Exam 21: Basic Forms of Business Organizations

Craig and Judy want to open a French restaurant.Neither has any money to invest.Instead of borrowing money directly,they are planning to incorporate a corporation to own the restaurant business.The corporation will borrow the necessary money from a bank.This way,if the business fails,they will not be personally responsible for repaying the loan.Will this be a successful strategy?

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?

A sole proprietorship comes into existence when a person

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

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

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

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

"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.

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

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

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

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.

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

In 2006,Sally opened a restaurant called Traders' Place in rented premises in Ottawa's booming financial district.She operated the restaurant as a sole proprietorship.By 2012,the business had grown and she determined that she needed experienced help to run the business.In November 2012,Sally approached Marty to see if he would become the manager of the Traders' Place business.He agreed and the following were the terms of his agreement with Sally.??Each month,Marty was paid $1000 plus 1 percent of the total restaurant revenues for that month.Total monthly revenues,on average,were about $100 000.At the end of each complete calendar year that Marty worked,if the restaurant had made a profit for the year equal to or exceeding $200 000,Marty was entitled to receive 10 percent of the profits.??Marty was responsible for managing the restaurant,including?- opening and closing the restaurant, ?- hiring,firing and scheduling staff,and?- ordering food and paying suppliers.??Sally was responsible for the financial side of the business,including budgeting,accounting and payroll,as well as marketing.In 2013,Traders' Place profits exceeded $200 000 and Marty was paid 10 percent of the profits in accordance with the agreement.Are Marty and Sally carrying on business as a partnership?

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

The most significant limitation on use of a sole proprietorship is that

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?

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.

Which of the following concepts,as discussed in Chapter 21,represents a type of partnership that is recognized in Canadian law?

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