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Exam 18: Small Businesses and Limited Liability Companies

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Question 31

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Sebastian was the manager of Thai Bistro, a restaurant specializing in Southeast Asian foods. Sebastian opened a bank account in Thai Bistro's name, signing the account signature card as "owner." Umeko, who was often at Thai Bistro and had free access to its office, told others that she was "an owner" and "a partner." She also opened a bank account in Thai Bistro's name, and signed the account signature card as "owner." Sebastian told Vijay, the owner of Wong Noodles, Inc., that Umeko was a member of a partnership that owned Thai Bistro. On this basis, Wong Noodles delivered its goods to Thai Bistro on credit. In fact, Thai Bistro was owned by a corporation. When the unpaid account totaled more than $10,000, Wong Noodles filed a suit against Umeko to collect. On what basis might Umeko be liable for the debt?​

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The theory under which Umeko would most ...

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Question 32

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Lee wants to go into the business of architectural design. Among the reasons that might convince Lee to set up his business as a sole proprietorship would be​

A) ​its greater organizational flexibility.
B) ​its limited liability.
C) ​its perpetual existence.
D) ​the ease of transferring the business to other family members.

E) B) and D)
F) B) and C)

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Question 33

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A sole proprietor does not own the entire business.​

A partner may pursue his or her own interests without automatically violating the partner's fiduciary duties to the partnership and the other partners.​

The members of a limited liability company have unlimited liability for any loss or injury caused by the wrongful acts or omissions of the firm.​

Ed, a partner in Farm Equipment Sales, applies for a loan with Growers Bank allegedly on Farm Equipment's behalf but without the authorization of the other partners. The bank knows that Ed is not authorized to take out the loan. Liability in the event of default will be imposed on​

Anyone who does business must create a separate business organization.​

A limited liability company can be taxed as a corporation.​

Laura owns and operates Meditation Center without creating a separate business organization. She receives all the profits from the fees for the classes and the sales of the center's merchandise. This is most likely​

Home Healthcare, LLC's owners are Inez and Jan. For purposes of entering into contracts, Home Healthcare is​

A partner is not liable for honest errors in judgment in conducting partnership business.​

When a limited liability company is dissolved, any member, including those who wrongfully dissociated, may participate in the winding up process.​

Limited liability companies are entities apart from their owners.​

Rita and Salvatore do business as Tech Fixers, a partnership. In most states, for the purposes of collecting judgments and having accounting performed, this firm would be treated as​

The owners of a limited liability company are liable for the obligations of the firm to the full limit.​

Most states treat a partnership as an aggregate for most purposes.​

Fact Pattern 18-1 Bryn, Cornell, and Duke are partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners. -Refer to Fact Pattern 18-1. The partners decide to dissolve Equity Lending. Duke collects and distributes the firm's assets. This results in​

Fact Pattern 18-1 Bryn, Cornell, and Duke are partners in Equity Lending, a consumer credit, mortgage, and investment firm. Their agreement states that it is a breach of the agreement for any partner to assign his or her interest to a creditor without the consent of the other partners. -Refer to Fact Pattern 18-1. Cornell's assignment of his interest in Equity Lending to Financial Consultants Corporation results in​

When lending capital to a small business, a bank may require a personal guaranty of its repayment from the owner.​

Ford is the sole proprietor of Go, a game app subscription service. As a sole proprietor, on the business's profits, Ford pays​