Chapter 1: Choosing a Legal Form (LLC, Corportion, Partnership)

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Managing Legal Risk in the Hospitality Industry Part II, Chapter 1 Quiz

Resource summary

Question 1

Question
The term "flow through tax entity" describes...
Answer
  • A form of taxation necessary for Corporations, where they must apply a tax to their sale of stocks and options
  • Sole proprietorship, where the owner of the business is responsible for all the business’ debt
  • Neither

Question 2

Question
A sole proprietorship is a true business entity.
Answer
  • True
  • False

Question 3

Question
Corporations pay income tax on their profits; shareholders must then...
Answer
  • pay tax again on the dividends received from the corporation aka. Double Taxation.
  • pay a fee to the corporation for the ownership of stock aka. Double Taxation.

Question 4

Question
Corporations can have different classes of stock.
Answer
  • True
  • False

Question 5

Question
Venture capitalists almost always refuse to invest in LLCs preferring corporations instead. Which of the following statements does NOT support this reasoning?
Answer
  • Corporations are easier to merge, sell or take public
  • Corporations can issue stock options
  • The general legal uncertainty involving LLCs (in terms of laws and regulations)
  • Tax issues for LLCs are complex
  • Once an LLC is established, it does not have as many housekeeping rules as corporations

Question 6

Question
LLC dissolves upon the withdrawal, death or expulsion of a member whereas Corporations have perpetual existence: they can continue without their founders.
Answer
  • True
  • False

Question 7

Question
Partnerships are a taxable entity.
Answer
  • True
  • False

Question 8

Question
Managers in a partnership have a fiduciary duty. Which of the following responses does NOT corresponding to an existing fiduciary duty?
Answer
  • Partners are liable to the partnerships for gross negligence or intentional misconduct
  • Partners can compete within the partnership
  • A partner may not take an opportunity away from the partnership unless the other partners consent
  • If a partner engages in a conflict of interest, he must turn over any profits he earned from that activity to the partnership

Question 9

Question
Oral agreement is enough to form a legally binding Partnership.
Answer
  • True
  • False

Question 10

Question
Partnership by implication and Partnership by Estoppel are essentially the same concept.
Answer
  • True
  • False
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