Exam 21: Basic Forms of Business Organizations

Which of the following statements is TRUE with respect to partnerships?

Ten years ago, Tad and Tori created a partnership. At that time, he contributed $400 000 in property and Tori contributed $600 000 in cash. as capital for the partnership. Two years later, Tori provided $300 000 to the partnership as an interest- free loan. That loan has not yet been repaid. During the entire life of the partnership, Tori performed approximately 60 per cent of the partnership's work, while Tad tended to devote much of his time to various charitable causes that were unrelated to the partnership. The partnership has now been dissolved. Sale of the partnership assets produced a fund of $1 200 000. It is necessary to spend $200 000 on debts that the partnership still owes to various creditors. Assuming that the parties have not replaced or modified the default rules applicable to their partnership

A sole proprietorship comes into existence when a person

Adam is lending $50 000 to a partnership being carried on by Selma and Jennifer. The arrangement he has with them is that they will pay him back out of their annual profits. Selma and Jennifer will decide how much to pay back out of profits in each year. Interest of 10 percent per year will have to be paid on whatever amount is outstanding after the payment of the profit share in each year. He is content with this rather uncertain arrangement because he does not need the money currently and the 10 percent return is a good rate. In order to protect his investment, he wants Selma and Jennifer to enter into a contract that requires them to continue carrying on the partnership business and to make monthly reports to him. Adam is concerned that he may be considered a partner in the business. Is he? Is there anything he can do to reduce the risk of being found a partner?

Peter, Kathy, and Soren are partners in a hardware store business. Peter wants to retire and have his son, Mac, assume his place in the partnership. Which of the following is TRUE?

Cassandra is the sole shareholder of a corporation incorporated under the Canada Business Corporations Act which carries on a grocery store business. Which of the following statements is TRUE?

Oneal wants to buy a computer software sales business being carried on by Softstuff Inc. The corporation has two classes of shares, common shares which vote, are entitled to receive dividends and the remaining property of the corporation on dissolution, and Preferred Shares which do not vote but are entitled to an annual dividend of 10 percent of the issue price and to receive the amount invested in return for the Preferred Shares. Dividends on the Preferred Shares must be paid before any dividends are paid on the common shares. Also, no payment on dissolution can be made to the holders of the common shares until full payment is made to the holders of Preferred Shares. Clay holds all of the 10 000 issued common shares. All of the 500 hundred issued Preferred Shares are held by Clay's mother. Can Oneal buy this business by buying all of the common shares of the corporation from Clay?

Only a few corporations have shares that, on the dissolution of the corporation, are entitled to receive the property of the corporation remaining after all the creditors and prior claim holders have been paid.

Common shares are entitled to the "residual value" of the corporation. Which of the following statements best describes residual value?

Athalone incorporated a corporation under the Canada Business Corporations Act. As the sole shareholder he has limited liability. Which of the following statements are TRUE?

Sam and Sarah have created a partnership for the purposes of giving financial advice. The partnership required certain property in order to operate in an effective and profitable way. First, a building was purchased with money earned by the partnership. Second, Sam donated a car, which he had purchased before entering into the partnership, to the partnership. And third, Sarah purchased office equipment with money that she had before she entered into the partnership. Two years after the partnership had started operations, it was successfully sued by a disgruntled customer. The assets that are available to satisfy that judgment include

If two sisters, Simone and Claire, were setting up a partnership to provide French lessons, which of the following arrangements would require a change to the default rules under partnership law?

No one should invest in a limited partnership unless they are prepared to stay out of management. Do you agree or disagree with this statement? Explain why.

One of the purposes of the law of partnerships is to protect the reasonable expectations of people who are dealing with the partnership. Explain how the law achieves this objective with reference to two examples of legal rules relating to partnership.

Preferred shares would be of interest to an investor having which of the following characteristics?

Familias Inc is a small corporation. Jennifer is one of only three shareholders. Questions recently have arisen regarding Jennifer's relationship to the company. Which of the following statements is TRUE?

Babak and Cal are partners in a restaurant business. Their partnership agreement says that Babak does not have authority to sign contracts for supplies for the partnership business. Babak contracted with Doris for the supply of 10 kilos of haddock for the partnership. Which of the following is TRUE?

Kim is the sole shareholder, director, and officer of Kim Consulting Inc. She is concerned that, because she is really the only person involved in the corporation, any creditor who wants to will be able to get a court to order that she be personally liable for the obligations of the corporation's business. Is Kim's concern a reasonable one? Explain why or why not.

If two people share profits from a business they are necessarily in a partnership.

Which of the following statements is TRUE with respect to the risk of liability under a partnership?