Exam 21: Basic Forms of Business Organizations

Ella is a partner in a law firm operating as a general partnership. One of the firm's clients deposited $1 000 000 in the firm account to be used by Ella to complete a real estate purchase. Ella negligently bungled the transaction with the result that the client lost the $1 000 000. Which of the following is TRUE?

Stan is thinking about starting a toxic waste disposal business. He plans to collect the waste of businesses that produce it and then dispose of it in a sanitary landfill. In order to start this business, Stan will need a substantial amount of money to buy and develop the landfill site and purchase five trucks capable of transporting toxic waste. What concerns would you have about operating this business as a sole proprietorship if you were Stan? What alternative form of business organization would you recommend and why?

In which of the following situations is a partnership dissolved?

Norman and Velma are partners carrying on a trucking business. They share a single truck. Which of the following is TRUE?

If Ted and Mary were entering into a business relationship and did not want to be found to be partners, it would be sufficient to include a clause in their agreement to that effect.

Rupert is starting up a new high tech business and needs to be able to attract some of the best computer programmers available. He has set up a corporation to carry on the business. It has two classes of shares, common shares which vote, are entitled to receive dividends and the remaining property of the corporation on dissolution, and Class A preferred shares which do not vote but are entitled to an annual dividend of 10 percent of the issue price and, on dissolution, to receive the amount invested in return for the preferred shares. Dividends on the Class A 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 payment is made to the holders of Class A preferred shares. Rupert holds all of the 100 common shares the corporation has issued. He expects that the common shares of the business will be sold in a couple of years for an enormous profit because the business will grow very fast. No Class A preferred shares have been issued. In order to attract programmers, Rupert wants to be able to offer them shares in his corporation in addition to paying them a good salary. What kind of shares should these be? Are there any concerns Rupert should have regarding his strategy?

Explain the meaning of the requirement for the existence of a partnership that the people carrying on the business have a "view to a profit."

Which of the following statements are TRUE?

Stella is planning to build a national chain of restaurants. She should choose to incorporate under the Canada Business Corporations Act for which of the following reasons?

If you were considering selling $1 000 000 worth of computer equipment to a partnership on credit, which of the following factors would influence your assessment of the ability of the partnership to pay you back?