Law Chpt 5 – Business Organizations

 

17. An engineer runs a consulting practice alone and is personally responsible for all debts.

This structure is:

A. Corporation
B. Partnership
C. Sole proprietorship
D. Limited liability partnership

Ans. C

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18. Two engineers share ownership and profits of a firm but have unlimited liability.

This structure is:

A. Corporation
B. Partnership
C. Joint venture
D. Cooperative

Ans B

The correct answer is: B. Partnership

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Why B. Partnership is correct:

A partnership is defined by:

·         Shared ownership and profits

·         Unlimited personal liability (especially in a general partnership)

·         Each partner can be personally responsible for debts and even the actions of the other partner

This matches the question exactly.

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Why the other options are incorrect:

A. Corporation

·         Provides limited liability, not unlimited
❌ Opposite of what the question states

C. Joint venture

·         Typically a temporary collaboration for a specific project

·         Not necessarily a full profit-sharing firm structure with ongoing liability
❌ Doesn’t match the general business structure described

D. Cooperative

·         Owned and operated for the benefit of members

·         Liability structure is different and not typically described this way
❌ Not a standard engineering firm ownership model in this context

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Quick NPPE shortcut:

👉 “Shared profits + unlimited liability” = Partnership

If you see “limited liability”, switch immediately to Corporation.

 

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19. A consulting engineering firm wants to limit personal liability of its owners.

Which structure is most suitable?

A. Corporation
B. Sole proprietorship
C. Partnership
D. Informal association

The correct answer is: A. Corporation

Why A. Corporation is correct:

A corporation is a separate legal entity from its owners (shareholders). This means:

·         Owners generally have limited liability

·         Their personal assets are protected

·         Liability is usually limited to the assets of the corporation

For consulting engineering firms, this is especially important due to professional risk exposure (e.g., negligence claims).

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Why the other options are incorrect:

B. Sole proprietorship

·         No legal separation between owner and business

·         Owner has unlimited personal liability
❌ Worst option for liability protection

C. Partnership

·         Partners are typically personally liable

·         In general partnerships, liability can be joint and several (you may be responsible for your partner’s actions)
❌ Still exposes personal assets

D. Informal association

·         Not a recognized legal structure for liability protection

·         Offers no meaningful legal shield
❌ No protection at all

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Quick NPPE takeaway:

👉 If the question says “limit personal liability”, think immediately:
→ Corporation = protection

 

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20. A corporation differs from a partnership because it:

A. Cannot enter contracts
B. Has separate legal identity
C. Cannot employ engineers
D. Cannot be sued

Ans B