answer

The term "S Corporation" comes from

Correct AnswerverifiedShow Answer

An S Corporation cannot have more than ____ shareholders.

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Corporations have perpetual existence.

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Debra wanted to form a partnership with Lawrence.He agreed and they became co-owners in an equal partnership.This year,after expenses,the partnership had a profit of $200,000.How will the taxation of this profit be handled?

Correct AnswerverifiedShow Answer

All of the following are characteristics of a closely held corporation EXCEPT

Correct AnswerverifiedShow Answer

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