Exam 20: Basic Forms of Business Organizations

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?

Which of the following concepts, as discussed in Chapter 20, represents a type of partnership that is recognized in Canadian law?

Shareholders, acting solely as shareholders, can incur obligations on behalf of the corporation in which they hold shares.

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

"In small businesses with few shareholders, the corporate law rules that require a corporation to have shareholders who elect directors and who, in turn, appoint officers are highly artificial and unnecessary." Do you agree or disagree with this statement? Explain why.

Steve and Laura do business as a partnership.As a result, Steve has a fiduciary obligation to

Which of the following statements is TRUE?

Kalla decided to set up a limited partnership.First, she incorporated KalCo Inc, a corporation of which she was the sole shareholder, director, and officer.She intends KalCo Inc to be the general partner.Her spouse, Roger, who will not be involved in the business in any way, will be the initial limited partner.She will try to find other investors willing to become limited partners.Kalla can create a limited partnership with this proposed structure.

Which of the following statements is TRUE?

Artemis is a university professor carrying on an Internet-based auction business that is losing money.He is concerned about liability and wants to transfer the business to a corporation he will incorporate.He will be the sole shareholder, director, and officer.He thinks that his business will continue to lose money for the next couple of years before it turns profitable.He is living on his professor's income and plans to continue to deduct the business losses against that income.Can he do this?

Sam and Jemma each owned a 50 percent interest in an office building.Which of the following is a factor that would support a conclusion that their relationship is NOT a partnership?

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.

Which of the following would be a good reason to choose to make an equity investment in a corporation rather than lending money to a corporation?

Lee starts a company that does painting and landscaping.He registers the name "Brush Ups" and hires Josh as a painter.Josh has no interest in the functioning of the business and only paints.If a customer is unhappy with Josh's work then

Stan is thinking about starting a toxic waste disposal business.He plans to collect the waste from 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?

If you were considering selling $1 million 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?

Jessica had operated a business for several years.Because the number of customers increased significantly, she persuaded Zach to work together with her.Two years after Zach came aboard, Jessica committed a tort while acting in the course of the business and caused a customer to suffer a substantial loss.A question has arisen as to whether Zach and Jessica were partners.Which of the following statements is TRUE?

Yasir and Rahool are partners in an accounting firm.Each contributed $10 000 in capital and Yasir has loaned the partnership a further $15 000.The partnership also owes its bank $25 000.Yasir and Rahool want to dissolve the partnership.They plan to pay themselves back $10 000 each first, then distribute $25 000 to the bank, and finally pay back Yasir's loan if there is enough money left.This plan for distribution is consistent with the default rules of partnership law.

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.

Limited liability means that a shareholder can never be held liable for the obligations of the corporation.