Question 1: Sue, Rusty and Yvette agree to put in $1,000 each to set up a shelter for lost animals. They each work two days a week. Donations fund the day-to-day operations and are used for food, medicine and other necessities for the animals. Do they have a partnership?
a. Yes, since each has control of the operation.
b. Yes, because they are all co-equal in ownership of the shelter.
c. No, because there is no business.
d. Yes, because the business is run for a profit.
Question 2: Serrie and Al and their two daughters have operated a business out of their home for years and are thinking about incorporating. They would like to avoid the "double taxation" of corporate income. Which of the following types of corporations would allow them to avoid this disadvantage of the corporate form?
a. A professional corporation
b. A subchapter S corporation
c. A close corporation
d. An unincorporated association
Question 3: A corporation formed in one state but doing business in another state is referred to in that other state as
a. an alien corporation.
b. a foreign corporation.
c. an S corporation.
d. a non-profit corporation.
Question 4: Because limited partnerships are governed by state statute, they must comply fully with applicable state laws because noncompliance
a. will result in the automatic dissolution of the partnership.
b. will cause the limited partnership to become a general partnership.
c. will subject the partners to criminal prosecution.
d. will subject the partners to limited liability.
Question 5: Which of the following statements is true?
a. Partnerships are creatures of statute rather than the common law.
b. The personal net worth of any general partner is exempt from partnership obligations.
c. A partner's profits from partnership is taxed as individual income.
d. A partnership is very similar to a corporation.
Question 6: Assume that Morgan, a would-be tycoon, decides to go into business for himself selling red socks door-to-door. If he wishes to avoid unncessary costs and legal fees by setting up the simplest form of business, he should establish:
a. a corporation.
b. a sole proprietorship.
c. a partnership.
d. a franchise.
Question 7: A private, for-profit corporation that (1) was formed for the purpose of manufacturing and distributing a newly patented kitchen applicance, (2) is owned by five shareholders, (3) is subject to double taxation, and (4) has made no public offering of its shares would be classified as:
a. an S corporation.
b. a close corporation.
d. a professional corporation.
e. a publicly traded association.