Question 1

Millie has a sole proprietorship that is her only source of income. Which of the following legal actions should she take to prevent the business from being ruined if she becomes incapacitated?

Accepted Answer

Giving someone power of attorney would allow them to step in and manage the business in the event that Millie becomes incapacitated. This way, the business can continue to operate and generate income without risk of ruin. Choosing B or D would not be effective as a will only takes effect after death and sole proprietorships cannot be inherited, and telling heirs to sell would not prevent ruin in the event of incapacity. Choosing C would involve making significant changes to the business and bringing on a partner, which may not be necessary if a power of attorney can be appointed to manage the business temporarily.

Question 2

Which of the following legal forms allows owners to contribute no capital but still play a part in managing the business and share in its profits?

Accepted Answer

The legal form that allows owners to contribute no capital but still play a part in managing the business and share in its profits is a Partnership. In a partnership, the partners can contribute different amounts of capital or no capital at all, but they share in the profits and have a say in the management of the business. S and C corporations and sole proprietorships require some initial capital contribution from the owners.

Question 3

As she considered becoming a partner in a new business venture, Valerie asked her potential partner about a(n) _____ in the event that the partnership did not work out as expected.

Accepted Answer

An exit strategy is a plan for how partners can leave the business or dissolve the partnership if things don't work out as planned. It can include details on how assets will be distributed or how debts will be paid off. It is important for partners to have an exit strategy in place before starting a business together, to avoid potential conflicts or legal issues down the line.

Question 4

A corporation

Accepted Answer

Corporations are created under state laws, and a charter or certificate of incorporation is issued by the state government. This charter outlines the corporation's purpose, structure, and organizational details. Therefore, option A is the correct answer.

Question 5

Trevor is in his early 60s but still wants to "strike out on his own" by starting a new business. One roadblock he may face is resistance from

Accepted Answer

As Trevor is in his early 60s, creditors may view him as a higher risk borrower due to his age and may be hesitant to lend him money for his new business venture.

Question 6

The legal document that spells out the partners' rights and duties is called the

Accepted Answer

The partnership agreement is a legal document that outlines the rights and responsibilities of the partners in a partnership. It typically covers topics such as profit and loss sharing, decision-making processes, and dispute resolution. The articles of incorporation define a corporation's purpose and structure, the partnership bylaws outline the internal rules and regulations of the partnership, and the SS-4 form is an application for an Employer Identification Number (EIN) with the Internal Revenue Service (IRS), which is required for tax purposes.

Question 7

Becky wants to organize her startup as a regular corporation. One of the first steps Becky should take is to

Accepted Answer

The answer of Becky wants to organize her startup as...

Question 8

Abby, Adam, and Arnold are partners. They have planned to continue the partnership even after the death of any one partner. To this end, the partners have

Accepted Answer

Purchasing life insurance policies naming the other two partners as beneficiaries is the best choice as it provides immediate funds to buy out the deceased partner's share, without burdening the heirs of the deceased partner or risking the partnership's continuity. Option A, stipulating in their wills to bequeath share to the other partners, may lead to legal complications and delay in accessing partnership funds. Option C, creating trust funds, may also face legal hurdles as the heirs of the deceased partner may lay claim to the partnership's assets. Option D, secretly signing documents to relinquish claims after death, is not a legally enforceable agreement and may also face legal challenges.

Question 9

Which of the following entities is liable for a corporation's debts?

Accepted Answer

The corporation itself is a separate legal entity with its own liabilities and assets. The stockholders' liability is generally limited to the amount of their investment in the corporation. While the board of directors and the corporation's president may have certain responsibilities and duties related to the corporation's financial management, they are not personally liable for the corporation's debts in most circumstances.

Question 10

A corporate charter should

Accepted Answer

A corporate charter must be in accordance with state law as it is a legal document that establishes a corporation's existence and outlines its authority to conduct business.

Question 11

Any person capable of _____ may legally become a business partner.

Accepted Answer

The ability to enter into contracts is essential for becoming a business partner, as it involves legal agreements and obligations.

Question 12

For a corporate charter to be obtained,

Accepted Answer

To obtain a corporate charter, one or more persons must apply to the secretary of state for permission to incorporate. This involves submitting the necessary paperwork, such as articles of incorporation, and paying any required fees. The other options listed are not accurate requirements for obtaining a corporate charter.

Question 13

Cameron is creating the document that specifies the size of the board, the duties of the directors, voting rights, etc. This document is known as the

Accepted Answer

The document that specifies the size of the board, the duties of the directors, voting rights, etc. is known as the corporate bylaws. The partnership agreement is the document that outlines the rights and responsibilities of the partners in a business partnership. The employment contract outlines the terms and conditions of employment between an employer and employee, while the stock certificate represents ownership in a company.

Question 14

A corporate charter should be

Accepted Answer

A corporate charter should outline the basic framework for the corporation and establish its legal existence. It should be broad in its statement of the firm's power to allow for flexibility and growth as the corporation evolves. A lengthy and detailed charter is unnecessary and may even hinder the corporation's ability to adapt to changing circumstances. The charter is typically prepared by the corporation's founders with the assistance of legal counsel.

Question 15

Which of the following legal forms has the smallest percentage of new businesses?

Accepted Answer

C corporations have the smallest percentage of new businesses because they typically require more paperwork, higher costs, and more complex tax filings compared to sole proprietorships or partnerships. S corporations, on the other hand, have become a popular choice for new businesses due to their pass-through taxation and protection of personal assets.

Question 16

If partners cannot resolve disputes between themselves, they may be wise to hire a(n)

Accepted Answer

A business mediator is trained to help conflicting parties find a compromise or resolution that works for both sides. This can often be a more cost-effective and efficient solution than going to court or hiring an arbitrator. A mediator can help partners communicate better and work through differences in a constructive way, potentially preserving the partnership and avoiding costly legal battles.

Question 17

Upton was surprised to find his partner had signed an agreement to sell product to a customer at below cost. He tried to cancel the contract but found out that

Accepted Answer

In a partnership, any partner can legally bind the company in contract without the consent of the other partners, as each partner acts as an agent of the partnership. This means that decisions made by one partner regarding business deals or contracts are legally binding on all partners and the partnership as a whole.

Question 18

Which of the following best defines a partnership?

Accepted Answer

A partnership is a business model that is owned and operated by two or more individuals with the intention of earning a profit. Each partner contributes to the business in terms of capital, labor, or expertise, and shares in the profits and losses of the venture.

Question 19

A key characteristic of a partnership is that each partner

Accepted Answer

Each partner in a partnership has the legal capacity to contract on behalf of the partnership, meaning they can enter into agreements with other parties and make decisions for the company. This is a key characteristic of a partnership. While A is also true to some extent (partners generally contribute capital to the business), it is not a defining characteristic of a partnership. B is true, but only applies upon dissolution of the partnership. D is not necessarily true - while partners may choose to participate in management, it is not a requirement.

Question 20

Zeno, Zella, and Zorro wish to form a partnership. Zeno is putting up 60 percent of the capital, Zella is putting up 40 percent, and Zorro is putting in no capital but will manage the business. In the absence of a provision in the partnership agreement, how will the liability and profits be distributed?

Accepted Answer

In the absence of a specific provision in the partnership agreement, liability and profits in a partnership are typically distributed equally among the partners, regardless of the amount of capital or work each partner contributes.

Quiz 8: The Organizational Plan: Teams, Legal Structures, Alliances, and Directors