The Law of Corporations and Other Business Organizations 6th Edition by Angela Schneeman - Test Bank

The Law of Corporations and Other Business Organizations 6th Edition by Angela Schneeman – Test Bank

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CHAPTER 2
Sole Proprietorships
MULTIPLE CHOICE
1. A sole proprietorship is considered to be
A. an entity formed to protect the small busi-
nessperson from personal liability.
B. an extension of the individual sole pro-
prietor.
C. any business organization that is owned,
managed, and operated by only one
individual.
D. an entity that is easily transferred from one
individual to another.
ANS: B
2. The number of sole proprietorships in the
United States is
A. greater than the number of corporations.
B. less than the number of corporations.
C. less than the number of partnerships.
D. about the same as the number of partner-
ships.
ANS: A
3. The income of sole proprietorships in the
United States is
A. greater than the income of corporations.
B. less than the income of corporations.
C. less than the income of partnerships.
D. about the same as the income of corpora-
tions.
ANS: B
4. Advantages to transacting business as a sole
proprietorship include
A. double taxation on the income of sole
proprietors.
B. limits on the sole proprietor’s personal
liability.
C. the ease and low cost of starting the
business.
D. the sole proprietor’s lack of responsibility
for actions by employees or agents.
ANS: C
5. Disadvantages to transacting business as a sole
proprietorship include
A. double taxation of the sole proprietor’s
income.
B. personal liability for the debts and obliga-
tions of the business.
C. the limited duration of the sole proprietor-
ship allowed by state law.
D. costly filing fees for forming the sole
proprietorship.
ANS: B
6. When hiring an employee, the sole proprietor
must
A. file a certificate of assumed name.
B. file a notice with the secretary of state or
other appropriate state official.
C. obtain a federal employer identification
number.
D. amend the business’s certificate of assumed
name.
ANS: C
7. Paralegals who are assisting in providing
services to a sole proprietorship should not
A. advise the sole proprietor with regard to the
income tax consequences of doing business
as a sole proprietor.
B. assist with the preparation of state and fed-
eral forms to comply with state and federal
taxation requirements.
C. draft and file an application for a certificate
of assumed name when that document is
required.
D. draft and file an application for employer
identification number when that document
is required.
ANS: A
8. The application for employer identification
number must be filed with the
A. secretary of state.
B. State Unemployment Insurance Department.
C. Internal Revenue Service.
D. U.S. Department of Labor.
ANS: C
9. The sole proprietor’s liability for the actions of
his or her employee is best described as which
of the following:
CHAPTER 2 Sole Proprietorships 115
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A. A sole proprietor is never responsible for
torts committed by the sole proprietor’s
employee.
B. A sole proprietor is responsible for actions
taken by an employee while the employee
is acting on behalf of the employer in the
normal course of business.
C. Both the sole proprietor and the employee
may be liable for torts committed by the
employee.
D. Both B and C.
ANS: D
10. A certificate of assumed name is filed to
A. form a sole proprietorship.
B. form an assumed-name entity.
C. create a trademark.
D. give notice of your intent to transact busi-
ness under a name other than your own.
ANS: D
TRUE/FALSE
11. A sole proprietorship certificate must be
obtained from the secretary of state’s office
before a sole proprietor can begin transacting
business.
ANS: F
12. When a sole proprietor uses an assumed name,
some states require that a notice of intent to
transact business under an assumed name be
published.
ANS: T
13. A sole proprietor may hire any number of
employees.
ANS: T
14. The rules of ethics that apply to attorneys may
apply to the paralegals who work for them.
ANS: T
15. A sole proprietor may delegate management
and decisions concerning the business to agents
and employees.
ANS: T
16. A sole proprietor may transfer his or her
business to another individual by selling all of
his or her shares of stock to that individual.
ANS: F
17. Sole proprietorships are created and governed
by state statute.
ANS: F
18. Sole proprietors can attract new employees by
offering shares of their business as
compensation.
ANS: F
19. The sole proprietorship is dissolved by filing a
certificate of dissolution with the secretary of
state.
ANS: F