Exam 20: Basic Forms of Business Organizations

Doren carried on a toy store business as a sole proprietorship.He incorporated Doren Toys Inc and transferred the business into the corporation.Later the same week, he signed a lease on behalf of Doren Toys with Patrice for a new store premises for the toy store business.The next week, he found a place he liked better and decided to try to figure out a way to get out of the lease with Patrice.He decided that he would transfer the business and all other assets out of the corporation and back to himself.Then he caused the corporation to default on the lease.This is a perfect plan because the corporation is the person who is liable to make the payments under the lease.If Patrice sues the corporation, she will get nothing.There is no possible way that she will be able to claim against Doren directly.

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

Francesca and Michael carefully completed the articles of incorporation for a corporation they want to incorporate under the Canada Business Corporations Act.They chose a name, FranMic Corporation, and obtained a name search report.They submitted the report along with the necessary fee and were issued a certificate of incorporation certifying that FranMic Corporation was incorporated on November 12, 2012.They are very pleased that all this paper work is finished and they can start business.Is there anything else they should do or issues they should address as a matter of corporate law?

Which of the following would you expect to find in the general by-law of a corporation?

Yasmin and Elvis were partners.Yasmin committed a tort against Patagonia Inc while acting in the course of partnership business.Patagonia suffered a loss of $500 000.It successfully sued and now intends to satisfy judgment by collecting the appropriate amount.Which of the following statements is TRUE?

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

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?

Which of the following is an important issue raised by the separation of ownership and control in a corporation?

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

Terrence has invested $10 000 to become a limited partner in Bede Limited Partnership.Bede Management Co is the general partner in Bede Limited Partnership.Ogruk is the sole shareholder of Bede Management.Which of the following is 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?

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, and 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 issued preferred shares are held by Clay's mother.Can Oneal buy control of this business by buying all of the common shares of the corporation from Clay?

K-Girl's Lawn & Yard is operated as a sole proprietorship by Kerry.Which of the following statements is TRUE?

Darren and Jeff enter into a partnership where Darren is the limited partner and Jeff is the general partner.Which of the following is true?

A limited liability partnership (LLP) is a variation on the partnership form of business.Which of the following is FALSE?

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

The value of common shareholders' shares in a non-publicly traded company is based on the residual value of the corporation, which is inherently difficult to assess.Consequently, the value of common shares is generally somewhat uncertain.

Alice is the sole shareholder of AliCo Inc, a corporation incorporated under the Canada Business Corporations Act.She has elected Samra as the director and Samra has appointed Ezra to be the president of the corporation, responsible for its day-to-day business.Which of the following actions by Alice would be inconsistent with the separate legal existence of the corporation?

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, and 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?

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.