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CPA Business Environment and Concepts
CPA-Business Exam

Fanny and John each own and manage their own companies. Fanny's business is manufacturing freight boxes of all types, and John's business is selling freight boxes to different industries. They decide to combine their expertise and knowledge to produce and sell freight boxes specifically designed for the new airline company that just formed in their city. Which of the following best describes the business formed by the parties?

  1. A general partnership.
  2. A limited liability partnership.
  3. A sole proprietorship.
  4. A joint venture.

Answer(s): D

Explanation:

Choice "d" is correct. A joint venture is formed for a single business undertaking such as building and designing freight containers to be sold specifically to one company. Each company coming together in this joint venture has its own business outside of this one endeavor.
Choice "a" is incorrect. A general partnership is more broad in its business purpose than a joint venture is. Choice "b" is incorrect. A limited liability partnership is primarily designed for professionals who want to work as partners but with limited personal liability.
Choice "c" is incorrect. Sole proprietorships have only one person in the business.



A sole proprietorship would be an ideal form of business to select if:

  1. The individual desired no liability beyond his capital investment.
  2. The individual wanted to be able sell the business at will.
  3. The individual wanted the business to be a separate entity from the sole proprietor.
  4. The individual wanted the business to continue indefinitely.

Answer(s): B

Explanation:

Choice "b" is correct. A sole proprietor is free to transfer or sell the business at will.
Choice "a" is incorrect because a sole proprietor is personally liable for all obligations of the business. Choice "c" is incorrect. A sole proprietorship is not considered an entity separate from the sole proprietor. Choice "d" is incorrect because a sole proprietorship ends with the death of the sole proprietor.



Formation of which of the following types of business does not require the filing of documents with the state?

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): C

Explanation:

Choice "c" is correct. A sole proprietorship can be formed without filing with the state. Formation of either a corporation or a limited partnership requires a filing.
Choices "a", "b", and "d" are incorrect per the Explanation above.



Which of the following forms of business can be formed with only one individual owning the business?

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): B

Explanation:

Choice "b" is correct. A sole proprietorship and (in most states) a limited liability company can be formed with only one owner. A partnership requires two or more partners.
Choices "a", "c", and "d" are incorrect per the explanation above.




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