Business Organizations Quiz
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Questions and Answers

What is the primary characteristic of a sole proprietorship?

  • It has a distinct body of law governing its operations.
  • It is owned by one individual who has not registered it under another legal form. (correct)
  • It must file annual returns with the IRS.
  • It requires multiple owners to operate.
  • In which office is the paperwork for registering a sole proprietorship usually filed?

  • Federal Business Administration
  • Secretary of State Office (correct)
  • Business License Department
  • Department of Revenue
  • What does the lack of legal distinction between the owner and the business imply for a sole proprietor?

  • Business income is taxed separately from personal income.
  • The proprietor is only liable for business debts, not personal assets.
  • All business assets are considered personal assets of the proprietor. (correct)
  • The business can file for separate bankruptcy.
  • What is the primary governing law for an LLC?

    <p>The law of the state of organization</p> Signup and view all the answers

    What type of liability do sole proprietors have for business debts?

    <p>Unlimited personal liability</p> Signup and view all the answers

    What is typically established in an LLC's operating agreement?

    <p>Management structure and profit allocation</p> Signup and view all the answers

    What is the tax reporting requirement for a sole proprietor?

    <p>They report business income on their personal tax return.</p> Signup and view all the answers

    In a member-managed LLC, what is true about management authority?

    <p>Management authority is shared among all members</p> Signup and view all the answers

    Which statement correctly describes management in a sole proprietorship?

    <p>The sole proprietor has full authority over business decisions.</p> Signup and view all the answers

    What happens when a sole proprietor defaults on business obligations?

    <p>Creditors can seize both business and personal assets.</p> Signup and view all the answers

    Which of the following statements regarding liability in an LLC is correct?

    <p>Members are shielded from personal liability for LLC's debts</p> Signup and view all the answers

    What can sole proprietors do regarding delegation of authority?

    <p>They can hire employees and delegate authority as needed.</p> Signup and view all the answers

    For federal income tax purposes, how is a multi-member LLC treated?

    <p>Like a general partnership</p> Signup and view all the answers

    What is a feature of the operating agreement in an LLC?

    <p>It can define the process for transfer of membership interests</p> Signup and view all the answers

    What does 'pass-through taxation' mean for LLC members?

    <p>Members report profits and losses on personal tax returns</p> Signup and view all the answers

    What is one of the statutory limits regarding the operating agreement in an LLC?

    <p>Certain mandatory rules cannot be overridden</p> Signup and view all the answers

    Which business structure typically provides full inside liability shields to all owners?

    <p>Corporation/LLC</p> Signup and view all the answers

    Under which condition can limited partners in a Limited Partnership lose their liability shield?

    <p>If they participate in management decisions</p> Signup and view all the answers

    What is the main feature of outside liability exposure?

    <p>Creditors can recover debts from business assets due to owner's personal debts</p> Signup and view all the answers

    Which of the following is NOT a reason for piercing the corporate veil?

    <p>Investing personal money into the company</p> Signup and view all the answers

    In what circumstance are general partners personally liable for the debts of the business?

    <p>Under all business structures regardless of state laws</p> Signup and view all the answers

    Which professional entity provides some liability protection but requires all owners to be licensed for the services offered?

    <p>Professional Entity</p> Signup and view all the answers

    What is a defining characteristic of a Close Corporation?

    <p>It has a fixed number of shareholders.</p> Signup and view all the answers

    What distinguishes a Benefit Corporation from a traditional corporation?

    <p>It has a purpose of creating a general public benefit.</p> Signup and view all the answers

    What is a defining feature of a Nonprofit Corporation?

    <p>It is organized for public benefit or mutual benefit.</p> Signup and view all the answers

    Which organization type is known for managing a business through trustees?

    <p>Business Trust</p> Signup and view all the answers

    What best describes the concept of a Joint Venture?

    <p>It is formed for a specific business opportunity.</p> Signup and view all the answers

    What does the Internal Affairs Doctrine govern?

    <p>Internal governance of business entities.</p> Signup and view all the answers

    Which statement is true regarding a Low Profit Limited Liability Company (L3C)?

    <p>They primarily pursue socially beneficial purposes.</p> Signup and view all the answers

    What is the corporate income tax rate for Sub-C entities after the 2018 reform?

    <p>21%</p> Signup and view all the answers

    What is the total amount Clare ends up with after taxes if CCI earns $100,000 and distributes $79,000 as dividends?

    <p>$67,150</p> Signup and view all the answers

    How much more does Clare pay in total taxes when taxed under Sub-C compared to Sub-S?

    <p>$15,810</p> Signup and view all the answers

    Which tax structure allows for the avoidance of double taxation?

    <p>Sub-S</p> Signup and view all the answers

    In a disregarded entity, how is the net income or loss treated?

    <p>It is reported directly on the owner's personal federal income tax return.</p> Signup and view all the answers

    What is one limitation of a single-member LLC regarding tax options?

    <p>It cannot opt for Sub-K taxation.</p> Signup and view all the answers

    What is one important factor business owners must consider when choosing a tax structure?

    <p>Minimizing tax liability</p> Signup and view all the answers

    What happens to distributions from a Sub-C corporation?

    <p>They are taxed at both the corporate and owner level.</p> Signup and view all the answers

    What must a third party do to establish a claim of apparent authority in the H.H. Taylor Case?

    <p>Demonstrate that they relied reasonably on the agent's apparent authority.</p> Signup and view all the answers

    How does the Restatement (Third) of Agency differ from some courts regarding apparent authority?

    <p>It does not impose a reliance requirement for finding apparent authority.</p> Signup and view all the answers

    What was the outcome for Monet when Bose charged paint despite being told not to?

    <p>Monet was bound due to Bose's apparent authority as crew chief.</p> Signup and view all the answers

    In the case of Arroyo, what allowed the paint store to charge paint to Monet's account despite Arroyo having been fired?

    <p>The store had previously recognized Arroyo's authority.</p> Signup and view all the answers

    What happens to apparent authority when a store knows of an agent's termination?

    <p>The apparent authority is nullified if the store had prior knowledge.</p> Signup and view all the answers

    Which statement accurately describes the relationship between apparent authority and actual authority?

    <p>Apparent authority can exceed actual authority in certain situations.</p> Signup and view all the answers

    What is the primary role of a principal's manifestation in establishing apparent authority?

    <p>It helps the third party form a reasonable belief in the agent's authority.</p> Signup and view all the answers

    What is a key requirement for a court to impose a reliance element for apparent authority?

    <p>The third party must be able to demonstrate a reasonable belief in the agent's authority.</p> Signup and view all the answers

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    Description

    Test your knowledge on the characteristics and laws governing sole proprietorships and LLCs. This quiz covers various aspects including liability, management, and tax obligations related to these business structures.

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