LGS 200 MODULE 3 UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS
Question:
1. The sole proprietorship also has the disadvantage of lacking continuity after the death of the proprietor.
Answer:
When the owner dies, so does the business—it is automatically dissolved.
Question:
2. Elliott is the sole proprietor of On Your Mark, a game subscription service. As a sole proprietor, on the
business's profits, Elliott pays
Answer:
only personal income taxes.
Question:
3. Java and Juice Inc. offers entrepreneurs the opportunity to operate a franchise under the Java and Juice
trade name as a member of a group of dealers that engage in retail beverage sales. To prospective
franchisees, Java and Juice must disclose
Answer:
the range of goods and services included, the value of the franchise, and the estimated profitability of the
franchise.
Question:
4. An S corporation avoids taxes at
Answer:
the corporate level.
Question:
5. Instead of issuing securities, Artificial Intelligence Inc. pursues other sources of funds. To obtain
venture capital financing, the firm will most likely
Answer:
give up a share of its ownership.
Question:
6. The action of a court to disregard the corporate entity and hold the shareholders
Answer:
personally liable for corporate debts and obligations.
Question:
7. A shareholder's right to transfer their shares to another party can be
Answer:
subject to restrictions set out in the bylaws or a shareholder agreement.
, Question:
8. Rodrigo is a director of STEM Inc. As a director, with respect to the corporation, Rodrigo is expected to
use
Answer:
prudent business judgment.
Question:
9. Erin, a shareholder of Finance Inc., demands the right to inspect corporate records to determine whether
management has engaged in self-dealing that impacts the company. The firm refuses the request. On Erin's
challenge, a court is most likely to hold that her request constitutes
Answer:
a proper purpose.
Question:
10. If a member of a limited liability company dissociates from the firm in violation of the operating
agreement,
Answer:
the member can be held liable for any loss to the business resulting from the withdrawal.
Question:
11. Ensure Care LLC's owners are Avery and Aaron. As a limited liability company, Ensure Care enters
into contracts
Answer:
as a legal entity apart from its owners.
Question:
12. Juan is a limited partner in Port Exports, a limited partnership. By participating in the firm's
management, Juan is liable for its obligations
Answer:
to the full extent.
Question:
13. Which of the following are advantages of operating as a partnership?
Answer:
-Partnerships are not taxed.
-Forming a partnership is simple and relatively inexpensive.
Question:
14. Which of the following is a disadvantage of operating as a partnership?
Answer:
Partners may suffer financial loss if the partnership is not profitable.
Question:
15. In a distributorship:
Answer:
a manufacturer licenses a dealer to sell its product.
CORRECT ANSWERS
Question:
1. The sole proprietorship also has the disadvantage of lacking continuity after the death of the proprietor.
Answer:
When the owner dies, so does the business—it is automatically dissolved.
Question:
2. Elliott is the sole proprietor of On Your Mark, a game subscription service. As a sole proprietor, on the
business's profits, Elliott pays
Answer:
only personal income taxes.
Question:
3. Java and Juice Inc. offers entrepreneurs the opportunity to operate a franchise under the Java and Juice
trade name as a member of a group of dealers that engage in retail beverage sales. To prospective
franchisees, Java and Juice must disclose
Answer:
the range of goods and services included, the value of the franchise, and the estimated profitability of the
franchise.
Question:
4. An S corporation avoids taxes at
Answer:
the corporate level.
Question:
5. Instead of issuing securities, Artificial Intelligence Inc. pursues other sources of funds. To obtain
venture capital financing, the firm will most likely
Answer:
give up a share of its ownership.
Question:
6. The action of a court to disregard the corporate entity and hold the shareholders
Answer:
personally liable for corporate debts and obligations.
Question:
7. A shareholder's right to transfer their shares to another party can be
Answer:
subject to restrictions set out in the bylaws or a shareholder agreement.
, Question:
8. Rodrigo is a director of STEM Inc. As a director, with respect to the corporation, Rodrigo is expected to
use
Answer:
prudent business judgment.
Question:
9. Erin, a shareholder of Finance Inc., demands the right to inspect corporate records to determine whether
management has engaged in self-dealing that impacts the company. The firm refuses the request. On Erin's
challenge, a court is most likely to hold that her request constitutes
Answer:
a proper purpose.
Question:
10. If a member of a limited liability company dissociates from the firm in violation of the operating
agreement,
Answer:
the member can be held liable for any loss to the business resulting from the withdrawal.
Question:
11. Ensure Care LLC's owners are Avery and Aaron. As a limited liability company, Ensure Care enters
into contracts
Answer:
as a legal entity apart from its owners.
Question:
12. Juan is a limited partner in Port Exports, a limited partnership. By participating in the firm's
management, Juan is liable for its obligations
Answer:
to the full extent.
Question:
13. Which of the following are advantages of operating as a partnership?
Answer:
-Partnerships are not taxed.
-Forming a partnership is simple and relatively inexpensive.
Question:
14. Which of the following is a disadvantage of operating as a partnership?
Answer:
Partners may suffer financial loss if the partnership is not profitable.
Question:
15. In a distributorship:
Answer:
a manufacturer licenses a dealer to sell its product.
