The Law of Corporations and Other Business Organizations

Chapter Review

1. What form of business ownership is the
most prevalent in the United States?
The sole proprietorship is the most
prevalent form of business ownership in
the United States.
2. What form of business organization generates
the most income?
The corporation is by far the biggest
generator of income in the United States,
earning more than sole proprietorships
and partnerships combined.
3. Suppose that the Johnson Grocery Store is
a sole proprietorship owned by Jill Johnson.
If Jill’s store manager, Ben, in the ordinary
course of business, orders too many
tomatoes, can Jill Johnson refuse to pay for
the order?
Jill Johnson cannot refuse the order.
Why or why not?
A sole proprietor is responsible for the
acts of his or her agents and employees
who are acting in the ordinary course of
business.
4. Explain why an individual with limited financial
resources might choose to incorporate
rather than operate a sole proprietorship.
A sole proprietorship may require capital
input greater than the individual sole
proprietor is capable of raising. The
corporate structure offers many more
options for raising capital, such as the issuance
of equity securities.
5. Jim is contemplating going into business
for himself as a general contractor specializing
in apartment complexes. For what
reasons may Jim choose to operate as a
sole proprietorship?
Jim may feel that he wants full management
authority of his business, without
having a partner or other investors
to answer to. He may also be attracted to
the low cost of organizing and operating
a sole proprietorship in contrast with
other forms of business. Finally, he may
want to avoid the double taxation that
may be associated with corporations.
What factors may cause him to consider
incorporating or forming a limited liability
company?
Jim may be concerned with his exposure
to personal liability for his business obligations.
He may also find that he needs
the capital of equity investors.
6. If Lucy decides to start a tailoring business
from her home, what must she do before
she begins advertising under the name of
“Lucy’s Alterations”?
Lucy must check to be sure that the
name “Lucy’s Alterations” is available
for use, and she must check the requirements
in her state for using an assumed
name. She will probably be required
to file a certificate of assumed
name (or some similar document) with
the secretary of state’s office. She may
also be required to publish the certificate,
or her intention to use the assumed
name, in a local newspaper for a specified
length of time.
7. Would a student who operates a lawn service,
working afternoons and weekends to
help pay tuition, be considered a sole proprietor?
Yes
Why or why not?
The student owns and operates an unincorporated
business with no partners or
investors.