Exam 20: Basic Forms of Business Organizations

Alto Finance Inc carries on a highly profitable business as an investment dealer.Alto is considering buying an interest in a partnership that had been carrying on a diamond mining business without success.The mine is now closed and has no current operations.Alto is interested in becoming a 50 percent partner because the partnership has losses of $5 million and it would like to deduct a half of those losses against its other income.Alto can deduct the losses if it acquires a 50 percent interest in the partnership.

Rachi is a wealthy business person with substantial personal assets.One of the businesses she carries on is a health club.She has carried on this business as a sole proprietorship, but she has decided to incorporate a corporation under the Canada Business Corporations Act to carry it on.She will be the sole shareholder and director.If you were a client of the health club, which of the following would be a legitimate concern based on the change in the legal status of the health club business?

Aaron and Yarun are carrying on a takeout pizza business as a partnership and Yarun has bought a car with his own money for use in the partnership business.After a few months, Yarun tells Aaron that he wants to use the car at night and on the weekends, but Aaron says it must be used exclusively for the partnership business.Since the car was paid for by Yarun, he can use it however he likes.

A sole proprietorship comes into existence when a person

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

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.

Which of the following statements is TRUE?

The most significant disadvantage of using a sole proprietorship is that

Luke and Aldith are thinking about setting up a partnership to carry on a consulting business, but want to spend as little as possible.They have agreed that they will share profits and losses equally.Do they need a partnership agreement?

Compare the relative advantages and disadvantages of using a partnership and a corporation to carry on a business.

Arthur and Francine have been partners in a pet-sitting business for several years, but since after a vicious disagreement as to whether they should accept jobs involving exotic and difficult animals (such as aardvarks and monkeys), Arthur wants to bring the partnership to an end.Can he do so? Explain your answer.If Arthur and Francine had a partnership agreement, explain how that document might be relevant.

Arlo works for a gardening service.At the end of each month, he receives $500 plus a share of the profits.Arlo has never invested any money in the business and does not participate and has no right to participate in managing the business or own any of the equipment used.He has never agreed to be responsible for losses.He does whatever work is asked of him.Arlo is not a partner in the gardening business.

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 FALSE?

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?

The CBCA

In which of the following situations is a partnership NOT dissolved?

Annabelle operates a maid service as a sole proprietorship, but she's thinking about incorporating under the Canada Business Corporations Act.She would remain the sole shareholder.From her clients' perspective, which of the following is most likely to be TRUE?

Where shareholders are not the same people as the directors and the officers, one of the ways that shareholders ensure that directors and officers manage the corporation in a manner which most effectively promotes shareholder interests is through their power to elect the directors.

Wilder and Joanne are carrying on a law firm business as a partnership under the name Wilder and Joanne Law Firm.Joanne has decided to leave.Which of the following strategies will best ensure that she does not become liable for any obligation of the firm arising after she moves on?

Articles of incorporation